At the Business Cloud Summit last week, one of the topics being considered was how Cloud delivery is impacting the application estate. The issue is very topical following the recent acquisitions of SaaS players by the large ERP incumbents: SAP’s acquisition of SuccessFactors and Oracle’s acquisition of RightNow. Do these acquisitions suggest the writing is on the wall for the client-server ERP systems? Actually no, the death knell for ERP as we know it may be ringing out too early.
For large organisations, one of the proclaimed advantages of SaaS is actually an Achilles Heel. Consumption-based pricing in large complex businesses is not necessarily cost effective or easy to manage. Finance departments need to be able to predict costs and SaaS does not make this easy to do. In order to be more widely accepted the enterprise market wants simple SaaS consumption rates with no nasty surprises. This, of course, is not to suggest that SAP, Oracle and Microsoft have the market all their own way. As they each grapple with the business challenge of running different types of pricing and licensing models, customer rage in procurement departments is building. Now, for as long as the business application market has existed, licensing and pricing has been contentious. But it does seem that some blue chip buy-side organisations are getting to the end of their tether with vendor intransigence over pricing for different delivery models. If it isn’t resolved, the widening gap between the marketing story around SaaS and the internal business processes in place in vendor organisations such as Microsoft, Oracle and SAP will increasingly damage their market share over the next five years.
However, this is not to suggest that IT departments are at the vanguard of SaaS adoption, because from an IT operations point of view SaaS also throws up challenges. The operations culture lives and dies with steady build and steady state scenarios and the introduction of SaaS solutions breaks that mentality because change is managed externally by the SaaS provider and because consumption models introduce unpredictability into system management, budgeting and forecasting. The technology and IT delivery models are moving faster than the people and processes in place in the IT Department. In order to embrace Cloud delivery the IT Department needs to change and new roles will be required, such as the sourcing architect who will be tasked with understanding how different application sets need to work together or not.
With all these challenges on both the supplier side and the buyer side, the market for pure SaaS and “hybrid client-server with Cloud combinations” looks like it will take longer to develop than many analysts and suppliers are predicting. One interesting nugget that made me think again about market development was a comment by an IT decision-maker at a well-known global company about how most IT departments had a target for moving to virtualised infrastructure but that there is no embedded and targeted process for moving to SaaS. If you think about it, adoption is ad-hoc and at any serious strategic level will wait for application categorisation via estate auditing. Consequently, change will not be as fast or as comprehensive as for virtualised infrastructure and will wait for natural or, given the current economic environment, extended application depreciation cycles.
