SaaS: Even On-Demand ERP is on a Roll

SaaS is definitely on a roll but SaaS ERP has long been a laggard.  Aberdeen Group has been tracking  interest in SaaS ERP since 2007 and while interest in on-demand ERP has been tepid at best over the last three years, that may be changing now.  By mid-2010 Aberdeen Research’s readings of customers willing to consider SaaS ERP jumped by 61 percent — 39 percent of all companies now say that they would consider using a SaaS-based  ERP system.  While interest in something is far from the same thing as actually using it, the fact that SaaS ERP is being considered by so many companies is a likely indicator that increased sales will follow.

Which companies are interested.  The profile of the SaaS adopter is similar in the area of ERP as it is with other application areas.  Adopters of SaaS technology tend to be those businesses that are the most nimble and which are seeing the highest growth.  Low-growth and no-growth industries are much slower in their move to adopt SaaS.  32 percent of high-growth companies are currently using some sort of SaaS application, while only 16 percent of no-growth companies have at least one SaaS application deployed.

There weren’t too many surprises about why companies are now considering SaaS ERP.  The reasons reported by the Aberdeen Group included the following:

• Lower cost of ownership
• Reduces cost of maintenance and upgrades
• Lower upfront costs
• No interest in building out the IT staff
• Prefer to focus internal resources elsewhere

All these reasons have been heard before and they all basically boil down to the fact that SaaS applications have the potential to save money.

On the flip side, Aberdeen Group also investigated the reasons that companies give for not wanting to adopt SaaS ERP.  This is the interesting part of the research and it shows clearly why SaaS ERP has been lagging other types of applications.  SaaS ERP worries go way beyond the security issues that other SaaS category applications need to contend with.  There has been a mindset that has developed over the years that ERP systems are strategic and that high-cost software customizations has provided important competitive advantage.  Companies worry that the advantage is lost with SaaS ERP where customization is difficult if not impossible.

The areas of concern with SaaS ERP include:

• 56 percent want to have more control over the upgrade process
• 50 percent have concerns around security
• 47 percent say that ERP is too basic and strategic to the company to turn over to an external vendor
• 38 percent worry about the risk of downtime
• 35 percent think that on-premise solutions provide more functionality
• 29 percent think that they would not be able to customize the solution sufficiently