Convergence: SaaS ERP Lives

RCP looked into hosted ERP in our March issue, and there are a lot of reasons why critical back-end software and the SaaS model don't always mix. Plus, and probably as a result, there doesn't seem to be a huge market for it.

"I think it's actually a reflection of market demand," said Brad Wilson, general manager for Microsoft Dynamics CRM, who definitely sees the upside for hosted CRM but comes off as more skeptical about the immediate future, anyway, of hosted ERP. "Companies have shown themselves willing to take marketing, sales and service online, less so supply chain, less so financials."

Partners agree, for the most part. "Software as a Service has been around for 12 years. It was going to take over everything," said Michael McCarthy, president of ePartners. "Have you seen it? I haven't seen people clamoring for it."

McCarthy also allows that CRM, which seems especially suited for the SaaS model, has found a niche as a set of hosted applications. But, on the whole, his sentiments echo those of most partners and even Microsoft folks we've talked to on the issue recently. SaaS ERP, they say, just isn't that big of a deal.

Except that it is, for some. Michael Merfeld, Avanade's director of customer systems for Microsoft Dynamics, is struggling to battle Plexus, a provider of hosted manufacturing applications that's especially strong in auto-parts manufacturing.

"I'm losing to them," said Merfeld, who's always good for a frank and informative interview. "There is a segment of the market out there that views ERP as a necessary evil. They want to buy it like a utility. They don't conceive of it as a strategic weapon. Those customers are very contrary to the whole Dynamics message."

But they're still customers, and Avanade, with Dynamics, still competes for their business. Yes, there's a hosted version of AX, Avanade's preferred ERP suite -- not hosted by Microsoft (Microsoft doesn't host its ERP suites the way it will CRM) or by Avanade, but by a hosting partner. Still, it's not getting through to companies that don't want ERP on premises, mainly because deep industry expertise -- usually provided by partners, not by Microsoft -- is harder to achieve in a hosted application using the Microsoft model, according to Merfeld, and because competitors' products, while offering fewer functions, are just so darn cheap.

"The real problem that Microsoft has in the ERP space is Microsoft doesn't think product-wise in industry focuses," Merfeld said. "They position a lot of the products as fit for a broad range of industry, partner communities out there talking it the last mile. You have to be 1,000 feet deep into a particular industry vertical to work. Making AX Live isn't going to fix anything. The real issue and the real value these SaaS guys are playing is their implementation is, 'We're going to send you some access codes for a Web site; tell us when you're done.'" (See, we told you that he was good interview.)

So, what is Microsoft doing about Avanade's situation? Not much, as far as Merfeld can tell ("We hear rumors that there's a think tank somewhere and there's big thoughts, but they don't have anything published"), or as far as RCPU can tell, either. And, really, it's easy enough to understand why. As we've said before, SaaS ERP just doesn't seem to carry a broad market right now. So, for those partners running up against specialized vendors of hosted ERP apps, the battle will probably continue to be a tough one -- and maybe even a losing one -- for a while longer.

Posted by Lee Pender on March 13, 2008