Strategy for a VARs Transition to the Cloud

We just attended an excellent webinar on Cloud Strategy by Bruce Stuart, President of Channelcorp.  Mr. Stuart’s comments were clear and insightful and we would highly recommend you attend a session of his when offered the opportunity.  By breaking down the market and business models, a business owner can understand how they can position their consultancy in this new market.  Some specific insights include:

• The “Cloud” model represents a “permanent shift in how computing power is generated and consumed”
• The move from traditional sales and service models to the cloud model is more akin to a bone marrow transplant than a blood transfusion
• The approach to sales and their relative cost is radically changed

Permanent Shift

As opposed to many of the “talking heads” and “market experts,” Mr. Stuart was cognizant that many of the huge figures associated with cloud adoption and dollars being spent are associated with large enterprises and government spending on cloud technology.  He also pointed out how adoption across industries is not consistent.  However, regardless of how big the numbers are or will be, the facts are clear that all computing will not be done on premise and that a significant amount has shifted to the cloud and will likely never return to the old model.

The permanence of the shift is supported by a new paradigm in the market.  Today people are developing cloud applications with the understanding that profitability will not be achieved in the short term.  This long term view is allowing supply to drive demand.  In other words, companies can now develop new applications to serve a specific purpose or market and create demand for that product/service with investors that know it will take 4-5 years to generate a return on their investment.  Statistics quoted include, “80% of all application development” in 2012 is geared towards cloud applications.

Hard and Painful Transition

Giving ore receiving blood is a relatively painless chore with tremendous benefits.  Giving or receiving bone marrow can be very painful and is often a matter of life and death.   Doing nothing is almost never a successful strategy, so how can a VAR adapt to the new realities of subscription based pricing?

The first and most important task is to have a strategy based upon market realities.    Many reselling and consulting organizations survived the economic malaise by providing excellent service to their existing customer bases.  Growth always came through new client acquisition, but many VARs cut costs in sales and marketing to match the dwindling number of new customers.  Especially in the ERP market most companies have a system and most are keeping them longer, so VARs shifted to consulting and advisory services.  The software companies can’t thrive and grow without new customers and in reality neither can VARs.

The problem with going after new customers and/or new markets is the cost of client acquisition.  Most VARs understand that traditional marketing is not as effective as it used to be and most do not have dedicated marketing staff.    Now, factor in how the new “cloud model” defers revenue from the initial sale to a long term annuity.  Although the annuity should generate more profit over the long term than a perpetual license, the reality is that most VARs were not structured for this model and will need to transition to an annuity model over time, or have to finance the change.

Mr. Stuart presented at least 6 viable business models.  Some of these models are radical and some are more transitional.  Depending on your current business model, you may have to  recreate your organization, spin off a division, hire and fire based upon skill sets, contract or expand your organization.  You may choose to focus on services, become an agent rather than a reseller or find new partners.  One piece of advice: have a plan.

Shift in Sales and Marketing

Most traditional sales were accompanied by a large upfront payment and a large commission to the sales person.  Subscription models are attractive to customers because they shift away from the large capital outlay to a predictable operating expense.  If you forgo the large up front payment you need to either

1. sell a lot more deals
2. finance the cost of sales
3. defer compensation

The problem with option 1 is the cost of new customer acquisition.  If customers were beating down your door, you would not be reading this.  If you want to open a new market or pick up a new product it is expensive.  If traditional marketing methods are less effective, you need to spend more $$$ per deal.  Next, ask your sales person to defer their compensation and see how that goes.  But it is not all doom and gloom, but points out the need to change approach.

I-BN has been making the transition over the past few years and are starting to see benefits from our change in approach.  Some trends we have noticed include:

• Customers want to self qualify more and be sold less
• Compensation strategies need to shift to match revenues and expenses (and some people like the idea of job security over immediate compensation)
• More focus and real targeting increase the efficiency of marketing

Conclusion

There are many approaches to the cloud and if anyone can tell you they know the silver bullet, RUN.   Your approach should be adjusted based upon:

• your organizational strategy, core competencies, market etc.
• whether the software is
  • web native and hosted by the developer or
  • web enabled and hosted in data centers by the publishers or third parties

If you work with traditional mid-market software and are planning your cloud strategy, consider partnering with a full service provider like I-BN that knows the cloud, the particular  software like Sage or SAP, and is focused on the integrations and/or industries that are important to your customer base.  Working with I-BN makes you the air-traffic controller for your customers, steering them clear of storm clouds and bad decisions based upon hype.

SAP Business One On Demand Officialy Released!

On the opening day of CeBIT, SAP  announced the availability of SAP Business One OnDemand.  SAP Business One is a single, integrated business management application that is specifically designed to meet the needs of small businesses. With over 30,000 customers running SAP Business One, the solution has already found widespread success among small businesses and subsidiaries of large enterprises. Now, SAP is aiming to build on that success by offering the application as an on-demand solution.

The SAP Business One OnDemand is a new licensing model for SAP customers.  This new licensing model allows for 5 user or larger systems to subscribe to the Software as a Service in authorized data centers around the world.  SAP Business One OnDemand has committment terms from 1-4 years and pricing based upon the license type selected by the customer.

I-Business Networking (I-BN) has been a leader in SMB Cloud Services, offering its Business1 Online service since 2004.  This new offering increases flexibility according to I-BN President Gary Feldman;  “Business One OnDemand is more than a new licensing model as SAP has committed to offering B1 in the cloud.”   SAP will continue to offer Business One on premise and maintain a single code base, but enhance the code to make it more cloud friendly.  “We anticipate SAP adding multi-tenancy to the product,” continues Mr. Feldman, “enabling service providers like I-BN to reduce the infrastructure costs and related pricing to our end customers.”

Business1 Online has been fueling the growth of I-BN and with anticipated lower infrastructure costs, I-BN anticipates even greater adoption rates.  The I-BN Start & Grow program has been successfully deploying Business One in weeks at less than 50% of the services costs of a traditional on-premise deployment for customers with 1-5 users.  This program was specifically designed for companies that are outgrowing entry-level packages like QuickBooks and Peachtree and need the flexibility and  power of SAP.  Now with SAP Business One OnDemand, larger SAP customers will also be able to take advantage of drastically reduced up-front costs and rapid deployment techniques.

To learn more about the I-BN Start & Grow program visit the website at http://www.i-bn.com/SAPStartAndGrow.php.

For general information on SAP Business One visit the website at  http://www.i-bn.com/sap_home.php

Or call an I-BN representative at 678-627-0646 x230

SaaS – New Research on Economics

New research continues to show Software as a Service (SaaS) has a lower total cost of operation than traditional software implementations.  The latest report on SaaS Business Intelligence (BI) from the Aberdeen Group shows a lower user cost on all four components measured:

• License/Subscriptions
• Hardware
• Services/Maintenance
• Internal Support

License Costs in a subscription model are almost always lower in the short term when compared to a perpetual licensing model.  For BI the research showed an annual license cost of $101 for perpetual versus $46 for SaaS.   These numbers can be affected by a number of factors in the research:

• The traditional perpetual licensing model often uses a concurrent user model vs. a named user model more common in SaaS.  When larger number of casual users exist, a concurrent user model will have cost advantages.
• The term of the subscription usually impacts a discount level in SaaS.  The longer the commitment to a subscription the higher the discount.  However, in a perpetual license, after purchase the annual maintenance costs are typically 17-22% of the original license costs.  Therefore, the longer the evaluation period, the lower licensing costs will be on an annualized basis.
• The cost attributed to SaaS often includes a free trial period (which can be from 30 days to as long as a year).  This period also impacts the stated annual costs and can skew the data if analyzed over a shorter term.
• The Aberdeen Report compared prior 12 months spend per user over a sample size of 300 companies of all sizes.   The report did not show a breakdown of new vs. long term installs, how many were on free trials over what period and other factors necessary to validate the cost advantages.  I-BN research has found a consistently higher total license costs for SaaS when compared to Perpetual Licensing between 2 and 6 years depending upon the software and incentives offered.

Hardware costs are always lower in a SaaS model when cloud computing is incorporated in the subscription.  The infrastructure component of a subscription  can be as low as a few dollars per user in a web native application and between $50 and $100 for a web enabled application and is not typically attributed to hardware.  When the research shows a hardware cost of $30 per user to $70 for traditional, they are typically analyzing the costs of a dedicated server component which must be sized for the peak load.  In SaaS deployments hardware costs are often limited to just the components that need to access the web.  The client can use a tablet, a dumb terminal or any laptop or desktop with limited resources as all the computing power is in the cloud.

• Hardware costs are always lower in the cloud if comparing equivalent service levels.  On-premise installations rarely are equivalent in terms of redundancy, scalability or security to the cloud deployment.  In smaller organizations it is impossible to quantify  or cost justify the cost of 1/4 of a persons time for this or the time the administrative assistant uses to take backups offsite.

Services and Maintenance  costs are also refereed to as Implementation and Support costs.  One of the biggest Myths of SaaS is that professional services are not required.  In the case of BI, Aberdeen found that services and internal support cost $328 per user when compared to $477 per user for conventional BI.  Lower services costs can be empowered by:

• Customers often expect less customization in SaaS and standardization reduces “customization” costs.
• End users often exhibit a higher degree of self service in a SaaS environment than in conventional deployments.  Aberdeen research found that SaaS BI users are almost totally self sufficient when compared to only 38% of conventional BI users being self sufficient.

This self sufficiency greatly affects the internal support cost in terms of full time equivalents per BI user.  Aberdeen found:

“…organizations that use only SaaS BI can support over 450 business users with each Full Time Equivalent (FTE) working in a supporting IT role.  Conversely, organizations that spurn the use of SaaS need one FTE to support 365 business managers.”

• I-BN has reduced professional services implementation costs by over 50% in ERP installations through the use of standard configuration elements.  
• In smaller entities with less than hundreds of users, cloud deployment can greatly reduce internal support costs as well.  Some SaaS agreements include unlimited support while others are pay per call.  Depending upon the size of your organization and the internal support infrastructure a SaaS agreement can be structured to limit the internal support costs to meet the unique business requirements.

When listening to the news or reading research reports (or Blogs for that matter) it is important to understand the bias of the reporting entity.  Quotes like the one above which report on “organizations that spurn the use of SaaS” appear to be biased in favor of the SaaS deployment approach.  I-BN has found that licensing costs are consistently higher in subscription licensing over longer terms.   When analyzing total costs we recommend that you look at several factors:

1. What is the anticipated life of the system?  In a rapidly growing organization an entry level system may have the lowest total cost.  Deferring a larger cost for a more scalable system may be desired if the lower level will last 3-5 years.  In that case SaaS may be more advantageous.  If the system will last longer, you may want to consider a perpetual license with a cloud deployment or an on-premise deployment depending upon your organization’s technical expertise and demographics.
2. How many locations or remote professionals do you have?  The more remote access required, the more beneficial SaaS becomes.
3. How does your usage vary over time?  If you have high peak usage, will the SaaS provider allow you to scale up and down?  Cloud providers often charge per unit over a specified period of time (an hour, day, or month) but SaaS contracts often have annual minimums or require 90-120 days notice to scale down.

There are also many soft costs that are rarely considered.  What is the value of 99.99% uptime?  What can management do better if IT hassles are removed from their responsibility?

In the right circumstances SaaS is clearly more cost effective based upon this most recent Aberdeen and other research.

Sage ERP MAS 90 Online Prospect Guide

Sage ERP MAS 90 Online (MAS Online), the cloud-based solution of Sage ERP MAS 90 and 200, a fully integrated business management solution. MAS Online is an ideal deployment option for businesses that have outgrown their small business accounting solution yet may not have the budget or staff to deploy an on-premise ERP solution. MAS Online offers seamless migration to on-premise ERP as business needs change, and it is supported by Sage’s expansive network of local business partners.

“SMBs need solutions that are easy to deploy and can adapt to their changing needs—making it important for vendors to offer various ERP deployment options,” said Laurie McCabe from SMB Group. “With Sage MAS 90 Online, SMBs don’t need to invest in IT infrastructure, and they can get up and running more quickly. The online version also offers predictable all-inclusive monthly pricing and anytime-anywhere access to their ERP solution.”

Ideal for an organization with a workforce distributed across multiple locations, MAS Online allows you to stay mobile and centralize key functions like accounting and operations on a standardized back-office solution. MAS Online enables you to:

• Get your system up and running quickly
• Make affordable monthly payments, rather than making an up-front capital investment.
• Enable your team to be mobile and more productive by using a powerful suite of modules ranging from financial and accounting, business intelligence, reporting, and operations, to distribution and light assembly.

If business circumstances change, MAS Online customers can easily and cost-effectively transition to the version of Sage ERP MAS 200 or 200 SQL or migrate on-premise. You are in control of your data and your system.

• Flexible online deployment of a suite of powerful ERP modules
• Reduces the need for an internal IT infrastructure
• On-demand deployment allows you to grow easily
• Smooth transition to on-premise if needed

I-Business Network has developed a comprehensive guide for companies considering cloud computing for their small to mid-sized business using the Sage ERP MAS Online technology. This guide is designed to assist companies in selecting the best solution for their current and future needs and includes:

• Migration to and from the cloud environment
• Differences in online vs. on-premise solutions
• Support and implementation options
• Comparison of Sage and partner hosted environments
• Pricing models and components of cost

To obtain your free copy of the report, call toll-free 678-627-0646 Ext. 230 or visit the I-BN website

Cloud Market Research – Why terminology makes a difference.

I-BN was recently asked to participate in a Business Software Study researching preferences for deploying new business software solutions on-premise (behind a “firewall”), in the Cloud, or some combination thereof.  These studies are of great interest to us, but the wording of the questions is always of almost equal interest.

The first anomaly of wording to strike was the seemingly odd definition of:

on-premise = behind a “firewall”

If the wording would have been, behind the corporate firewall, that would make better sense.  The wording behind “a” firewall almost assumes a cloud application is not behind a firewall.  Most industry experts would agree that both public and private clouds then to not only have “a firewall,” but that it would likely be better hardened than those of most small to mid-sized enterprises.

The next definition of Interest was Software as a Service or SaaS for short.

“SaaS” refers to the delivery and use of application or infrastructure software via a network. SaaS is typically sold, delivered and paid for using either a subscription model, or via a consumption-based “pay as you go” (PAYG) approach, or some combination of both. Other terms that are often used to describe the purchase and deployment of SaaS application and infrastructure solutions include “Cloud Computing” or “On Demand” computing.

This is actually one of the better definitions of SaaS.  It contains several key elements of SaaS:

• SaaS as a procurement model –  A key component of SaaS is that consumption nuance of Pay as You Go (See our post from 2010 – http://ibnblog.wordpress.com/2010/01/20/cloud-computing-consumption-nuance/).  Rather than locking down this element into a single definition, the research company is allowing flexibility in both software or infrastructure.
• SaaS as a deployment model - Because most SaaS is deployed in the cloud, customers do not have to purchase equipment and infrastructure licenses.

I-BN sees these two elements as separate and distinct as the nature of business operations can result in what some may consider conflicting answers.  For example:

 Your organization develops software for Facebook or mobile devices, you will likely need a very robust and dynamic computing environment for your operations.  The cloud makes perfect sense for operations.  With the speed of change in technology you may even want to subscribe or rent your development tools which are ever-changing.  The number of developers may vary widely with releases and with popularity of your applications.  Paying for consumption of those tools is also very attractive.

In that same organization the finance department needs new software for managing the business.  The number of users in the back office is small and relatively constant.  Stability and predictability are very important to the finance department and turnover is low.  Finance anticipates keeping the system for 10 years or longer by acquiring software from a reputable vendor with a long history of innovation and success in the market.   It may be more cost-effective to deploy this application in the cloud, and procure software licenses via a perpetual license than a subscription license.

Is one answer correct and one answer incorrect, or is this organization best served by a hybrid model?  At I-BN we have always believed that cloud computing and SaaS should be considered based upon the facts and circumstances of each company.  The pendulum may be swinging towards cloud, but we predict some hybrid (part cloud, part on-premise) will be the eventual winner for many organizations until 99.99% is achieved for connectivity as well as cloud uptime.

With clear definitions in the beginning of the survey we were very hopeful that the report we will eventually receive would provide clarity of marketplace perception.  However as we completed the survey we found questions asking for deployment preferences of:

• On Premise
• Hosted
• Hybrid
• Cloud

All of a sudden the word hosted crept in without definition.  Later in the survey Hybrid was defined (parenthetically) as “cloud with on-premise components.”  And then… to our dismay, the big question was phrased

“…please indicate when your company plans to purchase a Cloud or Software-as-a-Service based version in each of the following business software categories?”

If you are subscribing to a SaaS model, are you purchasing, procuring or renting?  If you are in a Hybrid model, should you answer this question as if you are using cloud?  If you have a SaaS solution with an on-premise POS or Bar coding component are you in the cloud or hybrid?

When definitions are unclear and opinions vary as to what is SaaS and when the buzzwords are acronyms (SaaS,IaaS, PaaS, etc.) results will have noise.  The old saying used to be, if you put 10 IT guys in a room and have them develop a network infrastructure for a hypothetical organization, you would get 10 different designs.  Today, if you ask 10 people to define cloud computing and SaaS, you may get 10 different definitions.

What Small Business Can Learn From SAP

SAP recently had their Field Kick Off Meeting (FKOM) for partners and sales personnel. At this annual event you get the usual motivational speeches and networking, but you also get a glimpse into the future of the company and why management is moving in that direction.

Key words repeated during the conference were:

• Innovation
• In-Memory
• Cloud
• Mobile

Innovation is change.  Some companies fear change while others embrace it.  The market and technology are changing under our feet.   People have said, “adapt of die” in the past, but this sentiment appears closer to the surface than ever before.  Gen Y has relationships online, and good friends they have never met.  Will sales be as personal as it used to be or will it be through community and social networking.  It appears that SAP is betting on both based upon the sheer number of sales people in the crowd and the topics of discussion.

Take away – People still buy from people that they know and like, but how they get to know and like them is changing.

All companies are continuously improving their software products.  SAP is trying to change the way they think about their products.  Instead of viewing ERP from a set of features and functions, they are looking at how ERP is used and how people work.   Instead of thinking of software to simply perform transactional record keeping, consider the questions that need to be answered to run your business better.  Now provide those answers to people who should be asking them in a proactive manner and you can transform your business and empower your employees.

Take Away – Think outside of the box and view transactions from 360 degrees and not just from a transactional perspective.

In Memory computing is about big data.  The amount of data being collected and analyzed by Fortune 500 companies is staggering and relational databases are not keeping up.  A new form of computational power is unleashed by the in memory computing technology.  SAP is taking their HANA technology for in-memory computing and utilizing it in all their products.  Even small businesses with a handful of employees will be able to use SAP Business One running on HANA in the not too distant future and Business Intelligence powered by HANA this year!  In today’s virtualized and global environment small business can power thousands of transactions per day building up larger databases than ever before through integrated e-commerce sites, EDI with vendors and automated work flows to field service technicians.  With HANA, complex reports that took 3 minutes to run take only 3 seconds.

Take Away - Technology advances will affect all segments of the market and they are coming even faster than ever!

Cloud computing is here and growing faster than ever.  As technology advances it makes using systems easier for end users, but often require new equipment and complex technology for the people who manage and maintain those systems.  Cloud computing removes the capital burden from organizations and eliminates the need to keep up with all the new-fangled technology like HANA.  More importantly Cloud Computing makes it easier to get the information employees, suppliers, and customers need in an efficient manner.  SAP is taking parts of its ByDesign SaaS product and offering them as point solutions.  Whether it is travel, expense reporting, or CRM you can subscribe to SAP Cloud solutions and have them seamlessly integrate with their on-premise solutions.  SAP is also making its traditional products like Business One more Cloud Ready and will offer subscription licenses for all of its products in 2012.

Take Away -  The cloud may not be for everybody, but SAP is betting that organizations can use the cloud is some part of their business to foster innovation.

Mobile devices are growing faster than any other type of end-user computing platform.  Smart phones, iPads, Adroid and Windows Tablets and even laptops with screens that rotate and flip to become tablets are becoming the favored form of computing device.  SAP now has mobile applications for all of its products and is making the mobile devices more and more functional.

Take Away – The mobile device is the platform your remote professionals, field service technicians and sales people will use to perform their daily functions today or in the not too distant future.  Mobile devices empower business owners to stay on top of operations anytime and anywhere.

SAP has been a leader in ERP for decades.  Understanding the trends and techniques driving this organization can give companies of all sizes insight into the future of technology in their own organization.  If you are going to catch the wave you need to get in position early and make sure it doesn’t come down hard on you!

Myths of the Cloud: CAPEX vs OPEX – What is the big deal?

In almost every article for Software as a Service and the Cloud a HUGE deal is made of the benefit of how new cloud applications convert capital expenditures to operating expenditures.  So what is the big deal?

A capital expenditure (CAPEX) is an investment in assets such as servers, software licensing and the implementation of the software.  If you buy the software, the implementation costs are includable in your asset as a necessary cost of preparing the asset for use.  Later enhancements, training, etc. are often expensed in the period as an operating expense (OPEX the cost of normal business operations).

For certain companies, mostly large companies, it is about budgets and balance sheets.

• If there is a freeze or a limit on capital expenditures (CAPEX) then a SaaS application is allowed where an investment is not.
• A company may have loan covenants and acquisition of a new system is often financed.  Although the new system adds an asset it also increases liabilities and can change the debt to equity ratio or affect loan covenants from lines of credit and other finance sources.

For most businesses these arguments are moot and miss the true economic questions:

1. Will the cloud/SaaS application provide a lower total operating cost?
2. Is there a long term commitment inherent in my cloud contract that may require balance sheet treatment?
3. Is there transfer of ownership which will require capitalization?

1. One clear benefit of the cloud is that you pay for the capacity you need instead of acquiring a fixed capacity in  a traditional model.  In addition, because of economies of scale, enhanced technology and other factors, a cloud provider should be able to provide the infrastructure at a lower cost of ownership (for comparable capability) than a small business can on its own.

Often the cloud provides new capabilities for remote access, integration and functionality that just isn’t available in entry level systems used by most small businesses.   In this manner the cloud can increase the top line further increasing the ROI or in effect offsetting the total cost of operation for the new systems.

Another factor that can lower the total cost of operations is the time to value.  Many cloud providers have developed rapid implementation programs and “pre-configured” elements to reduce implementation time and costs when compared to a traditional on-premise deployment.  I-BN’s “Start & Grow” program for Sage MAS 90/200 and SAP Business One have cut the deployment cost by as much as 75%  and has resulted in rapid deployments measured in days rather than weeks or months.  This again improves the ROI by reducing the upfront implementation costs and is much more salient than the CAPEX vs. OPEX argument.

2. Many SaaS applications require multi-year commitments and payment up front.  These multi-year commitments can also be financed.  In either case, you have created a balance sheet prepaid asset that needs to be amortized over the life of the commitment.  If financed, the associated liability must also be added to the balance sheet of the company.  This may not be a capital expenditure for company and may affect loan covenants differently than a traditional capital expenditure, but for most small businesses, who cares?

3. Companies like I-BN offer cloud services combined with software in a hybrid model.  Combining terms with cloud services our customers gain the benefits of an elastic cloud supported by leading technology and a team of experts with ownership of the business management software after the initial term.  In this type of arrangement ownership of the asset transfers to the company at the end of the term, and accordingly the asset should be recorded on the books of the company at the beginning of the contract term.

The concept of transfer of ownership is akin to purchasing versus leasing a car.  If you plan on a short lifespan for an asset, or  flipping a car so you are always driving new cars with the latest features, a subscription model makes sense.  If you plan to keep an ERP system for 10 years or longer, you must look at the total payments over the anticipated life and discount that cost using some expected cost of capital.  Often a subscription versus purchase analysis results in a 2-3 year break even on the licenses for purchase versus subscription.  For example, if a license costs $150 per month per user compared to $3,000 to purchase, without cost of capital in about 20-24 months the license would have been paid for.  Even if you factor in a 20-22% license maintenance fee, $600 per year compared to $1,800 per year adds up quickly in your ROI calculation.

So the bottom line is that CAPEX vs. OPEX should rarely be the deciding factor if a factor at all in systems selection.  A companies choice of business management platform should be based upon meeting your  business requirements, ease of use, and total cost of operations over the anticipated life of the software.

A Sucker Is Born Every Day

I was reading a great blog post by Nicole Laurier of Fisher Technology on the Juice Marketing blog, Software Sales: The Argument for Fixed Pricing (Ownership) or Monthly Subscription (Rental).  The article points out the effects of the current migration from perpetual licensing to subscription based licensing on Customers, Business Partners (VARs) and Software Developers.  The article makes some great points from each perspective:

• Customers gain predictability in cost and eliminates the large upfront costs for licenses
• VARs would lose their upfront commissions in favor or a long term revenue stream
• Software Developers gain increased contact with their customers  and can reduce the margins they pay their VARs

Nicole’s conclusions, even without a crystal ball, are that “the answer for customers, VARs, and software vendors would be to have some type of hybrid of both outright purchase and subscription options. In that way, businesses will have a choice of buying in the way they want.”  This is what I-BN has been advocating for years because the subscription pricing model tends not to be all inclusive.  Even if 100% of license, maintenance and upgrades are included, the subscription almost never includes training, configuration or business process redesign.

The real issue from a customer perspective is the method in which subscriptions are being sold, especially in the ERP market space.  Subscription based pricing is great for commodity services, short term projects, and businesses with cyclical businesses if subscriptions are variable.

• Credit card processing, tax calculation service, currency conversion, etc. are great examples of connected services which are commodities which fit a subscription model to the tee because you pay for consumption.
• Project based subscription software for construction, professional services, etc. are also perfect for subscriptions. Costs can be associated with and attributed to a project and turned off at its completion.
• Companies that have peak and valleys in usage can take advantage of subscriptions that are on a short time frame. Take for example a catalog company that has 100′s of call center people in the holiday season and a dozen during off peak times. A call center software paid per seat per month would be a perfect subscription application.

Regardless of whether the subscription is for a web native product like NetSuite or a web-enabled product like Sage ERP MAS 90 Online, there tends to be an annual or multi-year subscription.  There is no ability to scale down in off peak periods and ERP is not a commodity.  Changing ERP systems is hard work and disruptive to operations before all of the benefits are gained, so companies plan to keep ERP systems 10 years or longer.  Even if we can’t plan what technology or business will be like in 10 years, selecting an ERP package often hinges on the confidence that the software developer will be in business for the long haul and can keep up with new technology and business practices.

Companies like Sage, Microsoft and SAP have all done the math and calculated how much extra money they will make with subscription pricing (as part of their price calculations) based upon current and anticipated usage patterns. Customers will as well. Therefore, either subscription pricing will not capture a large ERP  market share or software vendors will adjust the policies to balance increases in revenue to the value provided by the lower up-front costs (similar to leasing).

That is unless you think, a sucker is born every day!

ASUG Business One Summit in Review

Last week the Americas SAP User Group (ASUG) held the second annual Business One Summit at the Lake Lanier Islands Resort just outside Atlanta.  This event, sponsored by ASUG and not SAP,  is designed for SAP Business One  users.  SAP supported the event by sending leading executives, the head of Business One development and several members of his team, plus several field representatives who performed hands on training on several aspects of the product.

In just its second year attendance seemed to grow to over 500 attendees and the expanded session offering included a wider variety of topics and speakers.  Some highlights of the event included:

• Keynote session by Conrad Mandela VP for SAP SME in North America
• Keynote session by Andreas Wolfinger Head of Business One Development Worldwide
• Business One Mobility Shootout – demonstrations of the Mobile device capabilities for B1
• Technical sessions on Crystal Dashboard Design, Business One Integration Framework and B1 Mobility setup by Eddie Neveux and Dan Love from SAP
• What’s new and What’s coming in SAP B1 sessions by Leah Divir, Idit Fydman-Saguey and Andreas Wolfinger from SAP
• Customer Experience Sessions such as the one led by Shawna DeBoer of Durks Farm Service

In addition to these great educational sessions, there were a number of Solution Provider sessions on industry specific topics or general business topics such as I-BN’s session “What Is the Cloud and When Should I Use It?  Solution providers also hosted several evening receptions and the Solution Fair where over 50 companies were able to demonstrate their products and services.  Several solution partners also sponsored a golf outing and nature hike.  Thanks to the generous sponsorship the entire event was FREE and a good time and tremendous learning was had by all!

I-Business Network is a member of ASUG and a sponsor of the Business One Summit.  I-BN also provided the technical infrastructure for the hands on training.

Myopic Vision: Open Source ERP = Free

I ran across one of those product evangelists espousing the virtues of open source ERP software. There are many potential value propositions that I buy in open source:

• A community of programmers can develop quickly and cost effectively
• Multi-platform and LAMP platform support can lower license costs and provide flexibility
• Eliminating the up front and ongoing license costs can save money

The operative word in the last bullet point is CAN.   The cost of an ERP system is made up of many factors; however, one of the least significant is the upfront license costs.  Don’t stop reading because a license may range from $1,000-$3,000 or more per user in a traditional implementation or $100-$250 per user per month or more in SaaS,  but think of the costs of an ERP implementation and the ongoing costs and benefits.

Typically, in traditional software implementations, the license cost is less than 1/2 or of the initial costs.  Don’t just think of the cost of an implementation partner and your internal staff costs, but consider the disruption of your business processes due to change, and the time it takes of leadership to effect the desired behavior from the staff.  Even in a SaaS world, if you compare the first year or two subscription to the cost of change it will pale if you consider all the soft costs.  In many cases, open source software needs to be supported by a programmer who customizes the solution to your needs and is often required to make changes to code when system capabilities are not available in the “free” version.  In either case, the efficiency and effectiveness of the implementation will determine the total cost of your initial outlay for the system.

Now think of why you are changing systems in the first place.  Your business processes need improvement, redesign or radical overhaul to deal with the new economy, competitive pressures, or to become a leader in your industry.  The benefits of the ERP system are driven by the capabilities of the system and its ability to adapt to your business and changing conditions.  Typically the “free” version of an Open Source ERP lack capabilities, support and require customization to meet and/or adapt your business requirements.   Custom development is always more expensive up front, and long term, if an out of the box or configurable solution is available.

There are many Open Source ERP systems which are not free or have an upgrade to a “supported” version.  In those cases, you typically pay for a support contract or a license fee similar to a SaaS or traditional software package.  Open Source ERP systems are becoming ever more functional and will soon have a broader appeal as they achieve parity with established traditionally developed packages.  These packages are never free.

You don’t buy a new system based upon what it can do for you in the first 3 or 6 months,  so don’t evaluate packages based upon initial costs.