The choice is no longer cloud versus on-premise
Up until now the nature of the cloud market for financial solutions (Corporate Performance Management and ERP) has been pretty straightforward. It’s been a straight choice between traditional on-premise vendors on the one hand and a growing clutch of relatively new cloud vendors on other.
And although initially the cloud appealed to smaller enterprises what we have all seen over the last couple of years is a pronounced acceleration of interest in cloud from larger businesses (more than 1,000 employees).
Most CFOs would agree that we have reached the point that the cloud can be considered mainstream. But what does that mean for the future of on-premise vendors?
Well seen through the lens of traditional ERP and CPM vendors the cloud is a competitive threat and economically challenging if they are used to taking large licence fees up front and are now having to confront monthly licence fees instead.
Initially, the on-premise vendors were slow to react but now they are coming under increasing pressure to provide cloud answers. A succession of traditional on-premise software vendors have told FSN of their intention to release a cloud version of what they do – especially in the CPM or corporate performance management market. There is as almost a frenzy as on-premise suppliers decide that they too have to have a cloud offering. So we are beginning to see a new category of vendor – one that can offer solutions in the cloud or on-premise.
And there seems to be a common mantra among them which goes something like this “We can offer you a choice between having your requirements in the cloud or on-premises. We actually are indifferent – it’s simply a choice of deployment method so now let’s get on with discussing your real business needs.” But is it really as simple as this? And how does it affect CFO decision-making?
The CFO’s dilemma
Well CFOs are faced with a very interesting situation – rather than the binary decision of a few months ago which is – “Do I put this budgeting or billing application on-premise or in the cloud” there now arises the more subtle question which is: “Do I want to partner with a supplier that can offer me a choice of cloud or on-premise or do I see more value in a pure cloud vendors?”
There is also a more deeply nested question which is “Do I want all of my applications to be with one particular vendor?” And yet more deeply still, “Do I want all of my applications in the cloud or on premise.”
And the answers to these questions are not at all clear-cut and that’s because not all cloud solutions are borne equal. Let’s take a look.
What is “True” cloud computing?
Most CFOs understand what is being offered on premise, so the real question is what exactly are the on-premise CPM and ERP vendors offering in the cloud? And is it equivalent to the pure cloud vendors?
Pure cloud vendors frequently claim that on-premise vendors are not offering ‘True’ cloud solutions. But what is a true cloud solution?
Some say that a true cloud solution is a multi-tenanted one i.e. one application shared by multiple companies and furthermore this camp would argue that their applications are newly developed and optimised for running in the cloud. In other words it’s not tired old software re-purposed for the cloud but an entirely fresh approach with considerable innovation, for example, better collaboration, embedded social capabilities and mobile computing possibilities.
They would argue that because businesses are moving to the cloud all of the innovation is either already in or likely to be in the cloud.
By contrast, some traditional on-premise software vendors would agree with this and have developed new multi-tenanted applications specifically for the cloud. Some say they are now “Cloud-first” companies – clearly signposting that they want everyone to move to the cloud.
However, others argue there is nothing wrong with re-purposing existing software for the cloud. It may not be fashionable, it might not be novel or even multi-tenant but the functionality is very rich, developed over decades and will often outstrip anything that relatively new cloud vendors can provide. Added to which, the end user is able to benefit from the advantages of the supplier running the environment – may be the hardware and software and the application as well.
In fact some on-premise vendors FSN have spoken to argue that not having multi-tenanted software is an advantage because the end user can decide when to take new functionality on board and not be forced to accept a general upgrade imposed by the vendor. And some CFOs like the idea of their own dedicated hardware in a so called private cloud or something in-between in a managed cloud.
So you can see that the debate isn’t black and white. It depends on what suits the individual CFO.
And in another twist, some of the on-premise vendors are not offering all of the functionality that they have at their disposal in the cloud. For example, in the CPM space we are seeing the mega-vendors offering budgeting functionality in the cloud but not consolidation. On the other hand some of the Tier 2 vendors are putting the whole ‘shop’ in the cloud – with some great success.
So where does this leave the poor CFO?
Well it’s a really confusing market and there are no easy answers. It’s going to take several months and maybe up to a couple of years for this to shake out, as it is only now that software houses are starting to make their intentions clear. Each software vendor needs to be looked at separately on their merits.
And of course there is a mid-way. What we are seeing at FSN is companies cherry-picking what they want to solve a particular problem – almost opportunistically. So some applications might be cloud-based, for example, disclosure management, CRM, Travel and Expenses and budgeting in the cloud with ERP staying on premises. Yet there are others that have adopted fully CPM or ERP in the cloud.
At this stage of the market’s maturity it is simply not possible to say whether cloud vendors or newly arrived on-premise vendors in the cloud will win the day. What we at FSN wanted to bring to your attention as CFOs, is that the market dynamics are now changing very rapidly and when someone says to you that they offer a cloud solution make sure you really understand what is on offer.