Even as it has helped to reinvigorate customer, supplier, and investor interest, the adoption of SaaS as an all-encompassing descriptor for software delivered as a hosted service has blurred the distinction between it and previous models including the ASP approach. ASPs, which include suppliers of hosted ERP solutions, have understandably tried to distance themselves from a term that describes what is still widely believed to be a failed business model. Yet their service offerings continue pretty much unchanged. The problem with widespread use of the term SaaS is that associated expectations might limit understanding of the drivers and realities of hosted ERP. Prospective customers should be mindful that despite imprecise and overlapping meanings there are important differences between ASP, hosted ERP, and SaaS .
- License relationships are still separate for most hosted ERP services at the enterprise level. Whereas SaaS solutions like Netsuite or Salesforce.com are typically priced on a true subscription basis, meaning that the license charge is built into service fees, the same is not yet true for ASP models and hosted ERP services for Oracle and SAP, for which license fees remain separate (outside of specific service offerings like HR BPO in the case of SAP). Despite mounting pressure in the hosted ERP segment, independent software vendors (ISVs) have yet to provide true pay-as-you go pricing, fearing a negative effect on their market valuation.
- Hosted ERP entails new functional requirements as well as ongoing management. Whereas SaaS tends to suggest in buyer’s minds new software purchases or implementations, hosted ERP can involve both acquisition of new functional requirements and outsourcing of existing applications.·
- Hosted ERP fails other tests of SaaS conformance. Whereas the ISVs that produce the software delivered in the ASP model typically include providers of ERP, eCommerce solutions, and other software with diverse architectural legacies including client/server, most “true” SaaS solutions are built for subscription-based Web delivery from the outset.
Hosted ERP makes sense in certain customer environments that correlate, to a degree, with customer size. Historically, most ASPs targeted mid-range enterprises (as opposed to SMB customers), but units of larger enterprises and even some large enterprises have adopted hosted ERP. The decision to purchase hosted ERP solutions correlates with the following, among other, specific customer circumstances:
- New enterprises seeking rapid ERP enablement. As it was during the emergence of the earliest ASPs, new company formation continues to be a driver of hosted ERP implementation. Events such as acquisitions, divestitures, mergers, and corporate spin-offs are attended by significant time pressures and resource constraints that make conventional, on-site implementation too slow and cumbersome.
- Customers lacking access to qualified staff. Enterprises that lack ready access to qualified ERP resources, whether due to geography or other structural factors, are candidates for the hosted ERP model. This resource issue can manifest itself during initial implementation or ongoing management.
- Enterprises seeking regulatory compliance. Compliance is increasingly cited by customers and suppliers alike as a driver of hosted ERP implementation. Some enterprise customers, particularly buying units of larger enterprises, can come by regulatory compliance more easily by purchasing packaged ERP services from qualified suppliers than by acquiring the resources to pursue it themselves.
- Customers seeking to outsource existing ERP implementations. Hosted ERP services can also be an attractive alternative for customers seeking to outsource existing ERP implementations, particularly as a way to avoid capital outlays associated with significant hardware or software upgrades. But it can be difficult to retrofit existing customizations and infrastructure diversity to fit neatly with the packaged approach
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