The Future of ERP

Clouds, SaaS, Enterprise 2.0, Modules, Analytics, Enhancements, Fusion, Business ByDesign, Leo, Larry -- Oh My! In CIO.com's continuing analysis of the ERP market, we look at the future of ERP: What's at stake, who are the contenders, and what is and isn't likely to happen in 2010 and beyond.

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Could there be a resurgence in "best of breed" app strategies for vertical-specific business areas—whether that's on-premise or in the cloud—without all the integration headaches of yore? AMR Research Chief Research Officer Bruce Richardson thinks so. "The Burger King approach—'have it your way' with SaaS, on-premise, BPO," Richardson says, "is going to force vendors like SAP, Oracle and Infor to get very aggressive in offering other deployment models."

The Cloud Rolls In, Fast

Call it what you will: software-as-a-service, on-demand computing, Web-based software, cloud computing. Doesn't matter, because business software experienced via an Internet connection and browser is already here. Resistance is futile, stupid and short-sighted. At this point, however, no one (save for the SaaS vendors, perhaps) is advocating for wholesale rip and replaces of on-premise ERP installs.

But as enthusiasm for traditional, on-premise, expensive and complicated software deployments wanes even further, Web-based software options hosted in either public or private clouds will become even more attractive for companies big and small looking for low costs and easily consumed apps, analysts say. (For the record, it appears that cloud computing is taking over the as the catch-all buzzword, but what's cloud-based and what isn't largely depends on which vendor you are speaking with—Salesforce.com is a self-described "Enterprise Cloud Computing Company"; NetSuite, a "Web-Based Business Software Suite" provider, and they have nearly identical businesses.)

"The supervendors have architected enormous complexity in order to be able to sell across so many different verticals, in so many industries," says AMR's Richardson. "I think there's a need for simplicity, and the Salesforce.com and Workday people get that." (Even Oracle and SAP have finally realized that, though those ships are slower and costlier to turn around—see: Business ByDesign saga and Oracle's indecisiveness.)

Jim McGeever, the CFO of NetSuite, pays homage to Google for sticking to its uncomplicated homepage when the search world was morphing into portals in the late 1990s. Google's success is, in part, a validation that easy to use, intuitive Web apps are critical to the future of ERP, McGeever contends. NetSuite's "anytime, anywhere access" mantra is the manifestation of the 11-year-old vendor's strategy that embraces UI simplification.

By the end of 2009, Gartner forecasts that global SaaS revenue will reach $7.5 billion, which is an 18 percent increase from 2008 revenue of $6.4 billion. For SaaS ERP apps, in particular, Gartner projected a small increase in worldwide revenues: from $1.17 billion to $1.24 billion in 2009. "Adoption of the on-demand deployment model has continued to grow as on-demand vendors have extended their services through alliances, partner offerings, and more recently, by offering and promoting user application development through platform as a service (PaaS) capabilities," noted Sharon Mertz, research director at Gartner, in a report. "Although usage and adoption is still evolving, deployment of SaaS still varies between the enterprise application markets and within specific market segments because of buyer demand and applicability of the solution." Looking out even farther, Gartner predicts that the SaaS market will show consistent growth through 2013 when global SaaS revenue will total more than $14 billion for the enterprise software markets.

SaaS vendors have had to fight the niche product label from the get-go; AMR's Richardson says the perception is that "SaaS guys continue to nibble at the edges." It's likely that they will have to wage even more fierce battles in the future, according to data from market researcher Saugatuck Technology. Despite continued and sizable investments in SaaS development and adoption around the world, SaaS "will not become the primary IT standard and practice by year-end 2012," notes the report, "An Endless Cycle of Innovation." Instead, notes the report, SaaS will be viewed primarily as an important "agent of change" through this period. Two years from then, in 2014, is when Saugatuck predicts big change: "SaaS will become integral to infrastructure, business systems, operations and development within all aspects of user firms, with variations in status and roles based on region and business culture."

The research houses are equally bullish on cloud computing's future: David Cappuccio, Gartner's chief of research for the infrastructure teams, ranked it as one of the top trends affecting companies' technology use during the next five years. IDC's cloud services revenue forecast jumps from $17.4 billion in 2009 to $44.2 billion in 2013.

All projections and speculation are subject to change without notice, of course, but once loyal on-premise companies get a taste of SaaS and cloud-based services, they typically come back for seconds, however small a bite it may seem to the Big ERP vendors, analysts say. NetSuite's McGeever boasts that the vendor "gets more incremental revenue from selling to our installed base than we do from new business." (See 5 Questions with NetSuite's CFO.)

Converts are proclaiming their newfound faith more and more. Todd Pierce, CIO of Genentech, a $13 billion San Francisco-based biotech company, among other initiatives, purchased a Google Apps suite for 18,000 accounts and has moved ERP functionality to iPhone apps. In an interview with Abbie Lundberg (former CIO magazine editor-in-chief), Pierce offers a convincing overview of the huge savings, benefits and "revolutionary" usability factors that Genentech has experienced by moving enterprise software apps to Web-based and cloud computing software-delivery models.

"There are many things happening here that are good for users, good for the IT profession, good for business. It's just good, good, good," Pierce says. "You know, what's slowing this adoption are all the priests of the past—all the preservationists. All the interests that are built up around the edifice that is enterprise software.... Cloud computing is a dream come true."

Read Part II of The Future of ERP: Making Sense of All That Data, the Rush to Uncover ERP Analytics, and the Supervendors' Future

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Copyright © 2009 IDG Communications, Inc.

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