Cloud Infrastructure and it’s impact on Hosting and SaaS

Cloud technology enables SaaS and powerful new forms of hosting that can reduce the cost of service delivery. Note that cloud does not equal SaaS and cloud is not mutually exclusive from hosting.

How much cloud do you need?

Customers can purchase services with different amounts of “cloud” in the service delivery stack. Assume that we have four distinct layers of delivery: cloud infrastructure (hardware resources for the cloud), cloud platform (operating system resources for the cloud), cloud applications (application resources built for the cloud), and client resources (user interface to the cloud). This distinction helps us illustrate the way cloud services are offered in the diagram below.

Cloud Delivery Options

In this simplified diagram, we show three types of cloud services:

• Cloud Infrastructure (for example: Amazon, GoGrid) delivers an cloud infrastructure where you install and maintain a platform and an application.
• Cloud Platform (for example: Windows Azure) delivers a cloud platform where you install and maintain your applications without worrying about the operating environment.
• Cloud Application (for example: Salesforce.com) delivers a complete application, all you maintain is your client access program which is frequently a browser.

SaaS ERP and Cloud Models

Even legacy ERP vendors are moving to cloud technologies to offer software as a service to their customers. When vendors offer SaaS, the customer is only responsible for maintaining their client device (usually just a browser).

Vendors can offer SaaS utilizing all three cloud infrastructures above. Some vendors such as Acumatica offer all three types of services.

• Offering SaaS using a cloud application is straightforward. In this case the vendor builds an application which is tightly integrated with infrastructure and hardware so that the three components cannot be separated.
• Offering SaaS using a cloud platform means that the vendor must manage the application layer separately from the platform layer. This architecture gives the vendor the flexibility to move the application to a separate cloud platform provider.
• Offering SaaS using a cloud infrastructure is similar to a managed hosting scenario. In this case the vendor installs and manages both an operating system and their application on top of a multi-tenant hardware infrastructure. This technique provides maximum flexibility, but may increase overhead slightly.

Comparing SaaS Offering Options

Multi-tenant applications

Multi-tenant applications can be deployed in any scenario to reduce overhead associated with upgrading multiple customers and maintaining different versions of software. This implies that multi-tenancy reduces the flexibility to run an old version of software and limits customization and integration potential. Multi-tenant options should be priced lower to offset the loss of flexibility.

** Recommendation **

For a complex application such as enterprise resource planning (ERP), we advise selecting a vendor that can provide flexibility. ERP systems are not like CRM, email, or other cookie-cutter applications. Your ERP application needs to grow and change as your business changes.

Key questions that you need to ask:
1. Do you need significant customizations and interfaces with on-premise systems?
2. Will you need to move your ERP architecture on-premise in the future?
3. Do you need to own your operating environment and the location of your data?
4. Do you prefer to own software instead of renting it?

If you answered “yes” or “maybe” to any of these questions, you should consider the Cloud Platform or Cloud Infrastructure options. These options provide maximum flexibility as well as the option to own your software.

If you answered “no” to these questions, then a cloud application may provide price benefits that offset the vendor lock-in issues. Be careful that the price that the vendor quotes in year 1 is not going to change significantly in the future when it may be difficult to leave the platform.
 

Statistics we pulled from the article:

• IDC projected a 36% worldwide growth in 2009. The number was revised upward to 40.5% as a result of the recession.
• Gartner expects SaaS revenue to total $7.5B in 2009, nearly 18% higher than 2008. By 2013, SaaS spending will hit $14B.
• Computerworld study reported that 42% of survey respondents reported using SaaS in their organizations.

Impressive growth forecasts, but we need to be clear what is being forecast. The definition of SaaS means different things to different people. For example, the article describes several SaaS applications, then adds “even Schumcher’s PeopleSoft applications, including all financial software, run as a managed set of services.”

Is (PeopleSoft running in a managed environment) = (SaaS application)? In our opinion, no.

What is a Hosted Application versus a SaaS application?

The table below describes some of the characteristics which differentiate a SaaS offering from a hosted offerings.

Many other characteristics are the same. Both require Internet access. Both can be web-based or require client software. Many SaaS applications can now be customized to nearly the same extent as licensed applications.