In recent years, the cloud has become ubiquitous in the business computing landscape. Public, private, and hybrid clouds; software as a service (SaaS); and platform as a service (PaaS) all contribute to a confusing alphabet soup for even the most experienced industry observers.
As longstanding technology firms look for ways to break into the market and new companies emerge, it will only get more confusing for technology buyers seeking a cost effective, scalable, and agile enterprise resource planning (ERP) system for their needs. This makes gaining clarity around what each service has to offer even more important.
Defining the Cloud
At its simplest, cloud computing is the act of using someone else’s computer over the internet. There are multiple versions of the cloud offered in the marketplace, however, which can make choosing the right option more difficult.
Shared services are available for public use, such as:
This is a cloud infrastructure created for a single organization that utilizes advances, such as virtualization and economies of scale. In other words, one company or many divisions of a company are using one computer over the internet.
IaaS isn’t too different from the public cloud, other than the fact that the customer rents the processing power of the cloud, which can be scaled up or down in times of need. The customer still maintains, customizes, and updates the software.
The vendor provides the computing power as well as the development environment, allowing customers to build their own software applications while sharing services.
The vendor supplies everything—processing power, development environment, and software. Customers run the applications over an internet browser and can feed or extract the data they need. Perhaps most importantly, SaaS is built in a multitenant architecture, which means customers are all on the same version of the software at the same time.
Why Multitenancy Matters
Multitenancy separates sub-par cloud solutions from true cloud solutions. Many legacy software companies have ported their old code and architecture to a private cloud and offered it as a service—this is called the fake cloud.
A true cloud platform differentiates itself from a fake cloud platform for the reasons outlined below.
Economies of Scale
Running business applications in a single instance—whether it’s on-premise; with a hosting provider; or with an IaaS provider, such as Amazon—doesn’t provide the economies of scale that a multitenant solution does.
A hosted-provider model may save a company the hassle of managing hardware while using IaaS for applications may allow companies to tap into shared commodity hardware. However, running all customers on one instance of software and shared hardware could mean far bigger savings.
No More Version-Lock
Compared with hosted software, cloud customers using a multitenant solution don’t have to worry about being stuck with software that’s four versions behind.
Upgrades come as part of the subscription service and enhancements are iterative and gradual, which means there’s no additional cost and minimal disruption—two things many end users have come to expect based on their experiences with consumer applications.
Adapts to Evolving Regulations
Automatic, regularly scheduled enhancements are particularly important as regulations and standards change and evolve.
For example, when changes were made in 2008, 2009, and 2015 to the value-added tax in the United Kingdom and European Union, NetSuite customers didn’t have to download and test new software. Because customers were on the same version of the software, NetSuite was able to update the code when the changes were enacted, enabling customers to log into a compliant system without any additional work.
The same is true for the new changes coming to the Financial Accounting Standards Board Accounting Standards Codification® Topic 606, Revenue Contracts with Customers. These changes will affect both public and private companies and demand more than just software upgrades—they ask many organizations to rethink the way they operate, particularly around finance and sales commissions. The goal is to find a solution that can automate these new standards while keeping customers in compliance with ASC 606.
True cloud vendors provide a customization platform that allows customers and partners to customize the application on their platform as well as ensure those customizations continue to work whenever a new product enhancement is rolled out by the vendor.
This provides companies with the latest functionality without delay while also avoiding the need to constantly re-implement customizations and integrations already in place every time a new product version is released.
Investing in the Future
Multitenancy means money spent on applications isn’t simply maintaining the status quo—it’s being put toward the newest and latest software enhancements.
Maintenance fees that go toward on-premise and hosted software allow for implementation of new versions that come out every couple of years but don’t account for the disruption and associated costs from that upgrade.
With the true cloud, money spent on a vendor isn’t being spent on what a company already has. Instead, those users benefit from software enhancements as they happen instead of having to wait for them.
Most multitenant SaaS providers offer their solution in a subscription pricing structure—typically per user per year. For the customer, benefits include the following:
- Upfront costs are often significantly lower than on-premise alternatives.
- The vendor needs to continue to earn the business.
- Risk is mitigated because the user is able to leave or negotiate new terms on an annual basis when adding new products, modules, or users.
Not All Cloud Vendors Are the Same
All clouds aren’t created equal, which makes shopping for cloud software a confusing endeavor.
Legacy providers aim to stay relevant by cloud-washing their current programs, which means taking what was originally designed in the 1980s and placing it in an online environment that can be accessed via remote desktop connection, VPN, or a custom website. Emerging software companies, meanwhile, are architecting their own solutions for the cloud.
There are cons to both solutions. Users who turn to legacy vendors might be nervous about the transition to the cloud going smoothly. With up-and-coming software companies that built their solutions from the ground up, there often isn’t a track record of serving customers long term or the deep pockets to ensure they stay in business.
With the true cloud, customers get economies of scale, regular updates, and the scalability missing from hosted solutions.
We’re Here to Help
ERP system selection is a complex process with many operational variables to consider—all of which have the capacity to impact every level of your organization. For more information about implementing an ERP system within your organization, contact your Moss Adams professional or email ERP@mossadams.com.