A Tale of Two Software Worlds: Old ERP vs. SaaS

A Tale of Two Software Worlds: Old ERP vs. SaaS

Summary: Dreamforce's attendance really puts a strong data point on how attractive SaaS is becoming. Other vendors this week have provided additional data points that point to a troubling time ahead for laggard ERP vendors.

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Watching the train wreck as SaaS continues its assault on the on-premise software world

Charles Dickens began his famous book “A Tale of Two Cities” with this opening statement:

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going to direct to heaven, we were all going direct the other way, "

This week, I’m in Silicon Valley. Yesterday, a colleague, Dr. Katherine Jones, and I visited with executives from WorkDay, Taleo, Ariba and Financial Force (the Salesforce.com and Unit4/Agresso joint venture). Today, I’m at Salesforce.com’s Dreamforce event. These visits have confirmed for me what CIOs have already indicated to me: SaaS (software as a service) has really moved mainstream. Big ERP (enterprise resource planning) vendors that cannot, will not or are unable to offer these solutions are in trouble. Yet, to hear it from the old school crowd, these firms are:

- still vetting the SaaS space as they aren’t sure it’s for real - saying that their customers aren’t asking for SaaS - having trouble retro-fitting their old-premise solution to a SaaS environment - do not know how to make a solution multi-tenant despite spending hundreds of millions of dollars in research and development - etc.

LET THEM EAT CAKE

Or in this case “let them pay 25% maintenance that generates 90+% margin for us”. The arrogance, indifference or lack of empathy old school vendors have for their customers is appalling. They behave with the imperious attitude of the royalists of yore. But, like the old royalists, they did not recognize that the world around them was changing. Instead, the royalists found themselves increasingly on the other end of a pitchfork, ax or guillotine. The end of an era is coming and vendors can choose to embrace or fight it. But will the fighters win?

In the executive meetings yesterday, Katherine and I heard, consistently, these sentiments:

- Interest in SaaS products is growing rapidly. Vendors find they are challenged by internal concerns (e.g., how to accommodate their sales professionals’ commission problems as these companies are shifting from on-premise to SaaS sales) not market acceptance. Nonetheless, the smart firms don’t let their internal issues impede what their customers want. These vendors are sorting out the issues and moving forward.

- Marketing SaaS products is not a problem for SaaS vendors but successfully implementing the customers they are winning is. SaaS vendors are almost universally focused on building solid customer references as they know that reputation really matters in a space where a few minutes of service disruption could kill one’s brand. - Market interest in SaaS products is expanding. Once, where customers would entertain some HR or CRM apps running on the cloud, Finance applications are now being seen as very viable solutions to use.

Katherine and I asked these vendors about the software products they are replacing. No surprise here: they are uninstalling old school products – many of the products being replaced were implemented to alleviate Y2K (year 2000) issues. Those aging products, many of which were implemented in the mid-to-late 1990s, are the ones being booted to the curb. More on this in a subsequent post.

Why are the old products falling away? Vendors told us that their customers and prospects are looking to SaaS as:

- The TCO of existing solutions is out of whack. Ever higher maintenance costs were frequently identified as major customer pain point and a driver of SaaS sales.

- Customers don’t like being stuck on older releases because they can’t justify the commitment of funds, time, third parties, etc. to implement upgrades.

- They have run out of time waiting for their old ERP, HR, or Finance software vendor to get on the SaaS bandwagon or deliver long-promised SaaS products.

One SaaS vendor executive described the ‘transition points’ that trigger the initial contact with their firm. These include, but are not limited to:

- The prior old school vendor requires a re-implementation of the product to utilize a new release. - The old school vendor requires its customers to re-license an application as it is being re-platformed or re-badged. - The customer is experiencing declining fortunes yet the old school vendor’s license fees and maintenance amounts will not change to reflect the new economic reality. - The customer is outgrowing the old solution. The number of customers that are now global is huge and growing yet some solutions do not scale in size, functionality or global reach. - Etc.

CIOs are adding to the market interest as they are choosing to use SaaS applications whenever some of their servers are due for retirement/replacement. CIOs realize that they would like to avoid new capital expenditures, want to have software that always remains current, use software that doesn’t cost them anything to upgrade, use software that frees up their IT staff to work on more strategic matters, etc.

Vendor after vendor reaffirmed for Katherine and me that customers are realizing 50% TCO savings over older on-premise products. (Salesforce did so this morning, too).

Now look at what’s going on at Salesforce.com’s Dreamforce event. 19,000 people registered for this event. The main auditorium of 10,000 was filled and an overflow room of 3,000 people was filled, too. In this economy, such a large number of people don’t go to a show, miss work and incur travel costs unless they’re serious about the subject.

A crowd of 19,000 people is a lot. Maybe only two or three application software vendors could deliver that kind of crowd. And some of those are struggling to do so as the lack of innovation, the lack of timely delivery of product, the high cost of these passé solutions, etc. makes market interest in these products fade.

Will SaaS displace on-premise solutions? Not entirely. But significant market share losses could start showing up in the next 24 months. Latecomers to SaaS will find their existing customers and new prospects to be especially leery of their solutions. Why? It’s taken Salesforce.com a decade to perfect their platform, their reliability, their sandboxes, etc. Untested SaaS environments will be viewed as risky propositions. CFOs, Controllers, CEOs, etc. will prefer to go with solutions from vendors with a solid track record and credentials in SaaS and the cloud. Newbies will have a really tough time.

Dickens opened his book with the best/worst dichotomies not just to get a reader’s attention but to point out that everyone in France at that time, royalists and peasant, had starkly different opinions of the current situation. Some royalists thought good times were still ahead while others correctly saw the sea change coming. Ditto for the peasants.

Survivors are the ones who correctly assess the market situation. Casualties are the ones who live in denial or in some unrealistic but idealized view of the world. Old school, on-premise vendors are in trouble. Of that I have no doubt. What amazes me is the level of denial still present in some of those firms. Pain is coming to those firms soon.

Topics: Software, Cloud, Data Centers, Emerging Tech, Enterprise Software

About

Brian is currently CEO of TechVentive, a strategy consultancy serving technology providers and other firms. He is also a research analyst with Vital Analysis.

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6 comments
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  • To Saas or not

    Very nice post! I agree with your points about on-premise vendors needing to take the big step, and that they cannot remain blind, if only for the well-being of their companies! I think it?s also important to consider that switching over to SaaS might be one of the more interesting solutions for ?old-school vendors,? for profitability?s sake. More information at http://blog.technologyevaluation.com/blog/2009/05/01/to-saas-or-not-is-that-a-question-%e2%80%93-saasy-discussions-part-ii/, if you?re interested.
    Best regards?
    Melissa Vaes
    www.technologyevaluation.com
    ?Fast, Accurate Software Evaluations?
    mvaes
  • link

    sorry here's the correct link
    http://blog.technologyevaluation.com/blog/2009/05/01/to-saas-or-not-is-that-a-question-%e2%80%93-saasy-discussions-part-ii/

    mvaes
    www.technologyevaluation.com
    mvaes
  • RE: A Tale of Two Software Worlds: Old ERP vs. SaaS

    Too optimistic about SaaS. The real situation is far more complicated than just going for SaaS applications or staying with traditonal ERP systems.
    SaaS applications just give corporate customers another choice to use business applications. It doesn't mean SaaS applications will completely replace traditional business applications in the future.
    cylam
  • RE: A Tale of Two Software Worlds: Old ERP vs. SaaS

    Well stated, Brian. Many IT professionals like 'cylam' are still aligned with techology and not with the needs of the business.

    Many still believe that manufacturers would never put their business in the cloud. Plex Systems has nearly 500 customers that have done just that. They range in size from $2billion in revenue down to startups, but they trust their product information, customer lists, financial information, etc. to a SaaS provider.

    It just makes sense.
    MSymonds
  • RE: A Tale of Two Software Worlds: Old ERP vs. SaaS

    Curious to get people's thoughts on SaaS and the purchase of business software. If you're involved in, or have ever been involved in a business software/ERP/CRM purchase, will you take this SHORT, 8 question survey? Thanks!

    http://www.surveymonkey.com/s/DQLTGPG
    bchaney9
  • A Tale of Two Software Worlds: Old ERP vs. SaaS

    Great article regarding the forces of change in the ERP industry. I also observe that the ERP industry are learning new lessons regarding ERP SaaS:

    Lesson #1: SaaS ERP is not a push-button solution http://gbeaubouef.wordpress.com/2013/07/10/saas-erp-is-not-push-button/

    Lesson #2: SaaS ERP 101: Services Trump Software
    http://gbeaubouef.wordpress.com/2013/09/22/erp-saas-101/
    beaubouef