While many businesses are considering adopting cloud-based applications, what are the obstacles to businesses taking up software-as-a-service? Jenny Williams reports.
Cloud-based, software-as-a-service (SaaS) applications can cut IT costs as well as increasing productivity and competitiveness. But large-scale cloud deployments are still rare and enterprises still face security, downtime and customisation concerns about SaaS.
A recent report from Forrester predicts the SaaS market will rise from $21.2bn in 2011 to $92.8bn in 2016, signalling increased adoption of cloud-based applications by businesses over the next five years.
On-demand enterprise resource planning (ERP) software firm, NetSuite, introduced a new portfolio of 'Unlimited' products at its 2011 SuiteWorld conference in San Francisco.
Aimed at large enterprises, the Unlimited service offers unlimited storage, customer numbers and datacentre scalability.
NetSuite provides an on-demand platform that includes ERP, financials, e-commerce and analytics. The company has announced plans to use Oracle's Exadata database machine to run NetSuite's cloud applications and a partnership with Yammer to add a social collaboration layer to its products.
Growing adoption rates
"We're bringing agility to the largest companies in the world and power to smaller companies," said Zach Nelson, CEO at NetSuite, during a keynote at its 2011 SuiteWorld conference.
Nelson says there has been a "mass migration" among large enterprises with complex businesses from legacy Microsoft Dynamics GP and SAP to NetSuite.
Nelson says: "At the end of Q4 , we felt we were hitting the tipping point in ERP as customers large and small began to move from pre-web client/server solutions to NetSuite's cloud-based offering."
Ray Wang, CEO at Constellation Research, says NetSuite's move upmarket will increase adoption of SaaS as it offers companies the chance to refresh legacy software, which require additional resources and support systems.
"Typically large organisations are trying out ERP in particular divisions or departments as two-tier ERP. This often becomes a conversion piece with the two-tier becoming the first tier," says Wang.
Wang says NetSuite's new partnership with services firm Accenture to build a global SaaS offering, as well as new customers, Groupon and Qualcomm, proves NetSuite's upward growth and growing credibility among enterprises.
Qualcomm intends to use NetSuite's OneWorld ERP software to improve order-to-cash operations across 140 global locations.
Peter Rubenacker, vice-president of information technology at Qualcomm, said: "OneWorld presents us with an opportunity to begin centralising some parts of our e-commerce systems and further streamlining the management process."
John Bosshart, international controller at collective buying site, Groupon, says it is using OneWorld to consolidate its spreadsheets onto a single cloud ERP system. Within three months, Groupon have moved 26 of its global organisations to NetSuite.
"We looked at the big boys [for ERP], which were too costly for maintenance, and came to the conclusion that SaaS gave us real-time data," said. Bosshart.
Limits of replacement cycles
Despite endorsement from high profile customers, Jim Shepherd, analyst at Gartner, says enterprises will struggle to adopt cloud-based applications. "Building a business case to move to the cloud is difficult. Enterprise applications have long replacement cycles, which you can’t just rip out."
Shepherd explains this will hinder adoption as businesses wait three to five years before even being able to consider cloud-based software replacements.
Concerns also still exist around data security, uptime levels, integration and supplier viability, he explains. "But cloud-based IT security is often better than an internal IT department can deliver," added Shepherd.
The lack of access to software code for customisation to meet specific businesses is also a possible issue. However, NetSuite’s Nelson reassures that the company’s own developers will soon be developing using only its customer tools rather than natively in Java.
SaaS will change CIO role
Holger Kisker, senior analyst at Forrester, says such concerns are excuses for CIOs. "Many CIOs are fighting against cloud computing in IT departments as they are losing asset control. But cloud computing is a big opportunity. It changes their role to become an owner of data and processes."
"In the future, CIOs are a flexible source for business needs. This moves the role up in the business layers. CIOs will give up control but gain a lot."
Kisker adds that this will drive cloud computing as an important part of CIOs’ strategy.
As companies like NetSuite expand its cloud-based ERP systems to more customers – from the SMB market to large enterprises – cloud-based software services are predicted to see increased uptake from businesses in the next five years. Analysts believe CIOs will increasingly build cloud computing into enterprises’ strategies as long replacement cycles come to an end, as two-tier ERP systems become first tier and as CIOs accept a change of role and give up asset control to service providers.