Cloud computing will undoubtedly change the way that typical enterprise applications are deployed. However, after discussing "cloud" computing with several IT managers the only thing that seems clear is that our understanding of it is still — well, cloudy.
Let's shed some light on the subject. Cloud computing is made up of several layers:
- Infrastructure as a Service — the hardware, networks and bandwidth necessary to host the software
- Platform as a Service — the operating systems, databases, enterprise applications to run software
- Software as a Service — the specific line of business applications necessary to make your business run
The value of cloud computing is that when implemented, IT can strategically support business decisions at the speed of business, rather than at the speed of the delivery of the IT project.
All that said — the question remains. Given the current state of the cloud, when does it makes sense to use cloud computing as a strategy to host ERP or enterprise applications? Very simply put, the answer is when it makes business sense to do so.
Currently, the entry cost of hosted enterprise applications is low compared to on-premise enterprise implementations. However, after about three years it becomes more costly when you consider the full time IT resources needed to manage and maintain the on-premise applications. Put another way — hosting ERP makes sense if your business is not invested in IT resources. This is likely to change as ERP in the cloud becomes more commoditized.
Hosting also makes sense if your business is global and transactions are business critical. Maintaining 24/7 uptime is very expensive and maintaining it while performing critical business transactions is more expensive. If your business is considering an upgrade with ERP or enterprise applications, and is running critical global transactions, then hosting makes sense, provided that it's accepted by your industry. The finance, insurance, and law industries have adopted line of business hosted solutions for exactly this reason: The cost of maintaining critical systems is high and the industry demands standardization.
A hosted ERP may also make some sense if the business is going through an acquisition or merger or new subsidiaries are being added. As already mentioned, cloud computing offers a low entry point versus traditional on-premise licensing. Hosted solutions are typically comprised of a monthly license fee per user, plus value-added services. Adding a new ERP user can equate to as little as $35/per month; compared to a traditional license, which costs $2,500 - $6,000+, this is very compelling to dynamic companies.
Cloud computing is still a work in progress; however, there are some businesses that can find value in adopting a cloud strategy now. Coming information should provide clarity as to how it will be adopted by business. One thing already clear is that cloud computing will definitely change the way we think about the implementation and maintenance of enterprise software projects.