Telescope: SaaS is much more expensive

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.

{#PageBreak#}

Part 2: On complexity, integration, installation and hidden costs of SaaS and why SAP or Oracle is still better

Is SaaS-based ERP not able to replicate the complexity, domain-depth, maturity and installation-ease of usual ERP products, as a Gartner report some time back pointed out?

Yes. Many SaaS vendors can not handle large installations of a public-sector scale and context. This is where the likes of SAP, Oracle etc can handle such high-scale complex scenarios. A smaller player would not know the nitty-gritty factors, workflow, product knowledge, industry know-how or business rules for that solution area. All that smaller ones can do is give a basic minimum simple solution with some customisation.You may opt for SaaS but you have to still map it to ERP space. Complexity of industry, regulations, best practices etc is not reflected in non-core ERP products. All they do have is basic features. Most of these small ones are thus fly-by-night services and so people stick to the SAP, Oracle genre.

But the usual gripe against big suites is they have localization gaps. Would SaaS fill these gaps better?

No. Whatever SaaS products are available in India as of now do not address this issue so adequately. Be it taxation, compliance etc, it is still a challenge for users.

Are there any hidden costs as well ? sandboxing, testing, development, storage, implementation etc? Also, is the problem about unrealistic expectations?

When you choose SaaS, you will not save anything on training and integration areas. In fact there would be costs there. Data manipulation can be done. Customers are not expert or alert to watch out for hidden costs which in reality come on to them only. Then there is the gap on how to integrate domain content. Enterprises in India embarking on SaaS-based ERP need to have realistic expectations when considering the limited success of SaaS-based ERP on a global front.

{#PageBreak#}

Part 3: Maintenance Black Hole- would SaaS help?

Call it a pet peeve or concern, but huge maintenance expenses, vague product roadmaps and upgrades are big questions for many customers struggling with big ERP suites. Can SaaS score any brownie points here, or can it be really helpful?

Yes, that?s another major reason while SaaS is gaining consideration. The constant need to upgrade, and no clarity on roadmaps, and the dilemma; all these issues are overcome in SaaS. One will be covered very well and there would be features that may or may not be required. Also, one customer can gain from what vendor does by tweaking for another customer. Virtually, there is no maintenance. It leads to simplicity of use and is a big driver. When to upgrade or not to, is a dilemma that will be taken care of.  There will be lot of advantages from the perspective of upgrade strategy.  But the biggest show-pooper would be that people think of SaaS only for cost advantages. It is not that. It is about simplicity and other gains also, which is where the business case should be built.

Part 4: On SAP, Oracle rivalry and Ramco

How big a battle would SaaS be in the old war between SAP and Oracle? Will it impact their strategic direction a lot? In the right way? Specially after how SAP?s big effort with Business ByDesign has fared?

Eventually who wins the war is a question that will be decided in terms of who has the flexibility, focus on industry knowledge to convince users about security or privacy doubts. It will also be about who gets realistic when it comes to Indian expectations, who will come close to reality and who will deliver obvious cost advantages. A short-term or a me-too strategy would not work. War would be reshaped in the way the end user perceives each of them. Irrespective of what they claim, it will be all about who captures the mindshare at the end of the day. As far as Business ByDesign is concerned, it caters to only a few segments. They are pretty clear in their strategy. Compared to small ones, this solution is concentrated on four or five industry areas. I am surprised with Ramco though.

Ramco, How?

Just see how they have been able to provide for a larger section and manage localization. They have over 500 or up to 800 customers already I assume. T is amazing in terms of mindshare and penetration. Customers today have very few options of a comprehensive product. If you are a customer obsessed with brands, Microsoft or SAP etc would be your choice. Talk of comprehensiveness and localization, Ramco would be good to have in one?s consideration list.