The concept of cloud computing may be firmly established but the market is far from settled, especially when it comes to financial and performance management applications. Dozens of new suppliers are jostling for position, often making wild and exaggerated claims, egged on by a global analyst community that predicts inexhaustible demand and exponential growth. Gary Simon, FSN’s managing editor looks at the emerging battle between new cloud vendors and the old guard.
But the reality is that many of the vendors who have entered this space are start-ups, grappling with the business fundamentals of serving the on-demand market and relatively few of them can claim to have turned a profit. Now we are seeing a new wave of more mature and established vendors, who had previously stood on the side-lines entering the on-demand space. With deeper pockets, they are able to hold out longer in a weak economy and bring considerable technical and marketing skills to the party. The key question is who will prevail – the ‘Big Cloud’ vendors or the ‘Little Cloud’ vendors?
There is no doubt that cloud computing has its advantages. The idea that companies do not have to maintain a comprehensive IT infrastructure or in-house IT skills, the availability of the applications over the web 24/7, the lower entry costs, security, upgradeability and scalability are just some of the benefits trotted out by the SaaS (Software as a Service) industry with almost tedious regularity.
However, claimed advantages around lower training costs and quicker implementation timescales are more difficult to sustain. After all, data migration and software configuration and testing don’t just disappear simply because the software is hosted on the web. However, for ‘standard’ applications, i.e. a one-size-fits all solution there may be some merit in the argument that the implementation is more straightforward and hence less costly.
Jim Schaper, Chairman of Infor, one of the world’s largest ERP vendors with more than 70,000 mid-market customers told FSN, “The on-demand model best suits standard applications. It does not sit well with bespoke or amended applications.”
SAP is typical of the Big Cloud vendors now moving aggressively into on-demand delivery of its business solutions. It agrees that there are implementation challenges and that the potential superiority of the on-demand model is not a given. SAP’s Sven Denecken told FSN, “Faster implementation timescales require continuous investment in ease of use, training and specialised services.”
One of the most contentious areas for cloud based vendors is how much direct customer contact is appropriate before the on-demand business model breaks. Most cloud based businesses are predicated on significant self-service and product customisation by customers. The sales cycle is almost entirely online with customers being offered trial software or even free software to get them going, supported by online resources. This seems to work when it comes to working with straightforward applications such as expenses management and customer relationship management but it is an arrangement that quickly comes under strain in a more complex performance management setting.
Vendors that have entered the CPM space are beginning to learn to their cost that buyers are less willing to buy critical planning, consolidation, ERP and reporting applications without ‘touching the flesh’ of the vendor – literally. As a consequence some vendors are being forced to reconsider their business model and to start employing sales, pre-sales and support personnel on the ground.
Bill Soward CEO of Adaptive Planning relates that he was taken aback by the 350 people who attended the supplier’s user conference illustrating the importance of human contact even for one hundred percent cloud based vendors. It is a view that resonates with Host Analytics, a direct competitor that has found that physical presence remains a definite factor in the pre-sales process. But of course this is anathema to the on-demand model, pushing up costs and, for some, pushing the illusive break-even point further out into the distance.
Despite these hurdles, established vendors such as SAP, Mamut and CODA (UNIT4) have been tempted into the market. For SAP the flexibility of the on-demand model is an important driver. Denecken told FSN, SAP’s on-demand portfolio covers a range of offerings such as SAP Business ByDesign, personal productivity tools and what he calls ‘natural’ extensions to the on-premise world, for example, sales on-demand and travel on demand. “The key to this portfolio is that it has to work for the enterprise as a whole, creating value and preserving process integrity,” he adds.
Infor’s Schaper echoes the need for enterprise coherence. He told FSN “As far as users are concerned it is important that wherever they are working, either on-premises or via the cloud that there is a single sign-on,” – something that solutions providers with mixed portfolios have found difficult if not impossible to achieve.
Credibility or the lack of it has been a key sticking point to date, perhaps explaining why many customers in the financial applications arena are start-ups or early stage businesses. It appears that established businesses are more reserved and FSN has found that all suppliers are cagey about whether large enterprise has truly embraced complex accounting and performance management applications in the cloud.
Bill Soward, CEO of Adaptive Planning an exclusively cloud based CPM vendor with around 800 customers told FSN that perhaps 20 percent of new business is coming from large companies. SAP also says it is moving “up the food chain” but concedes it is early days and “too soon” to give specific numbers by business size although it says it is targeting businesses between 100 and 500 users. But SAP is hoping that a shared architecture between cloud based Business ByDesign and SAP’s solutions aimed at larger groups will enable its multinational customers to unify processes across their large and small operations.
The presence of established vendors such as FinancialForce (CODA UNIT 4) playing in the cloud space together with SAP, Infor and Mamut goes a long way to providing reassurance to a wary finance community known for its conservatism. Nevertheless the Cloud model has a long way to go if hundreds of customers are to be turned into tens of thousands.
For SAP there are four factors that are going to be vital to the success of the on-demand model in the financial applications space. Denecken told FSN, “A stable, reliable and secure infrastructure with sufficient bandwidth is essential. Secondly, ‘on-boarding’ by customers of application suites has to be quicker, industry specialisation has to be more readily available and the partner/dealer network has to be supportive as well.”
These are views shared by Bill Soward whose Adaptive Planning business focuses more directly on SMEs. He sees the challenge as teasing small businesses away from spreadsheets and showing them that there are more affordable alternatives on the web but it is also about building the reseller channel so that there are more evangelists spreading the word.
Credibility, profitability, human contact and constant investment remain key challenges for the on-demand model. It remains to be seen whether the Little Cloud vendors that pioneered the market will reap the rewards of ‘first mover advantage’ or simply be side-lined by the Big Cloud vendors now muscling in on the market.
