MUMBAI, INDIA: Talking to Sunil Padmanabh, Research Director with Gartner's Business Applications team, is like being in a chocolate factory. You get to pick anything, absolutely anything that is normally brushed under the carpet when it comes to Software as a Service-based ERP vs. erstwhile ERP suites. Real costs, hidden costs, integration headaches, truth about being instant-on, industry-oriented viability, India-oriented localization, maintenance costs, TCO, complexity, immaturity or unrealistic expectations, you name it and he will show you how the cookie crumbles outside the oven called hype.

So if you are one of those, who thought that SaaS would be a genie to vaporize your costs away or that it would push the likes of SAP into the sunset or that it is as easy as switch-on-and-forget robot; you might want to recheck your expectations here. While he warns that expectations will crash badly by 2014; you might also discover why how SaaS can still be good for the sweet tooth for some companies like Ramco. To sum it up, here?s an interview like genuine chocolate, bitter but real. Grab a spoon.

Part 1: Is SaaS cheaper?

Your recent research findings analyze the current state and future of SaaS-based ERP in India, while cautioning users on managing their expectations. There are so many different directions that industry-watchers predict this market on to. If one says that it will reel in only 16.7 per cent of the total ERP market by 2011 (Gartner), another one shows a 60 per cent jump in willingness to consider SaaS ERP (Aberdeen Group). Some say it would be a cart drawn by niche and upcoming horses while some say it will force the big lions to change their ways. Why this mixed bag? What is exactly the future of SaaS?

Yes, that?s a right question. Initially, there was lot of lure and glamour that everyone saw. It was very alluring to both small and large enterprises. Then came the concerns on privacy and security. Yet, its cost advantage and simplicity of use at least in CRM segment is worth attention. Also for people who always wanted to jump on to the ERP bandwagon, see it as a big opportunity. But I see that over a three-year period SaaS ERP is more expensive than normal ERPs. Many customers continue to believe that SaaS is cheaper, but it is not. In this hope, people are still jumping onto SaaS. Three-to four per cent adoption would tilt towards it hence but 97 per cent would still be on-premise. The numbers might be growing but the motivation is not right. If it?s only for cost advantages and not for anything else like IT team benefits, then it might not be wise. Because the cost advantage will get defeated over a long period of time. It is a nice make-believe world where no one is telling the truth. Expectations will crash badly by 2014.

Why do you say that?

SaaS will for sure be in huge limelight for some time, but eventually services, delivery and the ways of adoption will show it?s expensive. Smaller companies will be attracted but larger ones would be selective. The concept of SaaS is not fully understood. There?s application-related SaaS and architecture-related SaaS. First one is where clients do not have huge customization needs. It can be up and running in a short time frame. Now, it?s very clear that large enterprises are tempted but have a wait-and-watch approach. The problem is all those legacy systems.

Integration and customization is a weak point in SaaS ERPs?

Yes, large enterprises have challenges on integration. There are no definitive strategies of vendors, so there are questions like who will pour the data and who will make changes. So, large enterprises that are ready, still make co-existing form of investments, and small investments. The whole transition exercise to Cloud is a complex affair. In a Cloud, customization is bare minimum. Configuration for a third-party provider is minimal. Large enterprises have resisted shifting to SaaS-based ERP due to concerns over moving the financial functions of their applications and their integration components online.

All this, apart from the usual security issues?

In the last one year, security and privacy concerns are tapering down because vendors are able to convince clients about their models. So large companies are tempted to look into a private cloud option. We believe that eventually public cloud will mature as a preference, and security gaps will be addressed soon.