Do you have any examples of data escrow arrangements used by SaaS vendors? I am thinking of the right to access the data in the event of a dispute.

Great article. This is clearly what we see happening at Exact too. More and more organizations use this second tier approach because of a much lower TCO. As a matter of fact, we see the trend that organizations, who plot themselves into the ‘enterprise’ group, for similar reasons turn to second tier solutions, too.

Exact has offices in 40 countries and customers in 125 countries. We have gone to market with this second tier strategy for a number of years now, and this continues to prove very successful. Unfortunately you did not mention Exact in your list of providers. I would like to give you an update on our current strategy and discuss some of our references.

Kind regards, Rob Cools
Exact

There’s an old adage about newspapers. Newspaper information is 95% right. The only information that is wrong is the 5% you know something about. There is a similar formula in ERP when it comes to vertical requirements. Industry vertical market providers tend to find that ERP vendors, whether Tier 1 to Tier 3, are unable to match their offering. ERP often lacks feature sets, effective industry processes, speed to implementation, optimal technical footprint etc. I think that many vertical vendors think that ERP systems have trouble only in 1 vertical. Your data seems to show the opposite where the majority of responses aren’t looking for single source with industry requirements at the number 1 reason.

When is ERP really ERP?

The market consolidation has created some vendors who have multiple horizontal (CRM, SCM etc.) and/or vertical (manufacturing, government, retail etc.) products. These companies tend to be positioned in the ERP category because it’s become a meme. But really, is Accpak ERP? We need more effective categorization to reflect the complexity of the market.

The end of ERP as we know it?
We may be in the final stage of ERP dominance. The signs are:

(1) Client/server behind the curtain The use of client/server legacy technology as a base for ERP - such as ABAP or PL/SQL means that “applistructures” are unable to adapt to achieve end-to-end process requirements. (Despite all the BPM thrown at it.) It is becoming more and more difficult to adapt and maintain generic ERP software to satisfy what industry packages have out of the box. The ERP category took off in the days when traditional vertical software did not provide complete industry solutions. Today, customers wonder whether to adapt to meet the needs of the software or adapt the software to support their unique business advantage.

(2) Product management saturation. SAP has, according to an FT article, 12,000 engineers. Likely there are countless product managers. As ERP companies enter more industries, geographies, customer sizes (such as SME), horizontal, middleware, enabling technology (such as BI) markets, it becomes increasingly difficult to rationalize customer requirements. And, channels are the scalable business model, so ERP companies are disconnected from customers.

(3) Generic business models. Staff in enterprise software companies know how software companies are meant to behave and operate. The business model has been set, albeit disrupted by Cloud Computing. It is operationally inefficient to treat different classes of customers in a different way. For example, in my market, one of the main predictors of success is the contractual involvement (prime, sub or JV) of the software vendor with the customer. Tier 1 and some Tier 2 companies cannot afford to adjust business models across a number of vertical and geographic markets making their offering less than optimal.

(4) Standards. We will tell our children about the day when vendors owned customers. We’ll talk about the portfolio management argument when it was better for large organizations to buy single source ERP to reduce TCO. And, this was before standards were fully adopted and middleware became a commodity. In fact, in the old days, the ERP companies owned middleware and charged for it! It is becoming easier to integrate modern component-based SOA designed software from multiple vendors than to integrate within a single source ERP. And, the atomic integration needed is not there in ERP, yet. Technical standards are eliminating the key IT value point for ERP.

(5) Crossed Chasm and the Tornado has spun out. Yes, ERP has entered the laggard market. Success in this level of maturity involves providing complete solutions and being customer intimate. Many enterprise software companies have focused on shipping during the tornado period. Innovation, per se, is not attractive. Technical features and terminology does not sell to the decision-makers - because IT is becoming less involved in the decision.

Complexity costs
The next 2 reasons why customers do not consider single source ERP is initial price and upgrade price. That’s despite the portfolio management argument. Customers understand the long term cost and remain wary of vendor TCO talk.

Reality? There is a high cost per customer to the ERP vendor compared to the vertical vendor. There is more technology and more Quality Assurance for multiple market vendors. There doesn’t seem to be an economy of scale where the costs begin to drop on a per customer or per package basis after achieving 100 or so customers. That’s how vertical vendors with $10M to $20M in annual revenue can achieve profitability and compete effectively with the $1B+ vendors.

Customers of vendors with single market solutions find upgrades far less onerous than with ERP. Single market solutions tend to primarily configured rather than customized. Change management and QA costs are far less.

Single Source Vertical?

We’ve found that the use of modern software architecture enables extensibility. There are so many proven open source tools and middleware platforms available. Real object-oriented development techniques have been able to accelerate product releases. We have been able to tune the application platform to address our target vertical. Software architecture used for multiple customer types is a compromise. There is no such thing as an optimal architecture for all possible ERP customers. One often has to build in functionality that is not needed for many vertical or horizontal markets. (Of course increasing the footprint, power consumption, chances of failure and costs.)

There may come a day when customers consider a single source vertical application rather than a multi-industry ERP.

I ran across a Msft presentation on Dynamics AX 2009 on the web and in it they quoted you from something you did at Forrester. The reference was …”Microsoft has maintained its client-friendly concurrent user license…”. What did you mean by “client-friendly concurrent user license” versus a “run of the mill” concurrent license?

Thanks,

Neil

I ran across a Msft presentation on Dynamics AX 2009 on the web and in it they quoted you from something you did at Forrester. The reference was …”Microsoft has maintained its client-friendly concurrent user license…”. What did you mean by “client-friendly concurrent user license” versus a run of the mill concurrent license?

Thanks,

Neil