Mon, Dec 15, 2008 15:17 EST

Big ERP Vendors Making Same Mistakes as Big Three Automakers

Topic: Applications

Current Rating: Comments: 8

ERP vendors just don't get the big picture regarding SaaS. They're building big, expensive Chevy Suburban-style software at a time when customers want lean, easy-to-use business apps that have more in common with a Toyota Prius. That's according to Bruce Richardson, the chief research officer at AMR Research, in a blog post that's based on a recent AMR report.

Here's Richardson's telling anecdote, which offers both a glimpse into enterprise software vendors' mindsets in 2009 and beyond, as well as a cautionary and familiar tale of denial and hubris. (Think: Big Three U.S. automakers groveling to the government to bail them out from their atrocious decisions and their ignorance regarding reality, i.e. gas guzzlers aren't selling, and the desires of their customers, i.e. more fuel-efficient automobile options.)

"Executives from one of the best-known ERP vendors recently talked to us about their 2009 product plans and strategy," writes Richardson. "At the end of the call, I expressed my astonishment that there were no plans to offer any part of their company's product line as software as a service."

As Richardson expected, the vendor's executives first response was to emphasize the advantages from an integrated suite versus a hybrid on-premises or on-demand strategy. "This quickly segued into a discussion of the challenges in making money with software as a service," he adds. "While I continue to agree with them on SaaS economics, they are missing the larger picture."

That larger picture, Richardson contends, is this: SaaS is for real. And much like the U.S. automakers that chose to ignore hybrid and electric-car technologies for so long and focus more on expensive SUVs, ERP vendors are going to have to play catch-up with their SaaS ERP offerings, now that enterprise software customers expect a SaaS offering, just as consumers now expect hybrid car options. (Across the board, Richardson notes, AMR clients' top inquiry is about SaaS deployment options.)

Therefore, "like the Big Three domestic automakers, the largest ERP vendors will have to embrace and develop a hybrid strategy," Richardson writes. "In this case, it means supporting multiple deployment options. They don't have time to develop their own multitenant platforms. Instead, they will have to buy to fill the gap." SAP's troubled experience in launching its hybrid offering—the huge technical and profitability problems with multitenant architecture in Business ByDesign—offers further evidence of just how hard it's going to be. "The hybrid model is not perfect," Richardson adds. "There are issues on integration and master data management."

Right now, the Toyota Prius of the SaaS ERP world would most likely resemble Workday's on-demand human-capital management (HCM) and finance applications. (To read a Q&A with Workday's cofounders, see "Can Two Legacy ERP Guys Get IT Executives to Buy into On-Demand Applications?".)

But that ERP Prius still can't pull an 18-wheeler's trailer. "As for a complete ERP-as-a-service offering for large enterprises," Richardson writes, "it's still way off in the distance."

Nevertheless, on-premise vendors are in a perilous state right now, especially with the economy in a free fall, analysts warn. Hybrid SaaS R&D takes loads of time and money. "The most vulnerable flanks for on-premises ERP vendors are in CRM, human capital management, and supply chain," Richardson notes. "That leaves financials, inventory management, some supply chain processes, engineering, and manufacturing." And judging by the growing number of SaaS pitches I receive from new SaaS supply chain and manufacturing-specific tech vendors each week, the on-premise vendors better

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Mon, Dec 15, 2008 17:07 EST

'Legacy' ERP vendors need to change

Posted by: aquraishi
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Traditional ERP vendors like SAP will be left in the 'legacy' camp along with the mainframe if they don't change direction.

I wonder that it's even possible though. It's interesting to note that Larry Ellison, CEO of Oracle, invested in a startup SaaS ERP operation, NetSuite Inc., rather than pushing Oracle to produce a viable SaaS alternative. These guys are struggling with huge cultural demons such as the potential cannibalization of their own customer base. You see it as they both tell the market that their on-premise solutions are applicable to medium business and at the same time work on offering up an SaaS alternatives like Business ByDesign.

Being relegated to mainframe-like existence isn't such a bad thing. Big companies still need mainframes and will for decades to come. The personal computer / Intel server companies surpassed mainframes long ago, with IBM being the only company that successfully competed on both fronts. Things are likely to play out in much the same way in the ERP market. Although who will be the next Compaq is anyone's guess, the sandbox is big (SMB) and will be a welcome place in which to play for many companies and for many years to come.

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Tue, Dec 16, 2008 10:58 EST

"Bailout" analogy is fragile

Posted by: enterprizing architect
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The point is clear--Oracle and SAP are vulnerable and may never gain much traction in the SaaS space, particularily in the mid-market.

We are all waiting for a clear leader here, but this market may end up being very fragmented for a time. Imagine a dozen+ firms selling vertically focused ERP applications as their fastest way to market share (and cash flow). For a model, think of how the ERP market evolved from it's inception to this point. Now replay that in the SaaS space....

It would be much more interesting to see detailed articles of the up-and-coming new vendors than to keep focus on the big ERP vendors failings. Attempting cute dramatics by envisioning government intervention only serves to highlights how poorly the auto industry functions relative to the software business.

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Tue, Dec 16, 2008 15:06 EST

OpenID, integration

Posted by: Red Matthews
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Large companies are going to have to see better security and efficiencies in integration for SaaS to take off. It makes sense that these issues will be addressed for the huge payoffs that they will bring.

In an internet world, there is no technical need for more than one ERP system. Politically, however it is a different story. Just because you can host your data and applications somewhere else and get to them through a common network doesn't mean everyone wants to, yet.

When the code that makes ERP activities is free like science (think electrical engineering), you will see code engineers work with code to enable commerce, workflow management, auditing, accounting, and taxation, and you will forget which brand of code you are using, it will just be piping and math and engineers.

Watch for the world of SAP, Oracle, IBM/Tivoli Maximo, eBay, Amazon, etc. to keep on migrating to services companies skilled in whatever code they're handed.

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Tue, Dec 16, 2008 22:16 EST

There's Still Time, But...

Posted by: Dr. Jim Anderson
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Good post. I guess the interesting thing is that the big ERP vendors still have some time left to get their acts together. I agree that the customization issue is a big deal; however, it will eventually be solved. Look at Salesforce.com's introduction of a programming language that works with their SaaS application. Whereas this might not be the ideal solution, it sure looks like it is pointing in the right direction...

- Dr. Jim Anderson
The Accidental IT Leader Blog
"Learn The Management Skills That You Will Need To Make It To The Next Level In Your Career"

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Fri, Dec 19, 2008 16:32 EST

SaaS vs. Traditional ERP

Posted by: Eric Kimberling
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This is a great post. Interested readers may also want to look at a blog I wrote earlier this year about the 5 tradeoffs between SaaS and traditional ERP: http://tinyurl.com/3vvscm or http://www.panorama-consulting.com

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