Velocity Sees Positive Trajectory in ERP Cloud Biz
April 17, 2012 Alex Woodie
Remember when ERP was cool, when all the best companies were doing it? OK, while ERP might have been new for most companies in the roaring 1990s, it hasn’t been cool for a long time, if ever. Today, ERP is a necessary fact of life for companies, but it’s also expensive and time consuming. Some IT companies, like Velocity Technology Solutions, see major changes afoot in the way that we buy and consume ERP software–which could even make ERP cool.
Velocity Technology Solutions is a cloud hosting provider that runs and maintains ERP and related systems for about 240 companies. The New York City-based company specializes in running the Oracle JD Edwards World and EnterpriseOne ERP systems, and the Lawson M3 ERP package from Infor. The company (which acquired JDE specialist WTS last fall) also runs the payroll and human capital management (HCM) software from Kronos, and Oracle’s Hyperion OLAP system.
All of these enterprise packages run on IBM i (or at least used to, in the case of Hyperion’s Essbase), so it’s no surprise that Velocity has a good amount of Power Systems gear in its five data centers located throughout the United States. But the company isn’t married to IBM systems, and also runs the Red Stack of Oracle hardware and software for JD Edwards EnterpriseOne.
Velocity provides complete ERP management for its customers. That means, in addition to running private virtual clouds for its customers on a shared IT infrastructure, it provides the human expertise to manage the application as well. It will keep ERP systems updated and current for its customers–provided they are on the ERP vendor’s latest release when they sign up with Velocity and stay current with maintenance (no going rogue). For Lawson M3 customers, Velocity even provides help desk support.
Doug Mow, the company’s senior vice president of sales and marketing and a survivor of the application service provider (ASP) wars of the early part of the century, says the economics of cloud and software as a service (SaaS) business models are changing.
“Customers are telling us, ‘These are critical systems for us, and they do require care and feeding but the care and feeding is distracting me from doing something else that is also very critical,'” Mow tells IT Jungle. “‘All the resources we have are consumed with applying database and operating system and application patches to keep the ERP system running.
“The ERP system is obviously critical–it’s the lifeblood of our company,” he continues. “But at the same time, the pressure is becoming so great on the business side that we have to look at other alternatives to do it. So let’s talk about you taking this off my hands so I can get to some much more critical application initiatives.'”
It’s a good sign for the economy that companies are feeling secure enough to open their wallets and start spending on new application initiatives–such as a long delayed Web portal project, integrating social media into a company, or deploying mobile interfaces. But when Velocity, with its economies of scale, can deliver a 20 to 40 percent reduction in ERP maintenance cost, many companies will opt to invest their resources in more aggressive projects, Mow says.
It used to be that a major driver of cloud or SaaS was the desire of companies to get away from large up-front capital expenditures in favor of a making monthly or quarterly subscription payments, and accounting for it as an operational cost. But that is down the list of motivators now.
The second leading factor (after freeing up IT for projects with more impact) is the aging workforce. It can be very difficult to find personnel skilled in specific aspects of ERP management, and it may not be cost efficient to hire somebody for a part-time task. But thanks to the economies of scale, companies like Velocity can provide crucial ERP skills more cost effectively.
Aging servers is another factor. Velocity views the end of support for i5/OS V5R4 as an opportunity to land more customers. “It can be a capital event to get to 6.1 or 7.1,” Mow says.
Then there’s the hype factor. The cloud model isn’t fully matured yet (we’re getting to that part). But thanks to the success of SaaS ERP vendors like NetSuite and WorkDay –and even Apple‘s iCloud and Microsoft‘s “to the cloud!” TV commercials–many executives are under the impression the cloud can handle just about any IT problem.
“There’s so much publicity about the cloud now,” Mow says. “Every CEO is asking his or her CIO, ‘What are you doing about the cloud?’ They don’t know anything about it, but it’s out there so much, they’re all asking about it. Then, when it comes time to submit the budget for purchase of 6.1 or 7.1 hardware, a lot of the people submitting the budgets are being asked, ‘What else did you look at? Did you look at cloud?'”
It would be a stretch to say that ERP cloud deployments are mainstream, at least in the IBM i world. IBM i shops are notoriously conservative and slow to adopt new IT trends. The high efficiency and low cost of ownership of the IBM i server environment also plays against the server and personnel bloat of the X86 and Unix worlds, which are big drivers of outsourcing for customers running those systems. Then there are the security and reliability advantages that IBM i offers, which also make the cloud less attractive to the typical IBM i shop.
What, then, will attract the typical IBM i shop to adopt cloud ERP? According to Mow, big changes are afoot in the ERP world that will affect everybody. Cloud and SaaS ERP industry leaders like NetSuite and Workday are driving the major ERP vendors like Oracle, Infor, and SAP to make their applications more approachable. New licensing and user on-boarding models are essential to make “big ERP” as approachable as what users get with Workday and NetSuite.
“ERP is one of the last pieces of software where companies go through that ritualistic dance, with RFPs, demos till you die, evaluation period, an 18-month implementation, and then it’s remember what you bought in the first place? There aren’t a lot of software packages that go through that cycle anymore other than highly complex financial derivatives management systems,” Mow says.
“The future is the try and buy and ‘freemium’ model. We envision a day, and we believe that day has to come, when ERP will be available in the same freemium try and buy model. And that the lager ISVs–Oracle, SAP, and Infor–will have to address that, and figure out a way to get that done on their own behalf.”
The future for ERP, surprisingly, looks like the iTunes App Store, or the Android marketplace. IBM sees the wisdom in this model–that they it launched its PureSystems Centre online marketplace to help vendors peddle software that runs on its new “data center in a box” PureSystems servers.
Mow says Velocity is in a unique position to help make that vision a reality. However, it will still take acceptance on the part of the ERP vendors, who are still understandably reluctant to tear apart their predictable financial models in favor of something much more erratic.
“It is Velocity’s intention to facilitate that change, where we can help the vendors meet those new requirements, and we facilitate the acquisition on the part of the buyer,” he says. “Sooner or later, the pain of having to make that transition is going to become equal to the pain of losing their business to Workday.”
When you can try out JD Edwards EnterpriseOne as easily as you can download and play the latest Angry Birds game, ERP might finally be cool.