CLOUD ERP SOFTWARE PREFERENCES STUDY

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1 CLOUD ERP SOFTWARE PREFERENCES STUDY A study conducted by IFS North America APRIL, 2013

2 THE CURRENT STATE OF THE INDUSTRY BASED ON A SURVEY OF MORE THAN 200 EXECUTIVES METHODOLOGY In early 2013, IFS North America and Advantage Business Media conducted a study among executives with industrial companies to determine how respondents involved with enterprise resource planning (ERP) and other enterprise software perceived various methods of software provisioning, including on-premise, hosted, software-as-a-service (SaaS) and private cloud. Respondents were from companies with more than $50 million dollars in revenue, and had some involvement with enterprise software selection. Answers reflect the degree of interest in, comfort with and current or future usage of SaaS and other cloud computing methods including Private Cloud, for ERP. 2

3 BACKGROUND WHAT DO INDUSTRIAL EXECS FEEL ABOUT CLOUD ERP Historically, ERP and other enterprise software was housed on servers on the premises of a business. The increasing availability of high bandwidth LAN, WAN, dark fiber and public internet connections, however, has broken down the geographic barriers that made the on-premise delivery model the only option. Another technological change that is affecting how enterprise software is provisioned is the availability of clustered server technology delivering variable capacity that can be sold on a pay-as-you-go basis. Prior to this, servers ran applications in a linear design without extensive redundancy or scalability. Scalable and easily partitioned server technology is available now that can allow organizations with centralized computing resources to sell computing resources over the public internet as a service. The infrastructure itself can be purchased as Infrastructure as a Service (IaaS), or it can be paired with an operating environment or other facilitating technologies as Platform as a Service (PaaS). Either way, an end user can be relieved from responsibility to purchase and maintain hardware. 3

4 HIGH LEVEL OVERVIEW OF RESULTS WHAT DO INDUSTRIAL EXECS FEEL ABOUT CLOUD ERP When the software running on the platform is also sold as a service, the result is naturally referred to as software-as-a-service (SaaS). In this study, we measured the level of usage, awareness of and preference for SaaS versus on-premise and other cloud-based delivery models when it comes to delivering mission-critical applications like ERP. On a high level, we found: Usage of SaaS ERP is low in this sector, between 5% and 20%. Interest in SaaS is lower than for on-premise and traditional hosting. The vast majority of respondents have some level of familiarity with SaaS. While Private Cloud has not received the coverage in the IT and business media that SaaS has, respondents were slightly more interested in Private Cloud than they were in SaaS. 4

5 HIGH LEVEL OVERVIEW OF RESULTS CURRENT MARKET SHARE AND INTEREST In one question, only 5% of respondents say their business currently hosts ERP or other enterprise-side software through SaaS. More than 60% say their applications are housed on-premise. When asked differently, 20% of respondents claimed to be using SaaS ERP. Actual market share for middle market industrial companies is probably somewhere between these numbers. Levels of interest for SaaS were relatively low compared to other provisioning systems. The number of respondents saying they were very interested in SaaS was a quarter of the number saying they were very interested in onpremise. 5

6 MOST ENTERPRISE SOFTWARE ON PREMISE SAAS BETWEEN 20% AND 5% OF THE MARKET How Enterprise Apps Are Provisioned Now 1.4% 6.8% 12.8% 5.0% 12.3% 61.6% On Premise Hosted SaaS Software Plus Service Other Don't Know 6

7 HOW INTERESTED ARE YOU IN EACH? DEGREE OF INTEREST BY NUMBER OF RESPONSES Not interested Somewhat interested Interested Very interested 7

8 AWARENESS OF SAAS VAST MAJORITY HAVE SOME LEVEL OF FAMILIARITY Percent 26.9% 15.5% 6.4% 15.5% 35.6% Very familiar Familiar Somewhat familiar Not very familiar Not at all familiar 8

9 RESPONDENTS SHARE THOUGHTS ON SAAS OPEN ENDED RESPONSES REVEAL THOUGHTS Respondents were asked open-ended questions about what they saw as the advantages and disadvantages of SaaS. Cost topped both the list of advantages, with a minority of respondents specifying that capital cost would be lower. Cost was also mentioned frequently by respondents as a disadvantage of SaaS. While it is true that initial cost for an SaaS project is typically lower, the software license is only being rented and therefore it becomes more rather than less expensive after a period of years. Automated and centralized upgrades were also seen as an advantage for SaaS. Security and control tied among the most frequently-cited disadvantages. Cost was also a frequently-used term in these responses, as was ownership. The lack of ownership of the software contributes directly to the cost, so these issues may be seen as interdependent. 9

10 COST SEEN AS PRIMARY BENEFIT OF SAAS SOME RESPONDENTS SPECIFY CAPITAL COST RESPONDENTS USING EACH TERM IN RESPONSE

11 COST ALSO SEEN AS SAAS DRAWBACK SECURITY, CONTROL ALSO CITED RESPONDENTS USING EACH TERM IN RESPONSE Cost Security Control Ownership 11

12 HOW CONCERNED ARE YOU WITH ISSUES? BY NUMBER OF RESPONSES Not Concerned Somewhat Concerned Concerned Very Concerned 12

13 BUYING NOW VIA SAAS WHAT ARE PEOPLE CURRENTLY BUYING VIA SAAS? In an earlier question, 5% of respondents claimed to be running SaaS-based ERP. That number increased to 19% in this question, perhaps due to the increased understanding some respondents gained of SaaS in the course of the survey. When asked if they anticipate purchasing ERP via SaaS in the future, only 20% responded in the affirmative, which suggests that market share growth for SaaS for ERP may be limited compared to other types of software. CRM is the application most frequently purchased through SaaS currently. And judging from the number of respondents saying they may buy SaaS CRM in the future, CRM represents perhaps the most significant growth area for SaaS vendors. 13

14 ALMOST 20% REPORT USING SAAS FOR ERP NUMBER MAY BE HIGH GIVEN AWARENESS NUMBERS 60.00% 50.00% 50.30% 40.00% 30.00% 20.00% 10.00% 0.00% 29.70% 22.80% 19.20% 20.00% 25.50% 19.80% 19.40% 12.00% 21.20% 21.80% 16.20% 15.60% 15.20% 9.00% 33.30% NOW FUTURE 14

15 PRIVATE CLOUD REASONABLE DEGREE OF FAMILIARITY Gartner defines Private Cloud as: A form of cloud computing where service access is limited or the customer has some control/ownership of the service implementation. Private cloud is not a term used as ubiquitously as SaaS, but there is some degree of familiarity in the market. Interest in Private Cloud as a provisioning method for enterprise software on the whole seems somewhat higher than interest in SaaS. 15

16 PRIVATE CLOUD REASONABLE DEGREE OF FAMILIARITY 40.00% 36.60% 35.00% 30.00% 25.00% 28.70% 25.20% 20.00% 15.00% 10.00% 5.00% 9.40% PRIVATE 0.00% Very familiar Familiar Somewhat familiar Not familiar 16

17 RELATIVELY LOW LEVEL OF CURRENT USE 11% USING PRIVATE CLOUD Percent 11.9% Yes No 88.1% 17

18 INTEREST IN SAAS VERSUS PRIVATE CLOUD 50% NOT INTERESTED IN SAAS VS 35% FOR PRIVATE CLOUD 50.0% 50.0% 50% 40.0% 30.0% 19% 28% 35.1% 20.0% 10.0% 2.70% 11.9% 3.5% PRIVATE SAAS 0.0% SAAS Very Interested Interested Somewhat Interested Not Interested PRIVATE 18

19 IMPLICATIONS FOR ENTERPRISE SOFTWARE WHERE IFS STANDS ON SAAS SaaS can be an attractive ERP provisioning system in some cases: For very small companies that have no internal infrastructure or IT capacity to support the software. For point solutions that are not mission critical. For businesses that in effect want to circumvent capital budgets and their IT department to implement enterprise software with less red tape. SaaS is also an extremely attractive business model for some software vendors. Revenue for SaaS software companies tends to be much less volatile. Multipliers used in mergers and acquisitions for SaaS-only software companies tend to be very high due to the recurrent revenue that comes with the pay-as-you-go model. 19

20 IMPLICATIONS FOR ENTERPRISE SOFTWARE WHERE IFS STANDS ON SAAS For broader enterprise software implementations like ERP, IFS believes in the perpetual license model rather than the subscription model. Lower total cost to the customer over the typical 10-year-plus lifecycle for enterprise software. Many IFS customers are in aerospace and defense and in other industries where operating on a shared version of software would be problematic. For best-of-breed implementations, IFS believes in offering a choice between on- and off-premise delivery models, including SaaS. IFS Metrix Service Management is available as SaaS offerings. IFS North America also is finding increasing interest in IFS Applications as a Service, its Private Cloud offering. This model involves the sale of a perpetual license combined with the cloud provisioning that eliminates customer involvement in supporting the hardware and software. 20

21 More information Charles Rathmann Analyst

22 THIS DOCUMENT MAY CONTAIN STATEMENTS OF POSSIBLE FUTURE FUNCTIONALITY FOR IFS S SOFTWARE PRODUCTS AND TECHNOLOGY. SUCH STATEMENTS OF FUTURE FUNCTIONALITY ARE FOR INFORMATION PURPOSES ONLY AND SHOULD NOT BE INTERPRETED AS ANY COMMITMENT OR REPRESENTATION. IFS AND ALL IFS PRODUCT NAMES ARE TRADEMARKS OF IFS. THE NAMES OF ACTUAL COMPANIES AND PRODUCTS MENTIONED HEREIN MAY BE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

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