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Commentary

The Rise Of The Hybrid Enterprise

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 opportunity for hybridization isn't just about process; it's also about amortization and user acceptance, and the reality of how far SaaS products of today can go in the enterprise.

First and foremost, let's agree that there's really no way that a global ERP instance a la SAP ECC and Oracle eBusiness Suite could be ripped out and replaced by any SaaS ERP product on the market. Neither Oracle Fusion, SAP Business ByDesign, nor Netsuite can play this role today or in the near future.

And even if tomorrow, a product emerged that could, what possible financial incentive could there be to rip and replace an existing large enterprise on-premises system with a SaaS competitor? Large companies that are deeply entrenched with a given vendor's product can't be incented to move to a competitor's on-premises product for love nor money, much less move to a new vendor with a pure SaaS model.

Despite SaaS's opex vs. capex benefits, the disruption of such a large-scale project would be extraordinary. The end of ERP would be more like the death by a thousand cuts--a whittling away at the edges, slice by slice--but that could still take eons in technology time to happen.

The other problem with the end of ERP is user acceptance, and here I have to deviate from the common wisdom that new SaaS software is, ipso facto, more user friendly than non-SaaS software. (In fact, some of this “new” SaaS software is more than a decade, and several paradigm shifts in user experience, old.)

That, indeed, isn't even the issue. The issue is that when it comes to enterprise software, familiarity breeds contempt of new software, and moving the enterprise from a well-entrenched user experience to a new one, much less from an on-premises model to a SaaS one, involves expending enormous amounts of political capital. And for now, there's no post-ERP option worth that expenditure.

So, excepting the green field opportunities, the hybrid enterprise, not the pure SaaS model, will be the dominant model for some time to come. And it's this growing predominance of hybrid IT models that's driving SAP's recent acquisition of SuccessFactors and Oracle's recent acquisitions of RightNow and Taleo. Many see these moves as acts of desperation, signs that the old dinosaurs won't go down without a fight. But the reality is that SAP and Oracle are responding to a market opportunity to be the alpha software vendor in an increasingly complex business environment, one that combines--instead of eschewing--the older on-premises world with the new on-demand world.

This hybrid future is also driving Microsoft's Azure strategy and Infor's growing proximity to Salesforce's Force.com and Infor's integration as a service offerings. Even without buying their way into big cloud acquisitions like SAP and Oracle, companies like Microsoft and Infor are also furiously ramping up their hybrid enterprise strategies.

Perhaps the best indication of the growth of the hybrid enterprise can be seen in Informtica's spectacular success. Once the denizen of a sleepy corner of the data integration market, it has emerged as a powerhouse in the integration of cloud and on-premises data. The opportunity to mix and match big data in the cloud with big data in the enterprise has been powering Informatica's industry and recession-busting growth, with no end in sight. The beauty of Informatica's business model is that there's a lot of complexity in powering the hybrid enterprise and a lot more to the data end of the problem than the old ETL triumvirate of the on-premises database world. As enterprises move towards this hybrid model, they're going to need a lot of the non-ETL offerings in the Informatica portfolio.

So rather than the end of ERP, I see a resurgence. One of the effects of all the Zuoras and Salesforces, and Workdays--and SuccessFactors and RightNows and Taleos--will be to extend the value of core ERP for some time to come. I look at this phenomenon the way I look at home improvement: while it may be a lot of fun to imagine tearing down and starting over, if the foundation is solid and neighborhood is still good, it makes much more sense to upgrade the wiring, build a new addition, throw some solar paneling on the roof, and stay put. That's the most likely role of SaaS in the enterprise--enhance the value to the core on-premises systems, rather than replace them.

There will be a total end of software, a final SaaS revolution, but it will take time--lots of it. The proponents of revolution always have an abundance of vision and limited patience, but the fact remains that change happens in the business world more slowly than any of the proponents of SaaS would like to imagine. Their time will come, but not until we've squeezed a lot more value out of the hybrid model. And there's still lots more value to squeeze, even in those old, supposedly dead, ERP systems we all love to hate.

Josh Greenbaum is principal of Enterprise Applications Consulting, a Berkeley, Calif., firm that consults with end-user companies and enterprise software vendors large and small. Clients have included Microsoft, Oracle, SAP, and other firms that are sometimes analyzed in his columns. Write him at [email protected].

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