Is the Cloud ERP market ready to consolidate?

4th December 2013

Last week’s news that FinancialForce.com, a provider of cloud-based solutions for the ‘back-office’, had acquired two other prominent cloud vendors in the supply chain and human capital management space had a familiar ring to it.  It brought back memories of the frenzied days of acquisitions in the ERP market from 2004 onwards.  Gary Simon, FSN’s managing editor contrasts the positions and asks whether the same could be happening now to ERP in the Cloud?

 

 

 

For FinancialForce.com. the decision to acquire Less Software including the firm’s Supply Chain Management (SCM) solutions and Vana Software, a global human capital software provider and maker of a HR applications on the Salesforce Platform has compelling logic. The acquisitions are set to round out FinancialForce.com’s offerings in financial management, the so called ‘Back Office’ and put clear space between the rapidly growing organization and its close competitors in the Cloud.

The HCM capability nicely complements FinancialForce.com’s PSA (Professional Services Automation) capability as well as its mainstream billing and accounting applications.  On the other hand the addition of fully fledged sales order processing, purchase order processing and inventory management, extends FinancialForce.com’s reach into new markets, underpinning its ambitions to travel upstream into larger enterprises.

The precision of this deal is in marked contrast to the more haphazard deals that occurred just a few years back.  By leveraging first-mover advantage FinancialForce.com.com has been able to choose exactly what product/applications it needs from a wide field.  By comparison the global mega-vendors could not be so choosy. A succession of quick fire acquisitions around 10 years ago left them with bloated capability marked by overlapping (sometimes competing) product sets and very confusing product roadmaps from which some say they are only just recovering.  Added to which there were the technical challenges of integration, the disruption of melding different organizational cultures, while keeping confused customers on board and staving off an unplanned, unwelcome and deep recession.

A decade later and circumstances are very different. Take for example the technical platform. In fact the notion of a “platform” is an invention of the cloud era. Put simply it is the idea that independent vendors can position their products in a shared computing environment, with shared infrastructure and common design principles that allow the vendors who occupy the space to seamlessly join their products.  The Force.com platform which spawned the hugely successful Salesforce.com CRM application and plays host to more than 2,000 applications on the AppExchange has proven to be outstandingly successful.  DreamForce 2013, the showcase conference and exhibition which happened last week and which attracted around 135,000 registered delegates proves the point. 

FinancialForce.com.com was early to ride the advantages of the platform by deftly interleaving its billing, accounting and PSA (Professional Services Automation) applications with the SalesForce.com CRM package.  The result was a straight-through ‘quote to cash’ cycle in which all parts of the organization had 360 degree visibility of the customer and started FinancialForce.com.com on its path to ‘owning’ the back office.

So it is unlikely that on-boarding Vana software or Less Software is going to present the same technical complexities that for example, Microsoft had to contend with in unifying the look and feel of the Dynamics ERP market after it acquired Navision, Axapta and Great Plains software.

Culturally, there is likely to be a better fit as well. FinancialForce.com.com and the acquired companies shared a common vision from the outset since they all opted for the Force.com platform and committed to the SaaS (software as a Service) model. These are lean businesses built for the cloud era and their personnel, who often eschewed the established mega-vendors in favour of the more dynamic cloud environment, are likely to share the same enthusiasm and outlook. For similar reasons customers are also likely to be more quickly onside and by amalgamating the functionality customers need, FinancialForce.com has taken some of the guesswork and anxiety out of choosing the applications for themselves.  Finally, instead of contracting with three separate software houses (FinancialForce.com, Vana and Less) customers in the future will simply contract with one party, i.e. FinancialForce.com.

So the deeper question is what are the implications of this deal for the wider market?  Will we now see a succession of acquisitions as competitors square up to each other in the Cloud?

Phil Lewis, Solutions Consulting Director, EMEA Channel at Infor, agrees that the deal is interesting.  “Infor also has a deep heritage in financial applications including manufacturing across industries and is re-positioning this capability for the cloud.  The main difference is that the Cloud for us is just one of the deployment options.  We use one set of code which can be deployed in the public or private cloud as well as on-premises. So although we are encouraging customers to move to the cloud via our “Upgrade X” program we are also providing them with a choice of deployment methods rather than limiting them to the Cloud. Added to which, “Our ION framework provides interoperability between these different environments so that customers can leverage a mixed or hybrid environment,” says Lewis.

But unlike other vendors who have simply re-purposed existing applications for the Cloud, Infor has re-engineered its offerings to work as multi-tenanted solutions, i.e. as an authentic SaaS offering with one installation, shared between multiple customers.  This potentially brings it head to head with FinancialForce.com for those businesses already committed to the cloud.

As a consequence of the recent acquisitions FinancialForce.com is breaking out of the pack. It remains to be seen whether the FinancialForce.com acquisitions precipitate a chain of ‘copy-cat’ deals but it must be tempting for other vendors whose lack of breadth puts them at a competitive disadvantage.

However, if the early signs are anything to go by, the availability of better (more complete and comprehensive) solutions in the Cloud will be welcomed by businesses seeking to leverage innovative solutions in the cloud.  The news was greeted very positively at a FinancialForce.com event with customers and potential customers in London this week attended by FSN.  The acquisitions have bolstered FinancialForce.com’s position and will also be seen as a positive move for the cloud movement as a whole.  

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