As on-premises ERP dies a slow death, the hybrid enterprise, not pure SaaS, will be the dominant model for some time to come.
The future of the enterprise is very much up for grabs. Just as Salesforce.com proposed the end of software and then became very much a software company, Zuora's CEO Tien Tzuo recently authored a much-referenced article on the end of ERP, despite the fact that Zuora is very much a player in enabling a new hybrid enterprise that needs ERP as much as it needs Zuora's subscription billing software.
What Tzuo does get right is that business models are rapidly changing globally, and those that are more suited to the services world aren't well-suited to using traditional ERP software--which itself is an outmoded term more rooted in old-style 20th century manufacturing than it is in the dozens of industries and lines of business to which “ERP” companies like SAP, Oracle, Microsoft, and Infor now develop and sell on-premises software.
What's really dead or dying is the pure on-premises business, and with it the notion that IT is a purely inside-the-firewall phenomenon. And what's growing rapidly, aided and abetted by pure-play software-as-a-service vendors like Zuora and Salesforce, is the hybrid enterprise. Indeed, the question for many of these pure-play SaaS vendors is whether, in the long run, they'll be able to sustain their growth and market clout without having something to sell to the on-premises world.
While there's no denying the extraordinary growth of companies like Salesforce, the problem of coexistence with the on-premises world has always been the bete noire of many pure-play SaaS vendors. Zuora embraces this coexistence, as its subscription services model is unlikely to become the system of record in most of the large enterprises it's now targeting.
For Salesforce, the extraordinary demand for automating customer interactions in every industry and geography has mitigated the problem, independent of an immediate need for back-office connectivity. But as CRM on-demand and other SaaS models mature, the fact remains that co-existence with on-premises software, not its end, will be the dominant model for some time to come.
What I do grant Tzuo is that the definition of a customer and what the customer's relationship is with the enterprise will never again be the sole purview of an ERP system, if it ever was. Too much is changing in the product and customer lifecycle to think that ERP will evolve at its core to take on these new responsibilities. This is one of the fundamental phenomena that Tzuo refers to in postulating ERP software's end, and I agree wholeheartedly that ERP won't be the software that crosses that chasm.
But while many SaaS companies can look to purebred SaaS-based business models for much of their early growth, this dependence on net-new processes masks an even greater opportunity in hybrid business models. A good example comes from the ability to take the best of the new SaaS customer interaction models and use that data to create a vastly improved and nuanced demand model for the enterprise.
This improved demand signal feeds directly into the very ERP and supply-chain management systems that are supposedly on their deathbeds. While much can be done in the cloud to improve that analysis--just ask Demand Solutions, Kinaxis, and E2Open, among others--the results of those cloud-based analyses will not only add value to existing on-premises systems but will extend their life spans.
We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.