For big enterprise resource planning (ERP) providers, including SAP, Microsoft and Oracle, cloud based ERP requires a shift not only in software and services, but also in their very culture.
ERP is evolving at a fast pace and while big vendors like Oracle, Microsoft and SAP may have been late to the game they have moved beyond just standard on-premise ERP, and are now active competitors in software-as-a-service (SaaS) as well as cloud based ERP solutions.
Andy Kyte of Gartner Research, in their ERP Software Worldwide 2013 report said “The mistake that some people made was the belief that these large, monolithic, all-encompassing on-premise systems represented the end of the line for ERP. The thought was that there was no need to do anything different, because ERP could do everything. But it is pretty clear now that was not true.”
Oracle recently revealed its Oracle Customer 2 Cloud program, claiming that Oracle Cloud applications are used by more than 29 million people. Microsoft, who were also slow to move into offering a cloud-based ERP solution, is rapidly appealing to its partner community for hosting its cloud-based solutions for Microsoft Dynamics.
According to Gartner, the current ERP market leader, SAP, leads the way with $6.1 billion in sales in 2013, with SAP revealing they have the biggest and most wide-ranging cloud computing offerings available today, with 35 million business users.
“The big vendors have a very strong forward revenue stream from the huge amount of embedded spend,” Kyte said. “They will have a solid future on just that; but the broader question is how the IT landscape will change over time, particularly given that the cloud represents such a diverse portfolio of services.”
Greater movements towards cloud-based ERP solutions and platforms will grow as improvements in virtualisation, combined with the resource sharing (multi-tenancy), drives down the initial and ongoing investment for ERP vendors of maintaining servers as well as code.
These cost savings can then be passed along to the customer and fuel additional growth. While many companies are still choosing to keep their ERP solutions in-house (on-premise), or have started to export some data across to a cloud as a hybrid/two-tier solution, they see ongoing costs of purchasing and upgrading software as an increasingly unnecessary annoyance.
According to the Gartner ERP research, most businesses will move from all-encompassing, on-premise ERP systems to a hybrid/two tier approach within the next five years; however this may not necessarily end in a lowering of the total cost of ownership of deploying and running an ERP system. In fact, there is a chance that total cost of ownership could grow – with the risk that customers will be drawn in by low per-user costs/per month costs, and choose tactical, short-term fixes.
As existing ERP systems may continue on premise for a long time to come, for many businesses the hybrid or tiered cloud solution will become the new normal. The good news is that the big vendors such as SAP and Oracle are on side, and with that comes a great deal of investment in services, hardware and software – which should lead to greater functionality and lower costs