by Debbie Wilson | September 7, 2018 | Comments Off on “Will ERP Partners Get Lost in the Cloud?” by Paul Schenck
There is a shift underway in IT and in ERP, the shift to the cloud. Some end user organizations are creating cloud first strategies where on-premise solutions are only considered as a last resort. Vendors are leading (and pushing) this shift with SaaS, IaaS and PaaS offerings headlining their conferences while salespersons are heavily incentivized to sell these products. The recurring revenue streams of these subscription services are much preferred to the perpetual licenses of old ERP. Not only do the CFOs of the vendors like the consistent revenue, but the CFOs of the end user organizations may like the more consistent and predictable expenses. There are no big cost spikes every few years for major software upgrades or data center refreshes. However, total cost of ownership is not always lower, on-prem systems often deliver solid value at low cost in later years.
In between the end user organizations and the vendors sit ERP partners, often in service functions. They may be closely associated with major vendors as a Gold or Premium or 5-Star partner. They may function more independently (to the consternation of vendors) to offer 3rd party services such as maintenance for legacy on-premise systems. They may provide general application management services or focus on handling administrative functions. They could be engaged in developing customization upon customization for a host of clients. For many of these partners, the cloud presents a looming challenge on the horizon. Many of the services offered will be significantly diminished as the vendors start to take back those responsibilities due to the exclusive control granted by their cloud offerings.
Cloud ERP systems have not hit the mainstream yet, so ERP partners still have a positive short term future. It depends on their focus though. Those that focus on administration may be seeing challenges sooner due to the faster adoption of IaaS. Partners that focus on customizations, development or AMS may see flat and soon declining business as end user organizations implement freezes in anticipation of moving to the cloud later. Partners that specialize in extending support for legacy on-premise systems will continue to grow as vendors pull back from the older products. More customers are having support reduced than are moving to the cloud. This is not a long term business model though since eventually there will be a tipping point when mainstream adoption across ERP occurs. The number of organizations needing extended on-premise support will rapidly dwindle in conjunction with spikes in cloud adoption just before big vendor dates like 2025 or 2030.
The question then is: what happens to the large ERP partner ecosystem beyond the 10 year horizon? There are a couple very different possibilities in my crystal ball.
- As mainstream ERP cloud adoption occurs, major vendors will be unable to cope with the demands of their now massive cloud user base. Feedback from the early adopters of public cloud ERP mention that new requirements are placed in a backlog and addressed directly by vendor R&D in an upcoming quarterly release. This is not a scalable solution. Over time the requirements already solved and delivered will provide a broader base of functionality, but it will not match the increase in new requirements. The shortfall will drive a resurgence in ERP partners, functioning similar to today, meeting those custom requirement except it will be via PaaS solutions that can be more highly leveraged through ERP app marketplaces.
- The evolution/revolution of A.I. will require much more standardized processes and data to be effective and efficient. This will further challenge and nearly eliminate ERP partners which focus on customization, administration, and maintenance of older non-AI compatible technology. ERP partners will be forced to change their focus to extending AI tools further into the suite and in the process pushing out more standardization, not customization. Most ERP partners as we know them today will evolve or perish.
These are two very different future scenarios. It is a ways off. Either one could occur or it could be somewhere in the middle. Maybe neither. What I can say is that end user organizations and vendors are going toward the cloud and that trend will continue. ERP partners will definitely have some ups and downs and the status quo will change significantly in 5-10 years. Beyond that it may eventually return or go away entirely, the answer is somewhere up in the clouds.
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