Does Hybrid SaaS Really Make Sense?

Hybrid SaaS

According to wikipedia "The Hybrid SaaS model is one in which the customer may deploy the software as a SaaS service or as on-premise solution, with the ability to switch from one to the other as needed." The wiki entry goes on to list several reasons a customer might want/need a hybrid solution. Many of the reasons still reflect outdated myths about SaaS solutions such as integration, security and cost.

One or the Other

Much of the power of the Saas model comes from the ability of the vendor to innovate very rapidly. This is possible because they do not need to be concerned with supporting multiple versions, multiple hardware platforms, OS versions, DBMS software, etc. They don't need to develop, test and write upgrade instructions. They don't need to be concerned about bringing forward customizations done at individual installations.

If a user just wants on-premise software that they can tinker with themselves, they should choose one of the many legacy applications that were built for that. Buying a 'hybrid' SaaS application and hosting it locally will freeze the application at that moment. It will be too difficult to benefit from all of the enhancements and clever ideas that the community of users have dreamt up since the purchase.

How About On-Premise but Synchronized?
An option I have long considered but not yet implemented is having the SaaS application hosted at the customer's data center but allowing the code base and database schema managed by the software company. The customer would have their data on-site, under their control. They would do backups, OS patches and so on. Their application software would be up-to-date and improving all the time.

It Still Comes Down to Fit for the Business

Much of the debate over SaaS vs. On-premise is still being waged by IT professionals who are more aligned with a technology (Oracle, Unix, AS400, etc.) than with the business. A business should not buy any software that does not add enormous value. All of the other issues can be addressed.

Save the rodents. Stop SAP now!

According to BusinessWeek SAP needs more guinea pigs for Business by Design. My question is - What happened to the prior test subjects? My guess is it didn't end well for the companies who signed up for BBD 1.0.



Approach is Flawed
My understanding is that BBD was conceived as a series of standalone products designed to tie back to the main on-premise ERP solution. Each grew up separately with its own data structures and standards. The idea was that their customers would not want ERP in the cloud, but would love to have SaaS CRM, HCM and other "ancillary" products that integrated with SAP R/3.


That's a reasonable approach if you are not committed to SaaS as the future, if you believe that most companies, regardless of size will prefer to manage their own ERP. However, trying to meld those silos together into a cohesive SaaS solution to run the entire business is a fool's errand. ERP is about transactions. A great ERP solution will capture all the details about a transaction as it happens, not waiting for those details to be written down and keyed in by someone else. A great ERP solution should be conceived in its entirety, not by 12 separate teams.



A Culture Change is Needed, but Impossible
It seems that SAP itself is divided on the approach to cloud computing and SaaS. It's as if there is a high-stakes cage fight going on. In this corner you have Mr. Wookey who is committed and could make this happen (if he were elsewhere). In the other corner you have Mr. McDermott who is convinced SaaS is just for CRM, that his customers would never want SaaS ERP.


The most important 'S' in SaaS is service. SAP would need to shift gears to become a Service company, not a "Ship it and forget it" software company. With their on-premise solutions, they have Deloitte, Accenture, Tata and others to provide the customer care. Moving to SaaS, they would be on the hook every day for software performance and quality.


I just don't see it happening within SAP.



Alternatives Exist
I will be attending Sapience next week in Boston. It is an entire conference devoted to alternatives to SAP - software, services, maintenance... the works. Even former SAP executives are speaking there. The cloud is overtaking SAP. In this case, the cloud SAP is dealing with appears to be Halon... Or maybe it's nitrous and they are just out of it.


Plex Online has proven to be a viable alternative to SAP in the mid-market. Companies with $2billion in revenue and smaller run the entire enterprise on the SaaS ERP/MES solution. They are doing so at about 20% of the cost of an SAP implementation.


Léo, please, stop the suffering.

Oh no! Just one year left for SaaS!

In an interview on ZDNet in August 2008, Lawson CEO Harry Debes predicted that the SaaS Market will Collapse in 2 Years.

That means users have just 10 more months to enjoy the benefits of SaaS.

We silly SaaS providers have only 10 more months to provide great solutions to eager customers.

Mr. Debes went on to say that customers won't leave his software because it is too difficult and expensive to do so. Didn't the mainframe companies say that? Where are McCormick & Dodge, Walker Interactive, Cullinet and the others?

He does have one valid point in the article:
"We use Salesforce.com, and I like it. But I would've bought the product even if it wasn't SaaS. The success of Salesforce.com, in my opinion, has to do with their product being good, not because it's SaaS."

There is no question. The product has to meet the needs of the customer. That is how Plex Systems has grown - not because Plex Online is a SaaS solution, but because it is recognized as the #1 rated ERP for Manufacturers. Aberdeen's 2009 Axis Report for ERP in Manufacturing ranked Plex Online as the only Champion.

Fusion finally announced. So...?

Product Development at the Speed of ... Glaciers
Many observers began to think that Fusion was a line of apparel. The only tangible products were the hats, shirts and other gear with Oracle's new brand on them. At Oracle OpenWorld this week, Mr. Ellison finally announced that Fusion will be available sometime next year.

Nothing for Manufacturers
The Fusion Applications include seven modules: (1) Financial Management, (2) Human Capital Management, (3) Sales and Marketing, (4) Supply Chain Management, (5) Projects, (6) Procurement, and (7) Governance, Risk and Compliance. Fusion is a horizontal play to capture as many big, global companies as possible. Over time there will be modules for verticals like banking, insurance, retail, etc. Manufacturing does not seem to be on the horizon. I am sure it will get plenty of lip service, but continue to get very little actual code.

SaaS-Ready??
Mr. Ellison said the Fusion applications will be SaaS-Ready. That sounds similar to Microsoft's vision (another SaaS laggard). Microsoft's plan is to make their products capable of being hosted by third parties. Does that mean the products are truly multi-tenant and web-native? Does that solve any of the real problems with traditional on-premise software or does it just shift the burden to a third party?

You can still get your Fusion hats and shirts. Those will likely work as adverstised. The Fusion software is still a mystery.

SLAcker or SLAyer - not all SaaS SLAs are the same

Check the SLA or Service Level Agreement

An SLA is the agreement between a customer and a service provider as to the miminum guaranteed level of service to be provided. There are several components that should be included. Among them are:
- Uptime or system availability
- System response time
- Speed to resolve programming defects
- Disaster recovery.

Most SLAs will cover these items. However, a savvy buyer must look at the details. Not all SLAs are created equal. Two key areas of concern to your business are Uptime and Disaster Recovery.


Uptime or System Availability

Whether a provider offers true SaaS, faux SaaS or ASP, you need to understand the Service Level Agreement or SLA. The most critical item in an SLA is system availability or uptime. It is typically measured as a percentage of hours in a year that the system is available for use - aside from scheduled maintenance.

Netsuite, for instance, commits to 99.5% uptime. That sounds great, doesn't it? If you do the math, though, that translates to nearly 44 hours of unplanned downtime per year. That is almost 2 full days of 'allowable' outage. That may be totally acceptable for non-mission-critical applications or non-time-sensitive tools like accounting software. But for a true ERP that touches every aspect of the business, that doesn't cut it.

Manufacturers, for instance, need to print shipping labels and paperwork very promptly. Keeping a trucker waiting at the dock is costly in many ways. World class manufacturers report production, scrap and virtually all other activities as they happen on the shop floor. Disruptions of even a few minutes can cause huge disruptions.



Disaster Recovery Capabilities


The next most important item is the vendor's commitment for disaster recovery. What happens if there is a fire in their data center -- or an earthquake? How long will it take to get customers up and running and how much data will they lose? Those two numbers are called:

RTO - Recovery Time Objective - how long the system is unavailable after a disaster

RPO - Recovery Point Objective - how much data will be lost.


Some SaaS vendors don't even have a backup data center and don't commit to RTO and RPO targets. Some use third party services for such purposes. The problem there is lead time. Most of those service providers don't have dedicated equipment on standby. They don't have the freshest data. If a disaster occurs at the SaaS provider's datacenter, it may be up to 24 or 48 hours before the system is up and running and customer data is loaded. If that happened midweek, it could be lethal to many manufacturers.

SaaS companies can provide a higher level of service than most midsize or smaller businesses can on their own and at a much lower cost. So, be sure to look for these items in the SLA.

Give up your old ERP to gain control of your business

Tom Mackey, Executive VP at Plex Systems, sums it up...

"CEO's feel what Presidents beginning with Washington have always felt -- the illusion of control.

It is interesting to note that the very things that executives have done to gain control of IT has led to their frustration: hire people that they can control, buy from the biggest companies and to let software be the vision instead of supporting their vision.

You can't fix what you can't see. It is human to hope, and CEO's are human, that by buying one more reporting tool, one more band-aid that you can improve your business -- make it more valuable. It is human too, to wish that system that hasn't created this visibility for last 5 years will, with the pouring of more money into it, will some how do it now.

There is another way but you will not need people to look after hardware anymore or a room to house it. This new way offers the paradoxical idea that the system should support the way the company wants to run the business.

It would make sense that this new way would be on the latest internet technology.

A lot of things make sense but nothing more than PLEX."

ERP as a Service is Accelerating

Tipping Point?

A recent article on Seeking Alpha asks "Where is the tipping point for on-demand ERP?". The author believes as do I that the point is near. Netsuite continues to grow (at about 9% in 2009)despite the poor economy and is introducing programs all the time to compete with on-premise rivals.

Plex Systems is growing even faster than Netsuite at a healthy 20% clip.

There is a huge wave of replacements coming as on-premise products installed in the 1990's age poorly and the cost to maintain them surges.

The Old Order Changeth, Yielding Place to New...

As King Arthur passed, he knew the world was changing. Infor, QAD, JD Edwards and others are all on the funeral barge drifting out to sea. New companies with new ideas and new business models are rising to take their place.

The sea-change in ERP may not be as dramatic as the demise of the dinosaurs. The results will be the same.

It Has Happened Before

Before the current big names in ERP there were:

- Walker Interactive

- McCormack and Dodge

- Dun & Bradstreet (yes, that's right)

- ASK

- Cullinet

- MSA and others.

They passed quietly into the history books. What we are seeing today is not new. Companies that don't adapt whither and die. As with the dinosaurs, new, more adaptible life forms emerge to flourish where the dinos could not.

Oracle Still in Denial

Ellison Acknowledges Trend to Cloud Computing

Larry Ellison, CEO of Oracle Corporation, is slowly beginning to see the light regarding Cloud Computing, but still doesn't comprehend the implications. In today's Wall Street Journal, Ellison acknowledges the importance of the trend. He says that Oracle is getting "a little bit" into the space.

This is in stark contrast to Ellison's comments over the past few years depicting Cloud Computing as "gibberish", SaaS as unprofitable and multi-tenant architectures as insecure.

Fusion Isn't the Answer

While nuclear fusion may eventually be the answer to the world's energy needs, Oracle's long-awaited Fusion products will never be the answer to the needs of manufacturers. Ellison seems to cling to the notion that customers won't trust SaaS vendors with their data. His answer is for Oracle to operate a data center owned by the customers. This sounds like the failed ASP model to me. It does not take cost or complexity out of the vendor-customer relationship. It does not speed time to market for features customers really need. It perpetuates nearly all the same problems that are driving customers to true SaaS models at a very rapid pace.

Tech Bigots Losing Their Jobs

Aligned with Business or with Technology?

Over the years I have encountered two very different types of IT professionals - those who were focused on helping the business in which they worked and those who were most concerned with the technology they were using. I have met people who thought Unix was the only solution to be considered and would never let an AS400 or, God forbid, a Windows platform in their data center. I interviewed people who only wanted to work with Visual Basic. They had no interest in learning C++, Java or any other tool. I have encountered Oracle bigots. They are often very powerful. It is true that with enough time and money they could make Oracle do anything. I have met QAD, Mapics, and JD Edwards bigots who will go to great lengths to ensure that their product is the only one used in the enterprise.

Risky Business

These types of people are losing their jobs rapidly. A few years ago I was referred to the CEO of a steel processing company who was looking for a new ERP. He directed me to his IT director. She politely listened to what I had to say, would not let me speak to any business users and then promptly recommended Oracle because it would look much better on her resume. The company spent $500k on licenses, then went out to get quotes on implementation. The lowest was $2.5million to make it fit the business. The CEO was furious. He called me directly and asked what happened to our solution. He brought his CFO out to visit us and was floored to see how well our solution fit his business.

End result: the company walked away from its Oracle licenses, bought and implemented our solution for less than half the implementation bill alone for the alternative, then fired the entire IT staff.


The Right Solution Changes Over Time

I started my career at Arthur Andersen (the part that is now Accenture). From day one it was drilled into our heads that technology meant nothing unless it solved a business problem. One day it was IBM/CICS, the next it was HP3000s or VAX systems or AS400s. Client-server computing seemed like a good idea at the time.

With the advent of the Internet and now the ubiquity of broadband connectivity, hosted solutions make the most sense. Further, multi-tenant solutions bring world class solutions to companies without the necessity to invest in servers, databases, backup equipment and the specialized personnel to operate it. IT staff can focus on getting business value to the end users and leaving the care and feeding of the infrastructure to a proven, audited entity specializing in providing the highest uptime, security and speed. Further, with the scarcity of cash and credit, the subscription pricing model conserves precious financial resources.

It's All About the Business

So, whether it's Unix, DOS, Linux, Oracle, SQL Server, Java, .Net or whatever is irrelevant. What is essential is what is the best fit for the business. The software functionality needs to fit. The delivery model needs to fit. The pricing model must also fit the needs of the business. IT professionals who don't grok that are risking their jobs.

SAP Business by Design Not Dead Yet

According to an InformationWeek article SAP CEO Leo Apotheker "sought to "kill a rumor" about the death of Business ByDesign, SAP's ERP-as-a-service offering that was sent back to the drawing board after an unsuccessful introduction. CTO Vishal Sikka suggested SAP may need to replace as much as 70% of the internal workings of Business ByDesign to get the costs down to what SAP requires. Plattner said a market-ready product will become available within two years."

I am thrilled that SAP continues to realize that SaaS is where software is heading and that the industry is going there in a big hurry. I am not surprised that they have been unable to come up with a workable solution. It is really hard to break a paradigm that has been so successful for them. I would think it nearly impossible for SAP to envision and then develop a solution that would render its current offerings obsolete. Instead, the company will continue to develop something that will work with the legacy code.

Further, when asked whether the new product will be multi-tenant, Apotheker said "who cares?" I take that to mean NO.

That sounds like a recipe for continued disappointment.

Zombie Software Companies

You have likely heard about zombie banks - those without the resources to make new loans. I have heard industry analysts begin to talk about zombie software companies. These are the former icons of the ERP market who no longer have the resources to invest in new technology and win new customers.

Is All Revenue Equal?
This is a chart of the license fees and EBITDA of one of our larger, publicly-traded competitors with a 3-letter name. As with others of its ilk, it keeps topline revenue somewhat flat (vs. a dramatic decline) through acquisitions, increasing maintenance fees and cannibalizing professional services revenues from its partners. License revenue is the true indicator of the health of a software company. EBITDA, of course, is an indicator of whether the company is creating value for its shareholders and whether its customers value what it delivers.

SaaS is Where the Growth Is
It seems all the revenue growth is coming from SaaS companies. Salesforce.com is a $1billion company. Netsuite is over $100million. RightNow, Ultimate and many others are doing well even during these dark times.

Plex Systems posted 33% growth in 2008 over 2007. The first quarter of 2009 is on pace to be roughly 25% above Q1 2008. We are facing the same macro conditions as QAD, SAP, Infor, Epicor, Lawson, Exact and the rest.

SaaS just makes sense. It is the only sustainable model for the years ahead.

Beware the Zombies!

...melting away the resistance to change...

A recent article by AMR Research discusses the challenges facing the industrial supply chains. In part they say "There is nothing like the potential for additional layoffs to melt away an organization’s natural resistance to change."

Changing Course
Many smart manufacturers are preparing themselves to emerge stronger and more competitive and profitable when the recovery begins. Andy Grove is famous for saying: “Bad companies are destroyed by crisis. Good companies survive them. Great companies are improved by them.” It is becoming easier to see who's who now that the receding tide is exposing rocks (too much debt, bad business models, etc.) and smashing some companies to pieces. It's not smooth sailing for anyone. However, some organizations are battening the hatches and trimming their sails for a new course that will get them to the recovery faster and in better condition than their competitors.

Eliminate Non-Value-Add Activities
One thing these companies are doing is investing in automation and improved processes. Productivity always rises as a result of recession. Trying times shock managers into seeking better, more efficient means of doing things. They take a hard look at every job in the company and think about whether it adds value to their customer. Success can breed complacency - and fat - in an organization. That fat gets trimmed during recessions - the reluctance to change is stripped away.

Automate, Integrate, Make Visible!
These three concepts are vital to ongoing improvement. You can't improve what you can't see. If obsolete inventory blocks a doorway, you know you have a problem. The key is to make waste 'visible' long before it becomes a huge problem.

Automating manual processes is a high-value opportunity to drive out costs. Capturing and validating data at the point of origination makes for timely, accurate and, therefore, actionable information for all other users in the enterprise. If the production scheduler (whether a human or computer) knows that material or tooling or labor is not available to run one job, it will schedule one that can be executed. If purchasing knew that we just scrapped or RMA'd 1,000 pieces or just got a surprise order today, they could rapidly adjust order quantities.

Automation is most powerful when coupled with integration. Many organizations have automated functions here and there with "best of breed" solutions only to find that the data hits a dead-end or must transit a cobbled-together interface to enterprise systems. Tying together traditional ERP with Shop Floor (MES), Quality, Supply Chain, CRM, etc. in one solution is the optimal way to drive out costs.

Rapid Improvement without a Capital Outlay
With SaaS, manufacturers can streamline their business very quickly without the costs and trouble associated with traditional implementations. These days it is hard for even good companies to get a lease on servers, backup equipment, storage and so on. Companies are turning to SaaS to conserve their credit for their core business needs.

...melting away resistance to change
There is nothing like traumatic stress to cause people to change long-held beliefs and habits. Like the heart patient who makes dramatic lifestyle changes after bypass surgery, manufacturers are focusing on the essentials and outsourcing the rest. This includes extensive use of SaaS to support core business processes to survive the downturn and even to thrive.

Hey...You...Get off of my cloud!

Harry Debes, Larry Ellison, Bill McDermott - get off of my cloud. You are all predicting the demise of cloud computing and software as a service. You think you have created an unpenetrable barrier to entry for competitors. Indeed, Mr. Debes believes your collective customer base is incurably addicted as if on cocaine because... "It’s too difficult and expensive to switch [traditional software] providers once you’ve invested in one."

Well, many of your former and prospective customers are in serious rehab. They don't see the vague and unnamed dangers in multi-tenancy purported by Larry Ellision and the thundering herd at Oracle. They know that products like Plex Online can offer depth and breadth for manufacturers unlike the "half-baked applications from SaaS upstarts" cited by Mr. McDermott.

Painful as it is for companies to walk away from the piles of money they have invested in stagnating, on-premise software and infrastructure, they are doing so in rapidly increasing numbers. As Phil Wainwright points out, it is better to be attacked than ignored. Traditional vendors who have not modernized their offerings are desperately increasing the amount of Fear Uncertainty and Doubt they are dumping into the marketplace about SaaS.

The fact remains that SaaS just makes sense.

SAP Predicts SaaS 'Disillusionment'

On January 7, 2009 John Foley wrote about an interview with Bill McDermott, SAP's president and CEO of Global Field Operations. Mr. Bill is echoing SAP's rapid retreat from SaaS.


In 2007, Herr Dr. Kagermann, SAP's CEO, touted Business by Design, SAP's SaaS offering, as "the most important announcement in the history of the company." I think it is SAP that is disillusioned, not the customer. An excerpt:

'McDermott contends that now more than ever companies need a full-featured, integrated applications platform for running global business operations -- mySAP, for example -- not half-baked applications from unproven SaaS upstarts. He points to SAP's 36 years of experience developing a "stable core" of enterprise software and a service-oriented architecture that makes it easy to add on third-party and custom applications. "It will take another 36 years for software-as-a-service vendors to do the same thing in the cloud," he says.'

Sounds to me like they just couldn't figure out how to do what Plex Systems and others have done. I am surprised and, frankly, disappointed that SAP is choosing to throw in the towel on SaaS after only five to eight years and countless millions.

Fortune forecasts lots of "clouds" in 2009

Fortune Magazine predicts a huge uptick in "Cloud Computing" and SaaS. It just makes sense. More and more IT departments are asked to do more with less, to support more users and applications with fewer people and other resources. The clear answer is cloud computing.

The rate of change is accelerating. More and more applications and resources are being provided in the cloud every day.

The Echo Boom is Upon Us

ERP Boom in 1990s
An enormous number of companies installed ERP solutions in the 1990s in the run-up to Y2K. It was a huge bulge, much like the baby boom in the 1950s. My children are part of what is called the echo boom - the upsurge of births from baby boomer parents like me.

Huge Number of Aged Implementations
The ERP installations from the boom time are now 10 to 20 years old. We are at the start of a huge replacement cycle. The world of technology has changed dramatically during the past 20 years. Cobol, RPG, and Progress have given way to HTML and Java. Big iron and expensive Unix machines have given way to commodity Wintel servers. Traditional disk storage has been eclipsed by SANs and NAS.

Enormous Business Drivers to Replace ERP Now
The ERP (or often MRPII) implementations in the 1990s were driven by the finance and accounting people who wanted standardization across the enterprise. That wave did consolidate many disparate packages and homegrown applications but the focus was relatively narrow - the front office, the "knowledge workers".

Many argue that the big ERP implementation projects undertaken over the last 15 years did not generate the ROI that was expected. In my opinion, that is because they didn't address the core of the enterprise. Most of the activity in a manufacturing company occurs on the shop floor and on the shipping and receiving docks. These areas are not under the purview of legacy ERP solutions. There is a tremendous amount of savings to be gained by automating and integrating all the operations within a company, not just the financial and procurement functions.

New Generation of Software
Today, there are software products that make everyone in a manufacturing enterprise a "knowledge worker", that tie together the shop floor and the "top floor" seamlessly. It just makes sense to capture and validation transactions as they happen rather than write down the details for a so-called knowledge worker to keypunch into the system later.

Echo Boom Will Resound for the Next Several Years
The move to replace aging legacy ERP solutions will accelerate over the coming years as more manufacturers realize they can run a comprehensive, next generation ERP2 solution for about the cost of just maintaining the long list of applications they are using now.

SAP Validates SaaS for Larger Companies

Today SAP announced plans to develop SaaS offerings for large enterprises. I couldn't be happier!

This move helps to further validate that SaaS just makes sense and that the software delivery/pricing model is receiving a warm welcome from customers. SAP has spent years and many millions of dollars developing Business By Design, their SaaS solution for small to medium enterprises. That product so far has been a failure.

I am certain SAP will get it right one day. In the meantime, they are helping build market awareness for SaaS ERP and saying to customers that "it's okay to buy SaaS solutions".

Another big name (Infor) says SaaS is the future

Today Infor announced its first SaaS ERP offering. Prior to today, Infor's stance had been denial and disinformation. When competing for business against on-demand suppliers like Plexus Online, Infor has thrown all kinds of FUD (fear, uncertainty and doubt) around to dissuade customers from selecting a SaaS product.


Faux SaaS...
Now, Infor is saying SaaS is an important part of their future and they have a product. I strongly encourage prospective customers to look carefully. The press release was very carefully worded to imply that the new ERP offering is true SaaS. It is based on the aging, Progress-based Syteline solution. I would be very surprised if the product conformed to the generally-accepted definition of SaaS as outlined by Gartner's Chris Pang:

SaaS can come in all kinds of shapes and forms. “It is important to differentiate SaaS from hosting or application management or application outsourcing,” said Chris Pang, principal analyst at Gartner.

"Due to the fact that SaaS/on-demand market is red hot, many vendors started rebranding their hosting, application management and application outsourcing capabilities as SaaS/on-demand.

Clearly, everyone wants a piece of SaaS nowadays. However, as Gartner notes, it is important to keep in mind that the true SaaS/on-demand is comprised of the following:

• Delivery of multi-tenant service
• From a remote location
• Over an internet protocol (IP) network
• Via a subscription-based outsourcing contract "

Suppliers who conform to this definition can deliver the true benefits of SaaS. The pretenders cannot. They just add cost and complexity to the vendor-customer relationship.

Here we go...1980's all over again

"Elliott offers $9.50 per share for Epicor"

"Lawson misses and lowers Q1 2009 outlook"

"QAD reports Q2 loss; CFO leaves company"

"Softbrands trades below $1/share"

I made the case in earlier comments that the mid-market ERP space reminds me of the 1980s minicomputer marketplace. Do you remember Wang, Data General, Prime, DEC, Apollo, Perkin Elmer, etc.? They all disappeared rather quickly after being darlings of the industry. I think we are seeing the same phenomenon today among ERP providers to the SMB space.

Climate change killed the dinosaurs. This current economic storm will kill many of today's mid-market ERP companies who have not updated their technology and/or business model.

Infor and Consona have tried to consolidate and roll up several vendors already. They are now feeling the cash crunch and have dramatically slowed their acquisition binges. They are also not pursuing and winning new accounts. Rather, they are cutting costs and cross-selling to their lucrative, but shrinking installed bases. That formula will only carry them so far.

The winning combination will be SaaS and Suites

SaaS turned the corner in 2007. It "crossed the chasm" from early adopters to more mainstream usage. It just makes sense.

1. Conserves Cash - Customers don't need to write a big check for software, servers, backup equipment, etc.
2. Improves Operations More Quickly - Faster time to value is a key benefit of the SaaS model. The lead time to order, install and configure infrastructure components goes away.
3. Software Changes More Rapidly - Instead of waiting 1-2 years for the next release, customers can get fully-supported enhancements in days or weeks.
4. Focused and Integrated - Suites will carry the day. The moving parts and finger-pointing involved with point solutions will prove unbearable for most companies. A comprehensive suite of offerings focused like a laser on a vertical such as discrete manufacturing, property management, leasing or whatever offers way more value to businesses.
5. Accessible Anytime, Anywhere - True SaaS is 100% accessible with just a browser from anywhere in the world. Traveling employees, customers or suppliers don't need to install anything on their client.

Just as drastic climate change killed the dinosaurs and ushered in new forms of life, so will this dramatic business climate change shake out the companies that have not adapted their business models to today's reality.

Software Suites are the Logical Conclusion

CIOs don't want long list of solutions with customized integration. They can manage a comprehensive suite much more easily. The winners in the coming shakeout will be vendors with broad suites tailored to specific vertical markets.

Let's take a brief look at some of the point solution markets:

CRM - Siebel did very well for a while. When their opportunities diminished over time, they were acquired by Oracle. Salesforce.com is enjoying a great ride. However, their growth rate is slowing and they need to augment their offerings. They are choosing to do that with Force.com and partners developing applications that integrate. Most believe they will be acquired by a major ERP provider.

SCM - i2 Technologies is the latest poster child. JDA is acquiring i2 to broaden its offerings. Many other SCM pioneers have been swallowed up by suite vendors.

HCM - Peoplesoft recognized long ago that it needed to expand beyond a limited horizontal offering. It bought JD Edwards, a more complete ERP product. Dave Duffield is starting again with Workday, but will go beyond HCM to add some ERP functionality right off the bat.

MES - The Manufacturing Execution Systems space is highly fragmented with many smaller players and various niches. SAP, noting the need to provide its own shop floor functionality, recently acquired Visiprise. I fully expect Oracle to follow suit.

Quality - This area has been more on the fringes of the manufacturing space. Some vendors have done well with standalone solutions. They have partnered to a degree with various ERP providers. Now, though, there is pressure to consolidate quality functionality directly into the MES and ERP solutions.

It's obviously difficult to be all things to all people. I argue that it is also difficult to survive in enterprise application software by being just "something" to all people. The winning combination is to serve all the needs of a focused group of customers.

At Plexus, for instance, we focus on discrete manufacturers. We provide virtually everything needed to run a global manufacturing enterprise. We don't have features for retailers, banks, insurance companies, accounting firms, etc. Our single-source, multi-tenant model allows us to rapidly build capabilities into the core product that appeal to virtually all of our customers.

We combine ERP, MES, SCM, Quality, HCM and some CRM into one, consistent, powerful solution. Some of our software areas don't compete as well with standalone solutions in some markets such as CRM, but they have more than enough capability for most manufacturers. Other areas such as MES, SCM and Quality stand out as best of breed even as standalone solutions. They are unbeatable when implemented as part of the whole.

It seems clear to me that suites are the logical conclusion to enterprise application software evolution. Vendors should be challenged to serve all the needs of a focused group of customers.

Long-term, SFDC, Netsuite and others cannot exist alone without dramatically broadening their footprint.