8 years ago we first published a series of posts entitled “Software That Matters.” It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system. Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.
Now eight years later, we thought it was time for an update, to reflect lessons learned since then. (We also did a 2015 update three years ago.) Much of what we wrote then remains every bit as true today. But we decided again to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2018. We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.
In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy. In other words, the Software That Matters.
What about the cloud?
The cloud, which simply refers to software served up via the internet, is clearly the future of computing. But what about today? Like any technology provider today, we have our own opinions. You should read others’ too and form your own conclusions. And as famously noted long ago, “Follow the money.”
Realistically, the internet (i.e., cloud) will be to this century what the electric ‘grid’ was to the last: ubiquitous, always on, ever-ready. (Except, of course, when it’s not.) It’s still early days in the journey to always-on applications, but if you look closely, you see it already – in your phone and tablet apps, perhaps in your email or your picture sharing sites, in the voice over internet protocol for telephony or Skyping. Apps served via cloud will continue to grow and improve over time. Count on it. And make no mistake, cloud in the ERP space is growing rapidly, even though on-premise solutions still make up the largest share of sales, for now.
But let’s start with the money. For a few decades, companies that provided business software could reliably count on adding numerous new users annually. Selling software to new users was, in itself, intrinsically profitable. And for a while, there was always a new customer to be found around the corner. Predictably over time the share of new customers (i.e., first-time buyers) dwindled. In the accounting software arena, which is at the core of today’s ERP systems, growing software companies could see a point of diminishing returns in which revenues would necessarily shrink as the number of new “customer adds” slowed down.
Eventually, to stem the loss, publishers came up with software maintenance programs – added revenue they could extract on an annual basis in return for keeping customers current on their software. This annual revenue stream helped pay the salaries of their software developers while motivating publishers to continue to build new, improved releases. The annual revenue thus earned helped offset some of the loss of dwindling “new” sale revenues.
More recently, as technology followed Moore’s Law in terms of dramatically increasing scale and capabilities, hardware prices declined and vast server farms and data centers began to proliferate. Advances in both hardware and software began to make it possible to serve up applications to many clients on a massive scale. Today, virtually any type of software you can think of is available in a browser-based, web-friendly manner.
But does that mean it’s right for you… or that you’re ready for cloud? Much has been written about the pros and cons of cloud. Here’s what we think you need to know.
- The cloud is already great for a number of applications including email (a lot easier than running your own Exchange Servers), files sharing and storage/archiving, sales automation and even light duty accounting systems – especially when you’re fine with an out-of-the-box solution.
- Cloud will save you money on hardware, at least in upfront costs. With cloud, you’re paying someone else an amortized cost essentially to rent their hardware. In the long run it adds up, but if you’re faced with immediate server and workstation investments, you can eliminate much of that initial cost by going with a cloud solution.
- The world is moving towards a cloud-based “rental” model – slowly. Again, follow the money: cloud purveyors have two goals: your monthly revenue stream, and locking you in for the long haul. The more you begin to depend on them, the more you will depend on them.
- Remember, with cloud, you pay every month: for the hardware, the applications, the business software, the middleware layers, the services, the operating system, and on and on. You pay by the user, by the month, for the services proffered. And you’re never ‘done.’ Do your homework, and your own math.
- Also a plus with cloud: updates are frequent, built-in, and often automatic. If you’re running a vanilla version of the publisher’s software, upgrading becomes a fairly easy, and regular, matter.
- By contrast, if you buy the hardware and software upfront, you pay once (or over a period of time if you lease) – but at some point (just like a car), it’s actually yours. If you’re the type who buys a car and pays a few years on the note and then keeps driving long after it’s paid off, then you appreciate this kind of thinking. You know it saves you money, and gives you ownership, in the long run.
- The promise of cost-savings in the cloud architecture (besides the hardware savings of renting someone else’s) lies in the concept of multi-tenancy wherein one software application serves many customers (tenants) or companies; and multi-threading, in which a single processor can push out multiple threads of instructions, potentially leading to faster overall program execution at lower cost. It’s a single instance of software licensing running multiple customers, all managed from a single location. This is ideal in a situation where you – and all the other companies on that system – run mostly identically, with no need for unique customizations for example.
- On the downside, when the internet is down at your location – for any reason – then you’re down. You can back up power with a generator, but there are no internet generators. If your shop floor production is depending on it, this could be a problem. A very costly problem. If internet reliability is a problem at your location, this needs to be considered.
- Customizing your software and its internal processes to match the unique requirements of your business tends to run against the multi-tenancy grain of the cloud. If your software requirements are different from those of the other tenants, then you likely require a separate instance of the software. This is especially true in customized environments like manufacturing and distribution, to name just two. And that creates issues (read: costs or capability) in the cloud. Those customizations are very often one of the keys to what makes your company unique, your service better, or your margins better. Without them, you’re not entirely you.
So as you do your due diligence, be sure to take a hard look at the numerous pros and cons of the cloud. Ask questions and seek a variety of viewpoints. Work with your providers and consultants to determine the deployment method that works best for you, both now and in the long run. You only want to make this decision once.
We’ll wrap up our entire series on Software That Matters with some “key conclusions” in our final post, next. Stay tuned, one more time…