What’s Cloud Got to Do with ERP?

By David A. Kelly, Upside Research

In the first of two columns this month that take a closer look at what’s new in the cloud computing space for the enterprise, I thought it useful to take a look at a company that is trying to set the bar for how to fully bring ERP into the future. NetSuite is a cloud-based ERP solution vendor who is making a lot of noise around cloud and ERP, and since it boasts 12,000 customers including Magellan GPS, Guitar Center, and Igloo, it may be onto something.

NetSuite promotes itself as the first full Software-as-a-Service (SaaS) ERP system. Founded in 1998 as a Larry Ellison side-project with a focus on financial accounting software, the company has been around for a while, and was one of the earliest companies to jump on the SaaS train – in 2002, long before it became fashionable. Since that time, NetSuite has successfully weathered an IPO in 2007 and made a 100% commitment to bringing ERP to the cloud. Today the company boasts a $4.8 billion market cap, although revenues were $288 million for the last 12 months, and it is not profitable. Other offerings in the integrated NetSuite bundle include accounting, CRM, inventory, and e-commerce.

Initially targeting the low end of the mid-size company range, NetSuite has spent the better part of the past year moving up market, and now positions itself as serving “high-growth and midsized companies and divisions of large enterprises.”  NetSuite has also made inroads with offering industry-specific solutions in verticals including manufacturing, wholesale distribution, professional services, software, and ecommerce.

So, how does NetSuite work for the larger enterprises it is targeting, who naturally will have at least one of the “traditional” ERP backbones running their business? The company has started to popularize a “two-tier” approach for ERP. This strategy supports enterprises’ desire to keep their core traditional ERP systems intact, and continue to derive value from the investment in the infrastructure. But, it enables departments or divisions the flexibility to select a cloud-based ERP such as NetSuite to have a more flexible, feature-heavy, system to interact with for local or departmental operations, and then consolidate those operations up to the core ERP system at corporate. One of NetSuite’s customers who has announced adoption of this two-level model is Land O’Lakes. Clearly, it has some allure for many large enterprises. NetSuite has also fully embraced mobile and social – offering a high degree of functionality through cell phones and tablets, and partnering with key social providers like Yammer (Microsoft) and Box to provide social capabilities.

What does this mean for the rest of the ERP gang? Well, it certainly makes their adoption of cloud, mobile, and social more urgent. To maintain relevance in the market, traditional ERP vendors need to embrace cloud and provide their customers a variety of options that include everything from fully on-premise to fully-hosted with cloud capabilities where appropriate. SAP is one ERP vendor who really seems to understand this, and it is busy shoring up its comprehensive cloud offering. Right now, the SAP cloud offerings are somewhat dispersed (SAP HANA Cloud, SAP Netweaver Cloud, SAP HANA One to name a few of them) and some critics would say confusing, but I expect this year to bring some much-needed clarity to SAP’s cloud offering, and when it does, it will be a leader in how traditional ERP solutions need to evolve to incorporate many of the leading technologies of tomorrow, including cloud and social and mobile and big data. For starters, SAP HANA Cloud is the platform based on in-memory technology, which will become a lynchpin for the future of how big data can be leveraged in this SaaS world.