SaaS ERP Steals The Headlines

Clearly the ERP industry media darling is Software as a Service (SAAS) ERP systems. Often called on-demand ERP software, or sometimes called hosted ERP software, the highly touted disruptive technology has less to do with technology and instead presents fundamental shifts in the areas of software procurement, software management and application support. 

ERP SAAS systems are procured on a user-based rental or subscription basis. The ERP or accounting software subscription is normally based on the number of named users and invoiced annually. While user-based subscription pricing clearly lowers up front acquisition costs when compared to the more traditional capital expenditure required of on premise software licensing, some debate has been waged (primarily by on-premise software vendors) that implementation costs are not materially different and the Total Cost of Ownership (TCO) is higher for SAAS ERP software than for traditional software when forecasting over a five year horizon. However, according to a 2008 analysis in CRM magazine, on-demand CRM implementation costs can be 25% to 40% of the costs incurred for an on-premise implementation, as measured in terms of the costs for internal staff and professional services. TCO calculations vary by company, application and circumstances, however, analyst firm Yankee Group produced a reasonable on-demand versus on-premise TCO analysis which suggests that SaaS ERP systems continue to deliver TCO benefit over an extended software life cycle.

Analyst firms across the board appear bullish about continued growth of SaaS business software applications.

• Gartner predicts that by 2011, 25 percent of new business software will be delivered by software-as-a-service.
• Gartner also forecasts that the SaaS market will grow to $5.1 billion in revenues for 2007, a 21% increase from the prior year, and will further climb to $11.5 billion in 2011.
  
• A McKinsey & Co research and analysis survey among Service & Support Professionals Association participants discovered that the proportion of CIOs considering SaaS software procurement jumped from 38% in 2006 to 61% in 2007.
• A joint 2008 report issued by McKinsey and the Sandhill Group discovered that SaaS and service-oriented architectures (SOA) are the two most important movements in the software industry. The research among 850 enterprise companies showed that 74% of respondents were “favorably disposed” toward adopting software as a service solutions, with companies currently investing 19% of their software budgets on subscription-based and on-demand software solutions. The analysis report also commented that “nearly every company – or division of a larger enterprise – is a customer or a prospect for SaaS platforms”. In an interesting merging of the industry's top two disruptive platforms, the study also forecasted that while SaaS and SOA were currently on parallel development paths, “we expect them to converge in the future”, paving the way for a “tremendous battle between the largest software vendors and the newer SaaS providers”.

Tags: SaaS ERP software systems, hosted ERP, on-demand enterprise resource planning systems