Enterprise Apps Going SaaS—Advice To Get Your Head In The Cloud
Martin Schneider, Research Manager of Enterprise Software for 451 Research, shares why some business systems such as CRM have pioneered the enterprise software movement to the cloud, and why other applications such as ERP and HCM are following in very large numbers. He also discusses key cloud factors such as security, SLAs, portability, online marketplaces and vendor lock-in.
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Key take away points in the discussion with Thought Leader Martin Schneider:
451 Research is a research and analysis firm dedicated to innovative technologies. The firm tends to focus on disruptive technologies that change the ways business develops, purchases, deploys and manages enterprise software. Research categories within the enterprise software market include SaaS, cloud, open source and social technologies.
CRM has been the business software category to pioneer and evangelize business applications in the cloud. Martin notes that CRM lead the charge (ahead of other business software categories) for two primary reasons. First, CRM is simpler, or at least less transactional, than other applications making it easier to host. While applications such as accounting software or ERP system possess intensive transactional processing, CRM is more about entering, persisting and viewing data. Second, by remotely delivering a line of business application with no requirement for capital expenditure, CRM vendors were initially successful in appealing to business buyers, and in fact circumventing IT departments.
Martin notes that while new purchases of business software suites by small and midsize businesses (SMB) are going to the cloud, larger enterprise companies continue to manage on-premises applications. This is in large part as enterprise companies have large existing (sunk cost) investments and are motivated to get more value and payback from these investments before replacing them.
The cloud ERP software market is showing many new solutions. However, some skeptics argue that being a back-office application makes this business software more mission critical – and subsequently less ideal for cloud delivery. Nonetheless, Martin expects that on-demand ERP will achieve the type of growth and adoption we've seen in the on-demand CRM market, albeit a few years later. The rapid growth of pure play cloud ERP makers such as NetSuite and the large investments by tier 1 companies such as Oracle and SAP into the cloud ERP market suggest significant growth is occurring. As with the SaaS CRM market, Martin expects that cloud ERP will first accelerate in the SMB market, in large part as SMB's have simpler processes to implement and don't have big investments in legacy systems.
Looking at the Human Capital Management (HCM) software market, we're now witnessing more HR, payroll and talent management software solutions being offered in the cloud – from companies such as Workday, as well as from an HCM software vendor consolidation process occurring as evidenced by the SAP acquisition of SuccessFactors, the Salesforce.com acquisition of Rypple and the Oracle acquisition of Taleo. Martin suggests that simple procurement and quick time to benefits factors that appealed to CRM line of business managers a decade ago are now catching on with HCM line of business managers today. Also, like CRM systems, HCM applications tend to be less transactional (as compared to ERP, supply chain, manufacturing and other business systems) thereby simplifying their move to the cloud. Martin notes that because these cloud HR systems excel in ease of use, HR managers can finally be the owners of their HR systems (instead of IT) and align with IT when technical tasks such as integration are necessary.
For most software buyers, cloud computing has overcome initial information security concerns. However, cloud applications such as HCM systems hold very sensitive data such as social security numbers and other personally identifiable information, compensation figures and healthcare data subject to HIPAA compliance. Therefore, software buyers must continue to exercise due diligence in their procurement process of a cloud system. These diligence items should include understanding the providers Information Security Management System (ISMS) as well as reviewing the annual independent audit results and attestations of the ISMS, such as the SAS70 (SSAE 16) and ISO 27001. Martin notes that few SMB's can afford to retain the dedicated information security staffing and implement the layered security measures that most SaaS providers routinely operate.
Interestingly, the software publishers that make and remotely deliver these cloud business applications have little consistency with regard to Service Level Agreements (SLA). Some offer SLAs while others do not. Some guarantee their SLA with financial remuneration while others do not. Some measure their SLA periods by the month while others measure by the year. Even minimum uptime guarantees can vary from 98% to 99.999%. Martin notes that as cloud systems become the avenue of choice, more competitiveness and consistency will be driven into SLAs. In the early years of SaaS, customers primary buying criterion were focused on quick time to value, agility, on-demand scalability and the like. Now that those factors are common among cloud vendors, SaaS buyers are increasingly looking to additional factors such as SLAs.
Cloud ubiquity or portability is becoming a new discussion item. The most popular cloud solutions generally only permit customers to run their software on the vendor's cloud – which makes portability difficult or impossible. This is a problem if a customer wants to change software vendors or move clouds and take any internally developed customization or apps with them. Now, some cloud vendors are permitting customers more deployment choices – by letting customers host the software internally, on the cloud vendors network or on a public cloud such as Amazon's EC2, Microsoft Azure or Rackspace. This additional choice empowers customers to select the cloud that offers the best uptime, SLA, cost, physical location or other factor that they find important. And as Martin notes, cloud portability also lessens vendor lock-in. In fact, Martin suggests that the cloud market is evolving from when a SaaS software vendor had to provide all cloud components to operate their SaaS solution to a market where each cloud vendor focuses on their core competency and uses other cloud layers like utilities.
There is a dramatic increase in the number of online marketplaces offering pre-integrated third party applications for many SaaS software solutions. While Martin believes these online ecosystems can offer relief or an alternative to costly and time consuming system integration, he also notes that buyers must recognize some or many of these apps marketplaces are little more than marketing destinations with minimal, shallow or insufficient integration to save customers integration time and cost. However, going forward Apple has shown how the consumerization of IT and online iTunes-like market places can be successful in the seamless and frictionless software acquisition process, and this is a software procurement trend which will continue.
Looking into the future, Martin predicts that cloud procurement will become a function whereby buyers can purchase componentized solutions over online (social) storefronts from multiple vendors—and that standards will exist so that multi-vendor componentized products can be organized into custom stacks and deployed in a manner that suites the customer.
People want an ease of experience and the consumerization of business IT. People want a ubiquitous life experience at home when they're posting to Facebook [...] and the same convergent experience at work as well, where they can collaborate and share."