Public or Private Cloud?

By Pat Garrehy, Rootstock

It goes without saying that one goal of a Public Cloud platform provider is to attract as many software companies as possible to ‘rent space’ on their platform. Quite naturally, all Public Cloud providers invest in software and infrastructure which makes it easy for software companies to develop a contemporary product. However, the Public Cloud providers are competing for software companies – and their customers – to be long term renters of their platform. It, therefore, behooves the platform provider to also provide an ecosystem which can provide additional benefits to the software company’s business.  

In 2007, after I had sold my On Premise ERP company and was contemplating how our new company would enter the ‘Software as a Service Market,’ I did some extensive analysis on the existing hardware platforms and concluded that Public Cloud platforms were not robust enough nor did they have the industrial strength development tools to develop a scalable ERP system for complex manufacturing.

That has now changed and, since that time, significant investments have been made in Public Cloud platforms. Indeed, the Public Cloud has attracted software developers of all types, including ERP companies, and many are now developing on that type of platform.

A Cloud ERP software provider that is evaluating a Public Cloud Platform can determine that there are a number of platforms that could technically support the development of a scalable ERP system.  Salesforce, Google, Amazon and Microsoft are well-known Public Cloud platforms that could support the development and operation of an ERP system. These platforms scale and they also have good software development tools so that they can attract software developers to build on their platforms. Not only is platform scalability and easier development an important criteria, but there may be other business considerations as well as to which Public Cloud platform to select for the development of their company’s software product.

For example, for those business application software providers that would like to live within a ‘best of breed’ ecosystem and easily integrate to other business applications, the platform of Salesforce today has the advantage over other Public Clouds. On, using advanced integration development technologies provided by Salesforce, a number of software developers have developed their applications so that they can easily integrate with other applications on the platform – not to mention their integration to the Salesforce applications of CRM and Service Cloud.

One would think that for a ‘forward thinking ERP company,’ that this benefit is most attractive to them. As new point software solutions join the ‘best of breed ecosystem’, there are surely some that can extend an ERP software provider’s footprint.  Thus, an important consideration of an ERP provider on a Public Cloud Platform that promotes and invests in a ‘best of breed’ ecosystem is that they can extend their application by integrating with complementary software applications, rather than having to invest in developing extended functionality outside their core solution.  

While these are important considerations about Public Cloud platforms, what about Private Cloud ERP companies that host their own software?  One could say that given the investments made by Salesforce, Google, Amazon and even Microsoft in their “Public Cloud” platforms, it is becoming increasingly difficult for ERP vendors who depend on their own Private Cloud platform to keep up with the technological advancements of that achieved by the Public Cloud providers. There are some Private Cloud ERP companies that developed their software before the robust Public Cloud platforms were available.  There are others, such as SAP, which only considered its own Private Cloud platform and has the financial strength to invest in its own platform and technology.  

Regardless of when the ERP software was developed for the Cloud, what about these other Private Cloud ERP vendors that don’t have the investment resources of a SAP to invest in their own Private Cloud Platform?  And, if they can’t match SAP, they certainly don’t have the resources for platform investment as do Microsoft, Google, Amazon or Salesforce. Nonetheless, in future years, they will need to maintain equivalency in capabilities in their platform when compared to the major Public Cloud vendors in order to remain competitive.  

This could be an expensive proposition as the major Public Cloud platform providers are continuously making major investments to keep up with ever-changing technological developments. And, of course, those investments are substantially funded by the ‘renters’ of their platforms. Those smaller Private Cloud ERP providers, that really don’t have renters, will be playing catch-up in the technology game for ‘platform investments’ as compared to the Public Cloud platform provider. If they don’t keep up, their ERP software won’t be as technologically robust as compared to ERP software of their competitors on a Public Cloud Platform. Any investment in enhancing the software and technology in the platform by a Private Cloud ERP provider is an investment that the ERP provider on the Public Platform doesn’t have to make.  

While the Private Cloud ERP provider, in addition to the investments in their many ERP software modules, also must invest in their hosted cloud platform. The Public Cloud ERP provider need only invest in their core ERP functionality. When you consider those Public Cloud ERP providers that are also a part of a best-of-breed ecosystem, it will be very difficult over time for the Private Cloud ERP company to maintain equivalent functionality to an ERP company that is on a Public Cloud. This is especially true when one considers that they are competing with the deeper core modules of the ERP provider integrated with the various ‘point solutions’ of their software partners.

In the CLOUD ERP world, it may be easier to predict what will not be a winning strategy as it relates to the practicality and survivability of the Private Cloud for ERP.   For example, for the reasons noted above it will be difficult for smaller Private Cloud ERP software companies to take major market share as Public Clouds gain momentum.  But what about the big Private Cloud ERP software company, SAP? Will it take a significant market share of the Cloud ERP market as it did in the On Premise ERP market?  

This is a different world going forward and, as the best-of-breed solutions enjoy increasing success, SAP in the Cloud probably won’t seem as functionally complete to the buyer as an ERP with complementary software that is part of a best-of-breed ecosystem. This will become especially evident as application software vendors aren’t clamoring to get onto the SAP Platform because of SAP’s history of trying to provide all of the software components of an ERP solution.

While one should definitely ‘think twice’ about going to a Private Cloud ERP provider, there are still some interesting questions about Public Cloud Providers and their affect on the ERP software market. Will Google, Amazon, Microsoft and Salesforce all offer cost competitive packages so that software vendors don’t discount one or the other for being cost-prohibitive in renting their services? Another consideration may be that two of the Public Cloud vendors have their own Business Applications. For example, Salesforce and Microsoft have Public Clouds but they also promote their own application software. Why would a software vendor with a CRM package that competes with Salesforce develop their software on the platform? Would not an ERP Cloud software vendor considering Microsoft as its Public Cloud wonder about Microsoft’s possible preference in deploying Dynamics AX or Dynamics GP in the Public Cloud environment? Amazon and Google are Public Clouds which don’t offer competing products to most business application software vendors, but are they fostering a best-of- breed ecosystem similar to the platform, which provides those advanced software integration capabilities that effectively insure the opportunities for easier integration amongst all of its software partners?

The Private Cloud Alternative – Be Careful
Private Clouds hosted by the ERP provider are closed to most software vendors. Sometimes that’s by policy. In other cases, there is an absence of robust software development tools for third party software providers. In some situations, it may appear that there is a wonderful opportunity to develop software that will interface with the ERP provider on their Private Cloud. Yet, there is always the concern that a Private Cloud ERP provider may decide to develop their own version of the software after the market has displayed potential. In so doing, it would be an obvious deterrent for other application software providers to develop complementary modules lest they get a market opportunity snatched from them by the Private Cloud ERP provider.

Therefore, the bottom line is this. If an organization is considering a Private Cloud ERP vendor, it needs to undertake some comprehensive analysis to be assured that this vendor can satisfy all of their business requirements – not only their current ones, but those in the future as well. If considering a Private Cloud ERP provider for one’s ERP system, the buyer should question where will the ERP company’s future R&D investment go?  Will it be towards investing in the platform to keep up with the trends of the day? Will the best-of-breed ecosystem enjoyed by some of the Public Cloud ERP companies provide such a broad solution set to the user that they will need to invest in their ERP functionality just to keep pace? And, finally, will the Private ERP Cloud company try to do both – and succeed in doing neither?

ABOUT THE AUTHOR:  Pat Garrehy is the Founder, President, and CEO for Rootstock Software and has an extensive background as a software architect and engineer. With over 30 years of management, sales and technical experience, Mr. Garrehy brings a unique blend of analytical focus and business savvy to the table. Mr. Garrehy is also the founder and former CEO of Relevant Business Systems, a client-server ERP software provider with an exclusive focus on discrete manufacturing companies. Relevant, which was sold in 2006, remains the most profitable division of the acquirer to date. As a University of California at Berkeley graduate, he holds a BS degree in business and mathematics as well as a MBA in finance from the University of Southern California.