Cloud ERP Strategy: Goodbye IaaS, Hello IaaS
January 3, 2013 8 Comments
One of the first deployment models for cloud computing was Infrastructure as a Service (IaaS). Currently, there is a price war between the major IaaS providers like AWS and Rackspace to provide the cheapest infrastructure. However, enterprise customers looking to move their ERP solutions to the cloud should focus more on Integration as a Service (IaaS). Integration, not infrastructure, will have a greater impact to TCO and ERP success. In the next sections we will briefly compare the influences that infrastructure and integration have on an enterprise solution like ERP.
Cloud Infrastructure versus Integration
In a previous blog I reviewed the key competencies to consider as part of selecting an ERP cloud provider (ERP Cloud: Finding the Right Provider). Both infrastructure and integration are key considerations yet I view enterprise integration the greater challenge. Consider the following:
The cloud storage war appears to be getting the most press in cloud computing but consider two factors driving this type of pricing strategy
- Vendors cannot provide a material differentiation or competitive advantage.
- Technology improvements continue to drive down disk storage costs rapidly. Combine this trend with the economy of scale that cloud providers generate to continue driving costs down by another 40% in the next 3 to 5 years.
Moore’s Law highlights the computing hardware trend resulting in greater technology capabilities and driving down MIPS costs. However, the same cannot be said for integration. As discussed in one of my earlier blogs (Best of Breed vs. Integrated ERP), integration costs can be up to 8 times the cost of the ERP software.
We have all heard the proverb “A chain is only as strong as its weakest link.” Applying this concept to business software, we would conclude that a business solution is only as strong as its weakest integration.
Business Value Realization
Allow me to make the general statement that outsourcing IT infrastructure to a cloud provider should result in a cost savings to customers. However, I believe that IT organizations will quickly learn that providing this cost savings is a short-term value proposition to their business owners. Ultimately, IT-driven innovation will drive business value realization. Gartner identifies Integrated Ecosystems and Hybrid IT & Cloud Computing as two of the top 10 strategic technologies for 2013. Every ERP solution has a portfolio of edge products/3rd-party integrations to external solutions to provide holistic support of business processes. The only true method of creating business value is through business processes.
Socialization & Collaboration
The ERP software industry is realizing that people have the greatest impact on business results. It is refreshing to see the increase in socialization and collaboration capabilities. Infrastructure is necessary but integration is the critical path to success.
In my opinion, I expect to see the market changing for IaaS providers. Given how important integration is to a viable cloud solution either existing IaaS will grow into a Platform as a Service (PaaS) or will be acquired by PaaS vendors looking to provide global support. Just take a look at AWS and Rackspace’s transition from an IaaS to a PaaS:
- AWS Expands from IaaS to PaaS (Ovum, Lachal 2011)
- Rackspace continues buying spree to boost services (NetworkWorld, Butler, Aug 2012)
History always has a way of repeating itself. Recalling the Y2K problem, storage (infrastructure) was seen as a strategic/limited resource. This view resulted in the programming practice of representing the year with two digits and we all know how that came back to haunt IT organizations. Infrastructure is a cheap commodity when compared to a collaborative, enterprise integration framework. Infrastructure is a key enabler for cloud computing but integration will ultimately determine your success of ERP in the cloud.