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Clearing Up the Cloud Confusion

by Cindy Jutras | insiderPROFILES

July 1, 2012

“Software-as-a-service” and “cloud computing” are two terms many technology professionals have heard over and over again lately. In this Q&A, Cindy Jutras, independent enterprise software analyst and founder of Mint Jutras, discusses the ins and outs of SaaS and cloud computing. What’s the difference between the two, how have they impacted the ERP market, and how do both technologies best fit into the SAP ecosystem?

IT professionals are being bombarded with information about the value of cloud computing and the advantages of software-as-a-service (SaaS). CIOs might not have a hard time deciding on a SaaS or cloud model for niche solutions, but it’s a much more difficult proposition to determine whether a SaaS-based ERP solution is right for their organization. To get a clearer picture of how cloud and SaaS solutions best fit into the SAP ecosystem, insiderPROFILES spoke with Cindy Jutras, an independent enterprise software analyst and founder of Mint Jutras, with expertise in analyzing the impact of enterprise applications on business performance. Jutras has spent the past six years benchmarking the performance and benefits of enterprise software solutions and regularly surveys enterprise ERP users on a variety of trends, including their opinions on SaaS and cloud-based ERP solutions. As a result, her expertise includes a healthy dose of real-world perspective.

Q: Can you help clear up the confusion as to the difference between cloud and SaaS?

Simply put, I view cloud in a more generic sense. You can access a solution via the Internet or over a network while it resides in the cloud. It could be a private cloud or a public cloud. But some definitions of cloud describe it as software delivered, deployed, and paid for as a service from a specific vendor, which is how I’d describe SaaS.

For example, you can license an ERP solution, put it in the cloud, and access it over a network — and that’s cloud computing, not SaaS. The solution isn’t being “delivered” by a provider in a subscription-based model. Because you’re accessing a licensed solution over the Internet, I’d call that cloud, not SaaS.

Q: Is the confusion from ERP users happening at many levels today?

Yes, I’ll give an example. For years, a major SaaS ERP vendor that only offers ERP solutions via SaaS had 60 to 85 of its customers take my ERP surveys. When asked if they would consider a SaaS ERP deployment, a percentage of the respondents has always said no — even though they are using a vendor whose only model is SaaS. The good news is that over time, the percentage has shrunk, which means the education about terminology is improving.

Adding to the confusion even more is the term “on-demand,” which many vendors put on their solutions. But what exactly does that mean? Hosted, SaaS, and cloud technology is all sold as on-demand, so I have stopped using SaaS and on-demand interchangeably because on-demand has become so broad.

Q: Your survey shows ERP users have a higher comfort level with both SaaS and cloud solutions and a declining interest in deploying on-premise ERP systems. Why is that? Have certain hurdles been removed?

One thing that kept people from looking at SaaS or cloud ERP solutions was an emotional attachment. They would say, “This ERP system runs my business! I’m afraid to put it someplace where I can’t see it, touch it, or feel it.” Today, that’s less of a concern. It’s the same emotional attachment that made people hesitant to shop or bank online. It was a fear of the unknown — but it was an irrational fear. People were afraid to put their credit card information into a website, but they wouldn’t think twice about handing their card to a waiter who disappears with it for five minutes behind a curtain.

Now, there’s less fear. It’s less of an emotional issue and more of a focus on the value SaaS and cloud solutions can bring. People are coming around.

At the same time, many companies are realizing that IT is not their core competency, nor do they want it to be. They want to be good at manufacturing or providing a unique service to their customers. They would rather focus resources on those competency areas and let someone else take care of IT maintenance.

Of course, security is still a top concern and it should remain one. But you shouldn’t assume that running your ERP system on-premise makes it any more secure than running it as SaaS, where it resides in a certified facility with security experts working on it. What small company do you know that has a person on staff who is an expert in IT security, like a SaaS vendor does?

Q: Is the software market’s focus on SaaS and cloud technology driving ERP user adoption, or are vendors putting emphasis on it because customers are more confident?

It’s difficult to say, but I think it’s a little of both. A few years ago, when SaaS was not so popular, I asked if people were not interested in SaaS because there weren’t enough options, or if the options were limited because of a lack of interest. Those early SaaS ERP vendors were successful in spite of the fact that they were SaaS, not because they were SaaS. In fact, one company that was delivering its ERP solution as SaaS continued to sell it in a license model because that’s the only way people felt comfortable buying software at the time.

But certainly when big players like SAP make a bigger commitment to and investment in SaaS, it brings more validation to the concept. For example, I talked to a number of early customers for SAP Business ByDesign, and I had a hard time finding one that started out looking for a SaaS ERP solution specifically — but they were all happy they ended up there. They cited the up-front savings, lower IT demands, and the decreased responsibility for maintaining the solution as the benefits that meant the most to them.

Q: Is the target market for SaaS ERP systems predominantly smaller companies?

My most recent survey shows that as you come up market, the willingness to consider SaaS actually increases with company size. Large enterprises are often searching for solutions for a specific division or subsidiary. Historically, each division would buy its own solution regardless of whether it integrated with the company’s central system.

Now, larger businesses want more control with some autonomy. A good approach is for the parent company to select and roll out a standardized SaaS solution to the divisions because it provides functionality and integration without a lot of maintenance or implementation issues.

Over time, those parent companies might migrate to all SaaS ERP, but it’s not common right now. Most large enterprises have their main business running on an on-premise ERP system, and they’re not ready to swap it out.

Q: Is integration a concern in this hybrid model of using some SaaS and some on-premise?

When I survey end users, they report that integration may be an issue down the road, but not right now. It’s in the back of their minds, but integration doesn’t prevent anyone from going to SaaS today. Integration issues are present in any environment, SaaS or on-premise. At least if all divisions run the same vendor with some on-premise and some SaaS, you don’t have as many integration points across the enterprise.

Q: How has the emergence of SaaS and cloud technology impacted the ERP market?

On the sales side, this technology requires salespeople to have a different mentality. In some instances, ERP customers want to explore cloud or SaaS options, but the sales reps they deal with are accustomed to selling the big million-dollar deals every quarter and getting paid based on those deals. So some vendors have changed their compensation models to account for that. Others have used channel partners to sell SaaS, rather than their own sales reps; those channel partners are more used to dealing with those targeted sales.

Q: For SAP customers today, do you think the cloud has overshadowed functionality?

In the SAP world, I think the SuccessFactors deal did that in some ways. The acquisition was billed as SAP buying its way into the cloud — and there’s something to be said for that because SAP did buy the cloud DNA of SuccessFactors. The experts at SuccessFactors know how to sell into the cloud and deal with customers. At the same time, the business has so much expertise in talent management, and you can’t minimize that. The scope of an ERP solution versus the scope of an HR solution is night and day — and some of that got lost in the deal, I think.

Q: Do you have any suggestions for companies that are considering moving to a SaaS or cloud ERP solution?

Don’t look at cloud or SaaS solutions just for the sake of moving to the cloud. That decision has to be based on how well the company’s current solution satisfies the needs of the business.

If the current ERP system does not satisfy the needs, the business has to identify the gaps and understand if those gaps can be filled with SaaS or cloud solutions. If the existing solution is serving the business well, making a move to SaaS just for the sake of SaaS isn’t wise — unless of course the business can just lift the on-premise solution and run it in the cloud.

Down the road, companies are going to realize running and managing ERP solutions is getting more complex as the technology evolves. For some businesses, it will be better to let someone who has specific expertise manage the systems. The fact that you can account for it as operating expense (not capital expense) and keep up on upgrades are good reasons to go with SaaS. But don’t create more of an issue than you need to.

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