ERP, RIP? Cloud financials and revenue management in 2013

What's the future for ERP in the cloud, if it has one at all? I heard a disarming admission last summer from the CEO of a company that aggressively markets itself as "the #1 cloud ERP software suite." NetSuite CEO Zach Nelson told a gathering of industry analysts at the company's SuiteWorld 2012 conference that ERP isn't what it offers: "The problem we solve for our customer looks nothing like ERP. But we have to speak in their language," he said.

The background to this statement is that enterprise software is changing, and the old, established categories no longer match today's enterprise needs. I first wrote about this trend more than a year ago, but this is the first time I've attempted a systematic review of what's actually happening in the market.

The biggest selling point for all of them, though, seems to be the flexibility of cloud platforms and the speed with which vendors can continue to introduce new features and functions.

This blog post is the first in a planned series covering various enterprise application categories. What follows below is an overview of the leading SaaS vendors in the category historically known as ERP. Prospective buyers may well use the term to describe what they're looking for. But in today's highly automated, ubiquitously connected business environment, they need much more than conventional ERP has ever delivered.

The simplest term for this category is financials-plus. No one seems to offer enterprise customers a product that does just financials alone. But neither does anyone offer the full gamut of traditional ERP functionality. Instead there are several combinations that crop up frequently: financials-plus-ecommerce; financials-plus-manufacturing; and financials-plus-PSA (professional services automation).

No one seems to be pursuing financials-plus-CRM, but most offer close integration with Salesforce.com. Many offer global financial consolidation, building on the global reach of cloud, and built-in or bolt-on analytics are frequently seen, with drill-down into the real-time data available from the cloud system.

The biggest selling point for all of them, though, seems to be the flexibility of cloud platforms and the speed with which vendors can continue to introduce new features and functions.

A new acronym, 'FRM'

My preferred term for this category is financials and revenue management, which can be shortened to a new acronym, 'FRM'. It's intended to cover the core requirement of managing a company's financials along with the related task of measuring and collecting its revenue, which allows me to consider conventional financials-centric vendors such as NetSuite, Workday and SAP alongside others that center their offerings on ecommerce or subscription billing, such as Zuora.

Here, then, is my commentary on what to expect in 2013 from the cloud's leading financials and revenue management (FRM) vendors. If you feel I've missed out any important players or points, please use Talkback below to add your feedback.

For reasons I'll discuss in a later post (and which you can guess from prior posts), this review is strictly cloud-only and does not include hosted versions of on-premise software. It also focuses on the enterprise market so don't expect to see SMB solutions mentioned here except in passing.

Finally, as a matter of disclosure, I must add that some of these vendors, including NetSuite, SAP and Workday, are past or present consulting clients and often fund my travel to attend their events. Others brief me over lunch or dinner from time to time, and several work with me in the EuroCloud trade association. While they all know not to expect any favors from me in my independent writing, it's inevitable that a closer relationship means I'm more aware of their business than those of other vendors I speak to less frequently.

NetSuite. Both by revenue and by size of customer base, NetSuite has every reason to claim to be the leading cloud ERP platform. It has built its business on becoming a robust platform on which an enterprise can run its financials, to the extent that it's a favored choice of recently listed, venture-funded public companies in the US. So if it's not ERP, what is it?

"This is a business enablement system," according to CEO Zach Nelson. The advantage of running on its own cloud infrastructure is that NetSuite can offer globally dispersed users a real-time view into a shared transactional core. This means it can act as a live operational platform for the entire enterprise and not merely as a system of record for the finance department. While that's true of any cloud platform, NetSuite has always offered both CRM and ecommerce functionality alongside financials, which allows it to connect the core transactional data all the way through to an enterprise's online and offline interactions with customers, suppliers and partners (it also has a significant offering in professional services automation and also recently introduced a subscription billing capability, so it is financials-plus in several directions).

During 2012, NetSuite has been rolling out a big bet on that end-to-end interaction between financials and ecommerce. For a long while, ecommerce had been the neglected component of the suite, to the extent that its database-driven pages still carried a '.nl' suffix, echoing the vendor's original name, NetLedger, which it had changed in 2003.

May 2012 saw the launch of SuiteCommerce, a complete overhaul and updating of the platform to give it the flexibility to support modern ecommerce needs, including mobile clients and social media. It's been a careful roll-out, on early release to just 100 customers, but as each of those customers bring their new ecommerce presence online, they are becoming case studies that help NetSuite promote key features of its offering. This will build a crescendo of marketing for SuiteCommerce as it enters general availability halfway through 2013.

With ecommerce an increasingly painful problem area for many companies struggling with the pace of change in both B2B and B2C markets, Nelson believes SuiteCommerce will have wide appeal. It will certainly open up new segments of retail for NetSuite and further extend its footprint in distribution. It will also give it a further beachhead into larger enterprises, where NetSuite is promoting use of its platform in a 'two-tier' configuration alongside existing on-premise ERP systems that are less well equipped for rapid introduction of new business functionality.

Workday. There will be more to say about Workday in a later post about SaaS HRM vendors. But although Workday has led with HRM, it has been just as committed to bringing its financials offering up to speed, to a point where it can supplant rival products from established ERP market leaders SAP and Oracle. From announcements made at its Workday Rising event in November, it looks like 2013 will be the year in which Workday Financials will hit its stride, with some banner customer wins to announce.

Workday's average customer size is much bigger than NetSuite's, so although its customer base will remain smaller in number, its revenues could catch up quickly over the next few years, now that it has completed its IPO. Expect its relentless progress to continue in 2013.

In common with other cloud FRM vendors, Workday looks beyond conventional ERP to enable operational decision-making and flexibility, with a philosophy of providing transactions, governance and analysis all in the same system.

"We focus it much more on business information, not just the debits and credits of traditional systems," says Mark Nittler, VP financial product strategy. It too is extending its footprint in 2013 into related application areas, in its case adding a significant 'big data' capability to bring external data into the purlieu of its built-in analytics.

Plex Systems. Detroit is a long way, in many senses, from Silicon Valley. That may explain why Plex Systems gets a lot less attention than vendors like Workday and NetSuite. But with several hundred customers, it's still a significant cloud ERP player, and gleaned some rare Techcrunch coverage last month when it scored a $30 million VC investment from Accel Partners, who join main backer Francisco Partners, the private equity firm that bought the company last June.

In its 12-year history as a SaaS pureplay, Plex has plowed a determined furrow as a cloud ERP provider to manufacturing industry. It is strong in automotive, aerospace, electronics, general manufacturing and food & beverage, primarily thanks to a highly flexible platform that allows it to rapidly add new features requested by customers. With this latest funding under its belt, expect Plex to make further strides in 2013.

SAP — Business By Design and Financials on Demand. Another cloud ERP player that's often overlooked is SAP. The company has made big investments in developing cloud offerings, especially in the Business By Design platform, which was conceived to go beyond conventional ERP and deliver end-to-end cloud business automation to midmarket enterprises.

Although very small as a proportion of SAP's total customer base, the global installed base of Business By Design is a similar size to that of several other vendors on this list. But the product has had a troubled history, forcefully demonstrating the truths set out in Clayton Christensen's The Innovator's Dilemma. Buffeted by corporate strategy shifts, it has suffered major technology upheavals and has struggled to win the support of the sales and partner channels alongside conventional products in the company's line-up.

In 2012, a new shift took place with the spin-out of its financials component as a separate Financials OnDemand product. At least this creates a bit more clarity in SAP's cloud line-up, so perhaps 2013 will finally prove to be the breakout year; but don't hold your breath.

Intacct. A long-standing midmarket SaaS financials provider, Intacct raised a further $13.5 million funding round in October. It has been successful in partnering with accountants to market its products, and like other cloud vendors has extended functionality into areas such as revenue management, project accounting and global consolidation.

FinancialForce.com. Having chosen to build its software on the Salesforce platform, FinancialForce.com is tied to the fortunes of Salesforce.com. That isn't necessarily a bad thing, since that gives it a big, ready-made market to target, and its customers can easily integrate its financials and professional services automation with other native apps running on the platform, including Salesforce itself.

In September, VP of product marketing Tom Brennan summed this up in his own FRM acronym: 'Financial Relationship Management' — the close integration makes it possible for users such as customer service agents to be given direct access to financial transactions from within the CRM environment and rapidly resolve issues on the spot.

Zuora. At the same time as evangelising the growth of the 'subscription economy', executives at Zuora freely canvass the death of ERP. They argue that ERP has never served the revenue management needs of subscription businesses, and as more and more enterprises move away from product sales to the subscription model, they'll need to run their businesses on a platform like Zuora's Z-Business suite.

The latest version, launched in September, added a finance component alongside its existing subscription management and billing modules, providing accounting and revenue recognition data that's ready to feed into third-party financials apps. For enterprises that run their business on Zuora, financials becomes an add-on app used by the finance department rather than the core of the business operations platform.

Other financials. Other cloud ERP vendors to watch include two that have targeted the manufacturing sector, both building their products on the Salesforce platform: Kenandy, founded and led by MRP software veteran Sandy Kurtzig and Rootstock, which (intriguingly) built its app first on NetSuite's SuiteCloud platform and then switched. Brightpearl targets retail.

I have a nagging feeling there are others I've missed, so please prompt me with a Talkback post if you know of any deserving a mention. However as I said above, I don't include hosted applications such as Microsoft Dynamics, and Epicor, although Infor may get a pass for a well thought-out hybrid strategy. This is a survey of enterprise vendors so I haven't included SMB solutions such as Intuit and impressively fast-growing Xero, which landed a $49 million venture round in September to fuel its US expansion. I'm a user of Xero and like it a lot but it seems to me that smaller SMBs, as ever, get a raw deal: unable to afford the integrated financials-plus solutions offered to larger enterprises, they are left to sort out for themselves how to integrate their core bookkeeping with the rest of their business.

Other revenue management. There's a 'long tail' of billing and ecommerce vendors. Cloud billing vendors include the likes of Monexa, Metanga, Aria Systems and Chargify, down to Saasy and CheddarGetter for SMB. A big SMB player in invoicing is Freshbooks. Others will get a mention in a later post on spend management. On the cloud ecommerce front, Demandware and Venda are significant enterprise players, while Shopify is strong as an SMB player. Here again, I'm sure I've missed some notable players. Please add your nominations in Talkback below.