Slicing and Dicing the Future of the Cloud ERP Market
November 6, 2024 Alex Woodie
The cloud looms large in the world of enterprise software. Nearly all ERP vendors offer their software in the cloud, and some, such as SAP, are even planning to end support for on-prem deployments. But how big is the market for cloud ERP, who are the leading providers, and what does it all mean for IBM i customers?
For starters, how big is the global ERP market? This is an important question, but there is no exact answer. The definition of what is enterprise resource planning software is a little bit amorphous, and amortization schedules can make assigning spending to a certain year difficult.
Gartner, one of the most respected IT analyst groups in the world, earlier this year pegged the global market for ERP in 2023 at $51 billion, and said year-to-year growth was 14 percent. Unfortunately, IT Jungle’s platinum subscription to the storied Connecticut research firm appears to have lapsed, so we can’t tell you what’s in the full report. So for more data, we look to other research firms.
According to data from Fortune Business Insights, the global ERP market was worth $71.4 billion in 2023. The research company says it will be worth $81.2 billion this year, and will grow at a 14.1 percent compound annual growth rate (CAGR) to reach $238.8 billion by 2032.
Fortune Business Insights also shares insight into the global market for cloud ERP, and the firm’s latest data (updated last month) says this segment was worth $50.0 billion in 2023, will be worth $57.2 billion this year, and reach $181.0 billion by 2032, exhibiting a CAGR of 15.5% during the forecast period.
So how much of that is in the cloud? A little math from the Fortune Business Insights data shows that 69.8 percent of the global ERP spending in 2023 was spent on cloud solutions, which means 30.2 percent was spend on-prem. The spread in 2024 is 70.4 percent cloud and 29.6 percent on prem, while the spread in 2032 is projected to be 75.9 percent cloud and 24.1 percent on-prem.
Panorama Consulting Group “The 2023 ERP Report”
This data mostly jibes with Panorama Consulting Group, which published a report last year called “The 2023 ERP Report” that found the split between cloud and on-prem ERP deployments in 2023 to be 64.5 percent cloud and 35.5 percent on-prem. It’s also in the ball park with a recent report by The Niche Research, which concluded that the market share for on premise deployments of ERP was about 43 percent in 2023.
There are bigger market figures from other research firms. Data from Markets and Markets pegs the global cloud ERP market at $72.2 billion in 2023, growing to $130.5 billion by 2028, a CAGR of 12.6 percent. At the very high end, we have data from Statista, which says the global ERP market was worth $105 billion in 2022, and was projected to be worth $107 billion this year, a sluggish 1 percent growth rate.
Regardless of how you define ERP, it’s clear that people are already quite comfortable with running business-critical enterprise software in the cloud. A recent survey by SelectHub found that about 95 percent of potential ERP buyers were open to running it in the cloud, while 50 percent said they were also open to deploying it on-prem.
In a recent IDC MarketScape report on large cloud ERP solutions, analyst Mickey North Rizza likened the move to the cloud as a form of modernization of legacy systems.
“IDC finds that by early 2025, organizations still on legacy systems will need to modernize their applications immediately to survive and adapt to the digital world already surpassing them,” Rizza writes. “The pace of innovation is increasing, and ERP vendors focused on AI, ML, NLP, chatbots, RPA, and GenAI are critical partners to consider for the digital future.”
However, not everyone is sold on the cloud as the best place to run ERP software. According to Panorama Consulting Group’s 2023 report, the risk of a security breach, integration concerns, and risk of data loss were the primary drivers keeping ERP on-prem. And some organizations just don’t think the functionality of ERP solutions running in the cloud are fully baked yet.
Panorama Consulting Group “The 2023 ERP Report”
“While ERP vendors would have you believe that everyone is moving to the cloud, that’s just not the case,” the consulting group said in its report. “In fact, many vendors’ cloud functionality isn’t robust enough for some organizations so they’re opting for on-premise software.”
SAP, in particular, has taken some heat for its forced march to the cloud. The company, which will end mainstream support for on-prem deployments of SAP Business Suite and SAP ERP Central Component (SAP ECC) in 2027 (with an option to extend support to 2027), wants its large installed base to adopt SAP S/4 HANA Cloud. It has rolled out its RISE with SAP program to help with migrations.
However, many of SAP’s existing Business Suite customers say the S/4 HANA just doesn’t have the functionality they need. These customers have said that the inability to customize cloud-based ERP systems would put them at a competitive disadvantage. With about 1,500 customers who run their Business Suite and older R/3 software on IBM i and Power Systems, this issue impacts midrange customers, too.
After pushing back its end-of-support date, SAP hasn’t changed the dates in a few years. It looks like it’s going to follow through with the forced march to cloud-based ERP software, and is painting it as an opportunity to move customers’ businesses forward.
SAP’s 2020 end-of-support announcement “signals a necessary shift to the next level of modern solutions,” Jan Gilg, the president of SAP S/4 HANA development at SAP, wrote in an SAP blog post last week. “Rather than viewing SAP’s end of maintenance for SAP Business Suite 7 by 2027 and 2030 as a mere necessity, consider it a strategic opportunity to help tackle the challenges your business is facing and embrace market opportunities that lay ahead.”
It seems likely that the cloud portion of ERP deployments will continue to grow, particularly if customers can take advantage of new capabilities, such as generative AI, natural language interfaces, advanced analytics, and robotic process automation (RPA). The current ratio of cloud to on-prem deployments shows that the cloud already has the lion’s share of the money, and the projections show that increasing over time.
However, it also seems likely that there will always be a contingent of organizations who will buck the trend and insist on running their own software. The ability to highly customize ERP systems to one’s individual company has traditionally been a big source of competitive advantage in the ERP space, and this is probably even more true in the IBM midrange, where programmers and analysts have long had their hands on the ERP source code.
It will be interesting to see how all of these forces play out. The desire for cutting edge features like AI is certainly strong, but so is the desire for competitive differentiation through customization. The need to modernize older ERP software is also a big factor, as is the desire of CFOs to move to OpEx business models. IBM i shops are also factoring in the future of the platform, which is moving closer to the cloud.
CIOs have always had things to worry about, and that’s no different today, despite what the cloud vendors will tell you.
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