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According to Panorama Consulting Group, a respected mid-market ERP think tank, they are starting to think so. Eric Kimberling and I actually seem to have a pretty parallel feeling on the market. Both of us felt the solutions were seriously overhyped. However, based on more recent surveys, the various leads I’m seeing cross my desk, etc, I’m starting to think I may have ‘misunderestimated’ the growth.

Now, I want to be clear, I still think it will be a relatively small part. In my opinion, less than 15% of all deals. The survey says large numbers are considering ‘the cloud’ but I also have found many folks consider it because of the hype but when the run the numbers, realize that on-premise is often far less expensive over a 10 year cost calculation. Read on for more.

Some are confused by ‘the cloud’ vs ‘SaaS’ terminology. SaaS stands for ‘Software as a Service, and is essentially the ‘rental’ of software. Technically you could pay for a SaaS solution and host it on your own computers if the solution is designed to work that way. Cloud computing is where the hardware is located in a data center somewhere and you access the applications remotely. You could take any on-premise solution like a MAS 90, MAS 200, Dynamics NAV, Navision, Axapta, Epicor, SAP Business One, etc. buy it in the traditional manner and instead of installing it on your own servers pay a company a monthly fee to do so for you. Companies like Navigator Business Solutions took SAP's solutions and put it in their secure data centers. Given their pricing model, I can see many scenarios in which this is better than an on-premise solution. It all depends on how many other systems you need, what type of internal IT personnel you have and whether you can reduce that headcount etc as that’s generally the biggest cost component when calculating a Cloud or ‘Hosted’ solution price vs. on premise. To me, Cloud and Hosted are the same thing, just that Cloud is a more modern word for it.

There are a lot of challenges I still see with pure play SaaS accounting software vendors that host their solution. Hosting their own solution means they must pay for data centers and staff to manage them much like you do in house. Most of them still have a pricing model that combines the software rental and hosting into a per user, per month cost. When you multiply that out over 10 years vs. the cost of new hardware, one replacement cycle, the software purchase, annual maintenance etc., I still find the 10 year cost of mid-market SaaS vendors to be much higher than on-premise. They will show you spreadsheets as to why its not, but I find most of the assumptions and costs in the spreadsheets very unrealistic.

There are some new models that have arrived and are growing very rapidly. One unique one is SAP Business ByDesign. SAP Business ByDesign, can have 100% of its functionality run purely in a web browser as an HTML native solution. It can also be run as a ‘smart client’ which is traditional desktop software that self updates itself from the server. As with many solutions, desktop software tends to be ‘richer’ in functionality and speed because you can use the local processing power of the PC, but that line seems to be blurring over time. With SAP Business ByDesign, you pay a simple monthly fee for the software and hosting. Currently its offered to a broad set of businesses and sizes. Besides its current SaaS or Cloud manufacturing software, they will be rolling out solutions such as distribution software, financial software, professional services automation (Project Accounting) and others. The unique capability is you can take all of your setups, customizations, reports etc., and bring it on-premise anytime you want. There is even some financial credit given toward the move based on how long you have been using SAP Business ByDesign.

To me this model is the best one I’ve seen. It allows you to implement a full powered ERP solution, with all the benefits of SaaS, but yet the option to make it a central part of your internal systems at any point without switching systems and re-implementing software.

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