ERP Climbing The Cloud Applications Ladder

In the cloud market, ERP software has been one of the lone holdouts in the move to off-premise computing. But things have started to change this year, and ERP's migration to Software-as-a-Service is happening on two fronts.

ERP software has lagged behind other software markets, such as office applications, email and CRM, in the move to the cloud. One of the barriers has been the software itself; enterprise resource management software is, after all, enterprise software, and it's more complex and contains many applications than just your basic word processing and spreadsheet programs.

Another barrier is the sales model for cloud-based software-enterprise software licensing deals can generate lots of money up front for a solution provider, while SaaS or cloud services contracts offer more long-term value and smaller dollar signs in the short term.

[Related: NetSuite: ERP 'Perfect Storm' Spells 'Huge Channel Opportunity' ]

"The type of pricing model you have with cloud and SaaS is different than what you had with enterprise software licensing," said Andrew Evers, chief technology officer at enterprise software firm Redwood.

But ERP adoption in the cloud is growing this year, according to solution providers and vendors like Redwood. Founded 20 years ago as a traditional software company, Redwood focuses on what it calls enterprise process automation. The company moved to a SaaS-based model four years ago, and while it still sells on-premise software, Redwood has seen major growth around its cloud offerings like RunMyJobs, which focuses on process automation and scheduling.

"The outside layers of the core ERP are starting to peel off, and people are taking bits and pieces of that and moving it to the cloud," Evers said.

Part of that strategy, Evers said, is finding more solution provider partners with specializations, in particular, processes like payroll management or human resources. So while entire suites of ERP software may not be moving to the cloud all at once, vendors and their partners are taking pieces of the business processes and converting them into individual cloud services.

"Cloud is quicker," he said. "And it's quicker throughout the entire process—sales, delivery, support, everything. So you can get up to speed quicker than traditional on-premise software, and the subscription model also allows you to not have to worry about all the little bits of software out there and who's using it."

SAP also is stepping up its cloud strategy with a different approach. The ERP software giant recently introduced its "managed cloud-as-a-service" model for partners, in which SAP actually sells its enterprise software licenses to the solution provider, who then delivers the applications as SaaS to its clients.

Kevin Chew, group vice president of Managed Cloud as a Service & Technology Alliances for SAP, said that, until recently, "MCaaS was the best-kept secret in the company."

But now that's changing, as SAP has put on a full court press to attract more cloud and managed services-focused solution providers to sell SAP software via the cloud. One SAP partner that's already engaged in the MCaaS model is HCL Technologies, an India-based IT outsourcing firm.

Tom Schwab, head of business development and global alliances at HCL Technologies, said his company has seen a significant shift from on-premise software to SaaS this year, with at least 50 percent of all software deals now including some kind of cloud or SaaS component. And SAP's cloud blitz was a welcomed development, he said.

"We were really happy to see SAP take that leap into the private cloud," Schwab said. "CIOs love the MCaaS model because it takes the complexity out of complex enterprise software."

Schwab said buying the SAP software licenses is a considerable investment, and the return on that investment gets spread out over three to five years. But delivering SAP Software-as-a-Service makes the client's life much easier, he said, and that's crucial.

"We're on the hook for the enterprise software licensing, and we're not going to make a substantial profit on providing the software itself," Schwab said. "But the real value is enhancing the customer relationship and expanding the services. With this approach, there are no more multiple points of contacts or services or anything like that."

With cloud services maturing, Schwab said, more businesses are coming to the realization that solution providers like HCL can handle enterprise software better than they can. "I think we'll still see a lot of on-premise software, but more businesses are coming around to the cloud and outsourcing their enterprise software licensing," Schwab said. "I had a CEO of a major U.S. corporation tell me that he didn't ever want to buy another piece of [on-premise] software."

On top of the growing interest in SaaS, Chew said there's no shortage of cloud-focused solution providers looking to adopt the MCaaS model and get into the ERP cloud game. "There are so many new companies out there getting into this space," he said, "and it's growing every day."

PUBLISHED OCT. 30, 2013