Oh No … Another ERP in the Cloud? The Hitchiker’s Guide to Building an ERP in the SaaS Model

I know, it’s a pretty harsh title, but I experience this week after week: ERP vendors launching their cloud-hosted copy of their ERP software and not understanding why they don’t sell. I wrote this post to stop them repeating this mistake and to share the lessons I’ve seen at least 10 times in the last three months.

To set the scene, this post is about the two ends of the ERP Customer spectrum – Mr “do-it-my-way” and Mr “just-do-it” (apologies from lady readers – I couldn’t find my LEGO women figures). So, the two ends are:

2 LEGO men talking, one of them is an on-premise "do-it-my-way" ERP Customer, who needs an ERP system that's tailored to his (complex) organisation and he wants to be able to touch the hard drive. The other LEGO man - "just-do-it" ERP Customer, who needs something simple instead and he doesn't want to host it himself.

If you’ve got the point, you can stop reading right now, unless you want to verify that you really got the point … So, in summary:

  • The “do-it-my-way” Customer represents a group of Customers in the market, who want an ERP system that’s tailored to their unchangeable and mostly complex organisations and they are not prepared to accept that their company data is kept outside of the company fences. They prefer to own the software license, as well as the hardware – they are not fully comfortable with the concept of renting software or services. They typically require the ERP to be fully customised and expect the physical presence of Consultants to deploy, tailor and configure the system to their company’s unique (and unchangeable) needs. In many cases (especially at larger Customers), the license cost of the ERP has to pass their procurement department and these license prices are heavily negotiated. Long story short, this Customer profile represents a traditional ERP vendor’s current Customer base.

In contrast:

  • The “just-do-it” Customers are looking for ways to pass on the problem of hosting and operations to a 3rd party, they are OK to host data outside of their company fences – well, in many cases, they have no company fences, anyway – and in general, they are happy to sacrifice capabilities for simplicity. These Customers are looking for something that is easy to set up, easy to use, relatively low in costs and won’t require long financial commitments. This profile represents a potential Cloud/SaaS ERP Customer and are mostly small or mid-sized companies.

Certainly, these two profiles are far away from a comprehensive customer analysis of the ERP industry. For instance, I’ve identified a profile between the above two – Customers who are happy to move data into the Cloud (primarily for the benefit or reducing the running costs of the ERP server infrastructure), but don’t want to sacrifice the customisations and complex & unique functionality. I named this profile as “do-it-both-ways” customers.

When Do Cloud-based ERPs FAIL?

When the ERP vendor is successful with ”do-it-my-way” customers (it’s typically the result of hard work and a good software product, built over 10-15 years) – and they position a Cloud-hosted version (copy) of their ERP software as the ultimate next step. The reaction from their current customers is to freak out or to simply call security to escort the vendor out of the company premises. To use an analogy: by now, most of us feel that electric cars are the future – so why do we still buy the regular models? Many of us are not ready to take that step yet for various reasons. ”Do-it-my-way” clients are no different and we should respect their view of the world. Many of them will still use their on-premise ERPs in 15 years time and they will be perfectly happy with them.

Do-it-both-ways” Customers (a total of 50 from a 10,000 deployed customer base at one of my ERP vendor clients) will be OK to use the public Cloud though, but only to run the current ERP as (complexly) it is, in order to reduce their operational costs of running the hardware on their own premises.

So, What’s a Cloud ERP Success Like?

ERP Vendors who have successfully launched a SaaS ERP service started their project by identifying a niche market segment of customers who could use bundles of simplified modules of their existing ERP software. If you don’t know where to start, ask your sales guys for the list of lost sales opportunities where the reason of losing a customer was due to license costs, complexity of setup or the overly thick baseline features of your ERP.

Identify a niche, where you are confident, you already have a good track record and there’s a group of Customers who you couldn’t do business with before, for the reasons I’ve set out above. Put together attractive bundles for them, figure out a nice way to integrate these modules and deliver a unified (and simplified) experience, possibly to be used through a web browser and mobile phones. Interview some of your lost prospects and invite them to participate in a free pilot – in return, ask feedback, make the service better for them and future customers and try to keep them forever – write case studies over time to attract customers who are more hesitant.

In Summary

You can use the table below to decide the best course of action for the 3 profiles I outlined above

image

Does It Really Worth It For $50 per User per Month?

It certainly does, however, don’t compare this with your license revenue as the motion how you get your revenue is different. Also, don’t forget that your SaaS offering will target a new customer profile and will not cannibalise your existing customer base. So, in other words, you are not converting your current high license-paying Customers into a “rental” model. Instead, you are using your company’s reputation, experience and core software to attract a new group of customers and therefore, generate a new stream of predictable, monthly recurring revenue to your company to set your sail for a world of Software-as-a-Service.

Please do comment if you have anything to share – I’m eager to listen and learn from you!

Linkedin David Szabo, Cloud Strategy Advisor, Firestarter and Rulebreaker at Microsoft. Startup-addict, SaaS & Cloud consultant, blogger at http://cloudstrategyblog.com and LEGO serious play facilitator. Follow me on Twitter!

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6 Responses to Oh No … Another ERP in the Cloud? The Hitchiker’s Guide to Building an ERP in the SaaS Model

  1. Anonymous says:

    Do-it-my way can still move to a Cloud (private) and use SaaS model for licencing. They just need more structured implementation (procceses and infrastructure). http://www.flipit.si/en/

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