ERP in the Cloud: What do businesses want?

Today, most enterprise software runs on servers at a business’ premises. Of course a growing percentage of solutions like customer relationship management (CRM) or even enterprise resource planning (ERP) applications are delivered from the cloud. Sometimes they are even sold not through a perpetual license, but as a subscription service from the cloud.

How developed is this trend? What does it mean for businesses with on-premise provisioning who don’t feel any need nor desire to change? And what can you expect from IFS in helping you understand what’s the best solution for your particular business?

Earlier this year, we asked 200 North American business executives involved with ERP and other enterprise software what they thought of the various methods of software provisioning, including on-premise, software-as-a-service (SaaS) and private cloud.

The answers to our survey reveal interesting opinions on SaaS versus on-premise and other cloud-based delivery models for ERP, which offer insights into what businesses see as the advantages and disadvantages of each.

In the case of SaaS, three clear views emerged from the survey:

SaaS

1. Cost is seen as both a plus and a minus. Survey respondents think initial costs would be lower, but as the software is being rented, they believe costs would likely be higher in the longer term.
2. Automated upgrades are both an advantage and a drawback. As with hosting services, the service provider takes care of software maintenance and upgrades: you concentrate on running your business. Of course this means you yield some control to the vendor, who may change versions at a time you are ill-equipped to make the adjustment, or cannot afford any functionality givebacks involved with the new version.
3. Security and control were jointly the most frequently-cited disadvantages. Lack of ownership of the software contributes directly to cost, so these issues may be seen as interdependent. This is due to the subscription licensing that according to some analysts could begin costing more than a perpetual license after as little as three years.

While interest is high in SaaS for more limited functional footprints like CRM. respondents said that when it comes to ERP, they are more interested in Private Cloud.

Private cloud in essence involves provisioning in the cloud, often in a managed environment run by the enterprise software vendor, but paying for the software through a perpetual license. That means that you are not necessarily paying for the software as long as you are using it … you pay for it and it is yours with certain restrictions. ERP often run for periods of 10 years or more, and is often never “ripped and replaced” because it continues to add value with neglible costs. This is not possible with subscription-based SaaS because as soon as yous top paying for the software, you have to stop using it. SaaS can cost more in the long run.

When we asked those 200 business executives if they anticipate purchasing ERP via SaaS in the future, only 20 percent said yes, suggesting that market share growth for SaaS for ERP may be limited compared to other types of software like CRM or supply chain management (SCM).

SaaS, which typically involves a vendor selling access to an instance of software shared with multiple other companies (with encryption and security measures in place) can be an attractive software provisioning system in some cases:

• For very small companies that have no internal infrastructure or IT capacity to support the software.
• For point solutions that are not mission critical.
• For businesses that, in effect, want to circumvent capital budgets and their IT department to implement enterprise software with less red tape.

Whether it’s SaaS or the cloud as the essential choice for businesses in the future – and let’s be clear: the trend is not to more on-premise provisioning – but towards an environment with a variety of cloud options.

You may be wondering where IFS stands on this. SaaS or the cloud. Here’s our take.

For broader enterprise software implementations like ERP, we believe in the perpetual license model rather than the subscription model, for two important reasons:

1. Lower total cost to the customer over the typical 10-year-plus lifecycle for enterprise software.
2. Many of our customers are in aerospace and defense and in other industries where operating on a shared version of software would be problematic.

For best-of-breed implementations like the IFS Metrix Service Management product, we believe in offering a choice between on- and off-premise delivery models, including SaaS, depending on what your specific objectives and needs are.

In North America, we’re finding increasing interest in IFS Applications as a Service, our private cloud offering.

It can be an effective way for you to use the IFS Cloud to deliver IFS Applications and technical support (managed services) you need with higher reliability and lower total cost of ownership.

This private cloud solution lets you offload a number of critical functions and infrastructure concerns – including servers, operating systems, databases, application maintenance, and fault correction – to the professionally-managed IFS Private Cloud.

It involves the sale of a perpetual license combined with the cloud provisioning that eliminates your involvement in supporting the hardware and software. This can be a significant consideration for companies operating globally or across multiple time zones, where support for software end users needs to literally follow the sun.

If you’d like to read more about the results of our survey Cloud Hosting Preferences For Enterprise Resource Planning (ERP) Software, published in March 2013, you can download copy. There’s more insight there from the detailed findings.

Related:

• Get “IFS Applications As a Service for Lower TCO,” the IFS whitepaper.