Public versus Private Clouds – Key Points

Processor Magazine article The Public vs. Private Cloud Debate Christian Perry makes several key points:

• Public clouds can offer secure, inexpensive environments that cover a wide range of services for enterprises that are flexible with their needs.
• Public clouds can offer secure, inexpensive environments that cover a wide range of services for enterprises that are flexible with their needs.
• Because business and application needs often vary within an organization, a hybrid public/private strategy can be the best solution.

With many virtual machine options as well as a new Windows Azure appliance from Microsoft, there are several options for making private clouds a reality.

ERP software as a special cloud case

Building an ERP software environment requires different priorities than many other applications that currently use cloud infrastructures. Email, file storage, and other basic commodity services are well suited to public clouds because the cost of infrastructure is high relative to the cost of the software (learn more about relative costs in our single vs multi-tenant article). For ERP software customization of the application, integration with other systems, and control of data are critical to the deployment, so a private cloud may be beneficial and cost effective.

Summary

The public versus private cloud debate differs from application to application. In the special case of deploying ERP software on a cloud, the needs of each individual company might be different. Small companies and organizations with simple accounting practices can benefit from a public cloud while complex organizations with IT departments may be better suited by a private cloud.

Most importantly, the needs of a company may change over time. This means that making a choice to deploy on a public cloud might be right today while a private cloud might be a better choice for the future. When evaluating your deployment consider whether such a switch will be necessary and determine the cost of making that switch. With some vendors the cost is almost negligible while with others the cost (including data migration services, testing, etc.) is not possible or is as expensive as switching your entire ERP solution.

See also: previous ERP Cloud News article on public versus private clouds

Cloud ERP Video Overview

The video involves pro-cloud Jack Boyer debating the cloud cynic Jack Carter. The video is broken down into five key segments:

• Cost of ownership
• Integration issues
• Control over upgrades
• Customizations
• Speed and performance

At the end of the day, the debaters agree on some issues – although we never get to see them shake hands.

An interesting article in Campus Technology, Cloud Computing in Education: A Practitioner’s View describes an implementation involving Datatel ERP, Salesforce CRM, and connecting technology provided by Cast Iron Systems. This raises two often debated questions:

1. Integrate best in class applications or purchase an all-in-one solution?
2. Use a third party integration platform or a vendor specific platform?

Integrate Best in Class or Use an All-In-One ERP Software Solution

Salesforce.com led the way in defining the importance of using a partnership model (Appexchange), while SAP is approaching the market by providing a deeper and broader solution with less reliance on third parties. Both approaches have proven difficult. For Salesforce, building a best-in-breed partner sandbox has been challenging. Small customers benefit from several add-on solutions that support customer management, but branching out to complex applications such as finance and ERP is proving difficult, if not impossible. For SAP, the problem is getting a completely, fully featured model to market in a timely manner. The ByDesign platform has been in development for years and is still not as feature rich as many other ERP solutions.

These problems, make the solution adopted by Westmont College an interesting case study. In this solution, tailored solutions are integrated by a third party, Cast Iron Systems. Cast Iron serves as an integrator and clearinghouse for connecting cloud applications.

Software upgrade complexities

The job of the integrator is not an easy one – because if one system changes or upgrades then the integration may break. This is complicated by the fact that some SaaS/cloud providers dictate when upgrades occur – making the integrator’s job dependent on a third party timeline. (Note, the integrator may require vendor upgrades to comply with their existing interface to eliminate some issues related to upgrades) Further, many mid-range solutions need to be customized for particular industries or vertical markets, so the number of integrations required to reach critical mass can be overwhelming.

The cost of this complexity will be passed on to the customer through the fees charged by the integrator. These fees are often sizable – in the area of thousands of dollars per month.

Cloud development platforms for integrated solutions

Many all-in-one cloud vendors have developed platforms that third parties can use to create add-on applications to their core solution. In some cases, these platforms require that the application run on a single cloud – the one provided by the partner. Thus, ISVs cannot develop cloud applications that are independent of the provider. Another pitfall is caused by platforms that utilize unfamiliar development tools that are proprietary to the SaaS or cloud vendor. Finally, the core data structure may limit the ability to build applications. Building an application that requires financial data on top of a database optimized for customer management could prove to be challenging.

The keys to success for a cloud development platform:

• Do not lock vendors into a single operational environment
• Provide a familiar development platform
• Deliver access to relevant data and data structures

Summary

According to Gartner, 75% of cloud deployments will need to connect to on-premise applications. When considering a solution where your business has the need for multiple applications, there are different strategies:

• All-in-one vendor: make sure that the vendor can deliver the applications that matter to you in a timely manner.
• SaaS specialty vendor: make sure that the vendor has a development platform that can attract and support the types of applications that meet your current and future needs.

It is not likely that switching SaaS ERP companies will become like switching long distance companies in the 1990′s, but there are some trends beginning to appear.

Epicor Customer Announcements

Epicor Software Corporation (EPIC) today announced that two customers switched to Epicor Express, the on-demand version of Epicor 9. One of these customers switched from an existing ERP SaaS solution.

Dayson Polymers, LLC, a full line distributor specializing in engineering plastic resins, is currently a three-person company that operates out of remote offices throughout the U.S., requiring them to implement a Web-based system to easily access and manage their business. Having previously invested in a SaaS ERP solution, Dayson switched to Epicor Express as a result of poor customer service and escalating subscription fees.

“With our previous SaaS ERP provider it took up to six months to resolve an issue, forcing us to carry on business with workarounds until the problem was fixed. Exceptional customer service and a regional support team were among the main factors that led us to choose Epicor,” said Chris Schmeltzer, manager, Dayson Polymers. “We also experienced increasing yearly subscription fees and finally had to seek a more cost-effective solution.”

Other Announcements

Intacct recently announced a customer win that involved a customer switching from NetSuite. In the press release it says that Matrix Absence Management switched in order to lower their total cost of ownership and improve the flexibility offered.

Acumatica recently announced a customer win that involved a customer switching from an existing SaaS ERP solution to Acumatica’s Cloud ERP software. The Quantum Group switched for many of the same reasons suggested above: control over costs, support, and user licensing.

Following the launch of SAP’s Business ByDesign in August, it will be interesting to see what the first customer announcements are. Will they be existing SAP clients, wins from other client-server solutions, or wins from other SaaS products.

ERP Cloud News Commentary

It is not likely that switching SaaS ERP companies will become like switching long distance companies in the 1990′s. Switching your ERP solution involves more than just placing a service order – there are hours of data migration and training which need to occur before you are fully operational on a new system. Nevertheless, the evidence above suggests that some companies have experienced problems that make a switch worth the effort.

Why Switch ERP

The top reason cited for switching was “lack of pricing flexiblity,” but the lack of stellar customer support, and lack of system flexibility were also cited.

SaaS Vendor Lock-In

The recent switching suggests that vendor lock-in may not be a significant phenomenon in the SaaS ERP space. However, all of the recent switching announcements involve companies that have unique configurations, but do not have any significant customizations or add-on solutions. For this reason, price was more critical than functionality and the barrier to switch was lower. As companies interface their SaaS solutions with on-premise systems, the ability to switch providers may become more complicated. So, although lock-in was not a significant issue in these announcements (most were migrated in 30-60 days), it may be a bigger issue with larger customers with customized solutions.

While some products are still delivered as software, most are software-as-a-service, cloud-based or, increasingly, mobile apps.

This should come as no surprise because expense reporting is an ideal application for the cloud.

Expense Reports are an Ideal Cloud ERP Application

The cloud supports expense reporting by providing access from anywhere. Access from anywhere allows on-the-fly entry to reduce the time between when expenses are incurred and when they are reported. Reporting accuracy improves significantly when the time to entry is reduced.

The cloud supports expense reporting by providing scalable computing power. In large organizations, many people wait until the end of the week to enter time sheets and expense reports. By using a cloud application, the additional traffic and processing can be easily accommodated to avoid delays.

The cloud enables centralized, real-time processing so accountants, budget personnel, and approvers to spot and correct problems quickly. In addition, policy and procedure changes can be instantly implemented when using a web-based cloud system.

Software Implementation Statistics

In the article Expense Reporting Solutions Multiply: Cloud, ERP, Mobile, Procurement Suites Among Options, author Mary Ann McNulty also points out some interesting facts about the automated expense reporting industry:

• A Cost of Control 2010 survey of 550 financial directors and CFOs reports that 72 percent claimed to increase automation or plan to do so in the next 12 months.
• Aberdeen Group published a survey of 175 companies in February 2010 where 52 percent of enterprises were focused on increasing visibility of their T&E spending, 40 percent on improved compliance, 38 percent on reduced processing time and costs, and 36 percent on managing travel budget restrictions.
• The same Aberdeen study said that 20 percent of enterprise customers still process expenses manually, 30 percent are partially automated, 45 percent are fully automated, and 5 percent outsource their expense reporting. Although not part of this statistic, the percentage of manually processes expenses for mid-sized business is probably even higher.

The fact that 50% of firms are manual or partially automated provides a large opportunity for companies to do it right the first time by implementing a web-based or cloud-based expense reporting solution. Companies with older automation systems facing maintenance payments should consider upgrading to a web-based or cloud-based system. The savings in time, accuracy, policy-making, and reporting may easily pay for the cost of the upgrade.

Sramana Mitra’s summary

The interview uncovers several cloud computing trends. One of them is the case of early adopters pushing cloud vendors to address integration between on-premise and cloud services. Once there is significant adoption, this may not be a scalable proposition, and eventually we expect several new players and innovation by third parties and entrepreneurs to help the cloud providers and cloud adopters work out integration.

The acquisition of Cast Iron may have given IBM some edge in integration within its own cloud and on-premise offerings, but that leaves the playing field wide open for other players and innovative solutions. Another trend we spotted is the pricing model by ERP vendors whereby they share a percentage of sales as their fees. Last, cloud-based printing solutions and easing the real customer problem of not being able to access attachments via a BlackBerry are some of the blue-sky opportunities for entrepreneurs to explore.

ERP software in the cloud before CRM

Inteva started cloud adoption with ERP instead of CRM. Dennis says that once the ERP implementation is complete, business intelligence “might be next”. This example is interesting because it contradicts the standard industry adoption process where companies start their cloud experience with CRM and move their ERP to the cloud later. Standard industry adoption is supported by the fact that in 2008, Salesforce.com had 11% of the CRM market, while all web-based and SaaS vendors only accounted for 4% of the ERP market.

During the interview, Hodges describes HR software as an application that has been put “in the cloud”. Although to be fair, he says that this is really “outsourced” instead of cloud. ERP Cloud News comment: the fine line between outsourcing services and putting software and services in the cloud is a debatable topic. In a previous post we covered the differences between cloud, hosting, and SaaS.

Cloud ERP requires in-house business skills

Ms. Mitra skillfully leads Dennis Hodges to a discussion regarding the impact of cloud and SaaS on his internal resources:

If I look at the SAP model I do not have a stable of ABAPers, FICO experts, or anything like that. I have the finance business analysts, the purchasing business analysts, and they can work across more than one module.

The point is that cloud ERP still requires business expertise, but IT specific operational tasks become simple because they are outsourced. Not mentioned in the interview is the fact that the business experts need to be more computer savvy than the old days of dictated letters and day-long meetings.

Dashboards and reporting are important

At the close of the interview, dashboards and reporting features are seen as critical requirements for a business intelligence system. Dennis says that the ability to take a massive amount of data and make it simple or graphical so it can be read by a CEO or CFO is needed.

ERP Cloud News commentary

This interview is evidence that in 2010, the ERP market may begin catching up with CRM in terms of SaaS/cloud adoption. Critical information delivered by SaaS CRM (centralized views of sales, pipelines, and opportunities) also needs to be provided by business intelligence tools (centralized views of revenues, costs, cash, forecasts) to continue accelerating the adoption of cloud ERP. As adoption grows, organizations will need to change to favor business experts with a technical background over technical experts with a business background.

The Software as a Service (SaaS) market had worldwide revenues of $13.1 billion in 2009. IDC forecasts the market to reach $40.5 billion by 2014, representing a compound annual growth rate of 25.3%. By 2014, about 34% of all new business software purchases will be consumed via SaaS and SaaS delivery will constitute about 14.5% of worldwide software spending across all primary markets.

What about ERP software?

According to the IDC study, “applications will account for just over half of the market revenue.” The rest of the spending will occur on cloud platforms as businesses begin to purchase cloud services instead of hosted services.

ERP Cloud News Opinion:

Of the over $20B in application revenue, some will undoubtably be in ERP, while CRM, human resources, and other applications will continue to grow quickly as well. In addition, the size of the markets will be critical to cloud adoption. Small and medium sized businesses markets may develop quickly in the area of applications while larger businesses may develop more quickly in the area of infrastructure.

Managing a cloud service outage

Keep your options open

Ultimately enterprises need to have the freedom of choice so they can choose a deployment model that meets their price and uptime requirements. At ERP Cloud News, we advocate customer choice with regards to the deployment of cloud technologies. Vendors who create cloud software that is built for a single cloud infrastructure promote vendor lock-in and vulnerability to issues like service outages. Customers should be able to move transparently between cloud vendors and on-premise deployment options. The last thing any business needs is to be locked-in to a provider that cannot deliver service.

Option 1: In-House

The option to maintain complex ERP software on your premises is not for every business. Often this requires specialized knowledge and expensive IT resources and is not guaranteed to do better than trusting the experts running a SaaS solution. The on-premise option does prevent an outage if your internet service is interrupted and people are not trying to access the system remotely.

Option 2: SaaS with a Service Level Agreement (SLA)

If you elect to outsource your deployment, you might be able to save significant money on IT resources and hassles associated with software upgrades. If you elect to go this route, we recommend getting a service level agreement (SLA) and verifying the procedures in place to recover from an outage.

Option 3: SaaS and on-premise

Businesses with large budgets and IT expertise, can implement SaaS with an on-premises backup solution. This will provide a rapid way to recover from a service outage, but will increase the cost and hassle of running and maintaining your system. Most likely you would not implement an instant-failover arrangement, but store data as well as a copy of the application on premise. This arrangement is not possible with SaaS providers that run a single multi-tenant version of their software.

Software vendor or service provider?

Traditionally, there has been a separation of software providers and service providers. As more software companies move to the cloud, the lines between the software provider and the service provider have been muddied. The role of the software developer has expanded to include maintaining an operating environment, managing upgrades, tracking bandwidth, providing storage, providing customer service, purchasing hardware, and providing backups.

Software companies may outsource some or all of these features to a service provider. Some software vendors purchase collocation space and manage everything else. Others purchase infrastructure from a provider such as Amazon or GoGrid (power, hardware, bandwidth) and manage the rest. Still others purchase a platform from a provider such as Microsoft Windows Azure and only manage their application.

As software vendors begin to take on service provider responsibilities, mistakes are bound to be made. Developing software and managing data centers require different skill sets.

The Original Launch

SAP Business ByDesign was formally launched on September 19, 2007 (see press release). At that time the pricing was $149/user with a 25 user minimum ($3,725/month). It’s reported by Michael Krigsman in Enterprise Irregulars that 100 customers were enrolled (50 implemented) on this offering prior to the redesign.

3 Years Later

As reported from the SAP SAPPHIRE conference by Doug Henschen in Information Week, SAP’s on-demand offering will launch in late July 2010.

This information was also reported by Thomas Wailgum in his CIO article SAP’s Business ByDesign: Finally Real, But a Tough Sell? Quoting co-CEO Jim Hagemann Snabe “Business By Design is not a fantasy. It’s a real product. We wanted to perfect the infrastructure. You only get one chance.” Ironically, this is SAP’s second attempt at a successful SaaS offering.

Features, features, features

So what is going to be different this time around? According to several sources, Business ByDesign is relaunching with new infrastructure technology and new features.

Tim Ferguson in Silicon.com article SAP: Business ByDesign is coming this year, mentions that new features such as in-memory analytics, support for specific mobile device scenarios, and Silverlight web development were announced at SAPPHIRE.

Dennis Howlett in his ZDnet Blog posts a video of Hasso Plattner describing SAP’s challenges in launching an on-demand offering. He describes technology challenges as well as the challenge of replicating every feature available in SAP’s traditional products in ByDesign.

Howlett’s video highlights the feature battle faced by SAP. The SAP sales teams are used to selling a solution that includes every possible feature. SAP customers will line up feature comparisons and demand that all features are supported in Business ByDesign. The sales process will be different and sales teams will have to evolve.

Vendors which pioneered on-demand services such as NetSuite, Intacct, and Acumatica were able to design a solution which was unencumbered by existing feature requirements, pricing models, and customer demands. The sales processes at these companies are designed to overcome hurdles such as a missing feature.

SaaS ERP is a reality

In our opinion, there will always be a variety of deployment models to meet different ERP customer needs. But most vendors are developing a SaaS solution or hosting their legacy on-premise application and spinning it as SaaS.

SaaS ERP is a reality, the question is, what percentage of ERP will be sold this way, both in the market and at SAP?

The real benefits of cloud are being squelched by ERP SaaS providers who offer services with per-user fees. The cloud is supposed to provide for limitless users, but most vendors are pocketing the benefits of the cloud and passing costs to customers though per user fees.

Three Common Limitations of User-Based Fees

Limit 1: Manual Processes

The cloud is everywhere and many web-based solutions do not require the deployment of software. So why are many businesses still submitting timesheets and expenses manually, instead of through an employee portal? Answer … user based fees. It’s difficult to justify paying $99/month for somebody to enter an expense report.

Limit 2: Manual Approval Steps

The cloud allows executives to approve purchase orders, sales discounts, timesheets, and expense reports from anywhere. So why are many businesses doing this approval manually via email, instead of through an employee portal? Answer … user based fees.

Limit 3: Account Sharing

The cloud allows sales people to enter leads, opportunities, and view reports from anywhere at any time. So why are many businesses sharing a single ERP or CRM account among several people? Answer … user based fees.

Solutions to the User Based Fee

Pricing Changes

The advertisement below describes a solution with unlimited users. Maybe the vendors are making the change faster than we think.

Cloud ERP advertisement

In addition, we have spoken with customers who have received discounted rates for “infrequent” users with ERP and CRM vendors. Most of these pricing changes were done as part of a large enterprise deal where a significant number of full-priced accounts were purchased.

Web front ends

Several value added resellers (VARs) try to overcome user-based fees by building web add-ons for ERP cloud applications. These applications collect data from multiple users and dump the data into the database.

Creating web front-ends avoids user-based fees, but can create other problems. One potential problem involves user management – managing separate logins for the ERP and web entry systems could be time consuming and error prone. Another potential problem has to do with validation of entered data. The web front end must utilize or pass-through the exact same business logic as the online screens, otherwise there will be significant out-of-sync conditions as well as difficulties when new ERP system releases are published.

Shared Order Entry Accounts

Some companies purchase a single account for “order entry” which is shared by several users (for example, the accounting department). This avoids user fees, but creates other problems. For example, if an incorrect entry is made, then you cannot trace the error to a specific person. Also, at the end of an accounting period (crunch time), you cannot add personnel because only 1 user can be on the system at a time.

ERP Cloud News Recommendation

If you have multiple users and multiple offices, find a vendor with allows you to pay by resources, not by users. Alternatively, push your existing vendor to provide cheap user accounts with lower prices and limited capabilities.