Why ERP customers don’t care about cloud (right now)

Enterprise Applications

by Joe Curtis| 20 May 2014

Sage says cloud is a “no-brainer”, but expects slow adoption.

Business software firm Sage plans to roll out a cloud version of its latest enterprise resource planning (ERP) product, despite its expectation that customers will remain on-premise for "a long time".

Version seven of its X3 product is set for an on-premise release in June, after being unveiled at the company's Lisbon conference last week.

However, while the firm is currently running a cloud version in an Amazon Web Services (AWS) testing environment, with a release date not forthcoming, its ERP boss conceded that interest in pure cloud ERP is "very, very limited" within the European mid-market - Sage's target demographic.

In an interview with CBR, Christophe Letellier said: "Our customers will be on-premise for quite a long time - interest is very, very limited.

"Our customers are not caring about that, they are caring about what they can do with our [on-premise] software instead."

That's not to say that X3 version seven, Sage's latest iteration of its ERP software a decade after expanding into the market dominated by SAP and Oracle, isn't influenced by cloud technology. In fact, Letellier said it was built with the cloud in mind.

European CEO Alvaro Ramirez told an audience in Lisbon that the on-premise rollout would be implemented on a subscription basis, paying for the amount of use, instead of using the traditional license model, calling subscription "more fair for the customers and for us".

Lee Prout, senior software sector analyst at UK-based MegaBuyte, told CBR he saw the new approach indicative of the changes to traditional software being wrought by the cloud.

"The introduction of cloud technologies has led to a change in the software model," he said. "However, at the regional level, this is occurring at different rates, with the US clearly ahead of Europe in terms of cloud adoption.

"With this in mind, I see Sage's new flexible (subscription or perpetual licence) but significantly simplified pricing structure as a way to please both early and late adopters of the new software era."

Sage also spent four years developing version seven so that ease of use for end users was its biggest selling point, with the company claiming that simple, "good enough" solutions would win out over the heavy and complex deployments of its rivals.

So if Sage is tackling the problems of costly implementations and complexity associated with on-premise, why aren't customers keen to shift to the cloud to avoid those problems entirely?

The answer, says Jayne Archbold, Sage's director of strategy, is that customers want more choice over how they configure their ERP systems.

"Many of our customers want more customisation around particular verticals," she said. "If you're a customer today using on-prem for the last 30 years and you're moving to the cloud, you want to make sure you get a good experience."

Letellier went further, saying customer interest is there, but that cloud renders all their ERP systems identical.

This is a problem for companies if you accept his view that they are 95% the same, but rely on their 5% difference to rivals to gain a competitive edge.

"Cloud by definition is standard," he added. "[We must make] sure our product is as configurable as possible. Through configuration you have the opportunity to adapt."

That means that an on-premise ERP system you've spent millions configuring to perfectly suit your business model can stay that way when it goes into the cloud.

But while Letellier called cloud a "no-brainer" for ERP, it isn't likely to be anytime soon.

Archbold told CBR that currently, just 300 of its 4,500 ERP customers are in the cloud - and that's private partner cloud, rather than public cloud.

She confirmed that while Sage wants to offer a choice between private partner and public cloud, a big part of their strategy will be approaching "local partners" - ie. private cloud providers in key geographies - to set up cloud ERP for customers.

This is how Sage X3 customer, the domestic appliance firm Smeg, would envision a cloud ERP deployment.

CIO Jean-Charles Harle told CBR it would want to ensure its data stays in Monaco.

"From an IT perspective things like the cloud are important," he added. "Perhaps it's not an option today. But things move quickly."

Not that quickly - Letellier conceded Smeg would be waiting some years for a Monaco-specific cloud option. As for public cloud?

Archbold told us: "We've got people in a test environment on this but we haven't gone to market yet."

As previously mentioned, that test environment is AWS, but CBR received no confirmation of whether that would be the public cloud provider when the cloud version of X3 does eventually go live.

There's also no firm release date for X3 cloud, with the nearest thing to a timeline given being 'several months', but that doesn't mean it won't prove to be a successful, and bold, move by Sage, which comes third in the ERP market with a 6% stake, according to the latest Gartner figures.

Indeed, Prout believes Sage has a good chance of growth in the European mid-market.

"Overall I feel that in the mid-market there is a gap to be filled and Sage certainly has a strong opportunity to acquire new clients and also transition existing customers of its lower end products to X3," he said.

However, he added that Sage faces the problem that Europe lags behind America in cloud adoption.

"One challenge for Sage in this region in particular will be to fight off competition from fast growing SaaS ERP vendors such as NetSuite," he said.

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