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Epicor, Sage, SAP public cloud ERP moves raise pricing, technical concerns

Analysts say Epicor, Sage and SAP's recent cloud ERP initiatives portend cloud computing benefits for on-premises ERP platforms but require close scrutiny before making a change.

Epicor, Sage and SAP this month announced public cloud versions of some of their on-premises suites, and while it might appear that full-scale cloud ERP is entering a new phase of maturity, analysts caution that technical and pricing issues will make running on-premises ERP in a public cloud anything but a slam dunk for customers.

SAP certified its Business All-in-One upper-midsize ERP for the Amazon Web Services (AWS) platform for immediate availability. Meanwhile, Epicor and Sage placed their bets on the Windows Azure public cloud from Microsoft. Sage already has a relationship with Amazon, hosting its CRM software on AWS itself.

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Epicor will make the upcoming third major release of its Internet Component Environment (ICE) architecture available on Windows Azure, using Microsoft's Infrastructure as a Service (IaaS) to provide IaaS and Platform as a Service (PaaS) products that will give Epicor's customers and hosting partners more cloud deployment options. Chad Meyer, Epicor’s director of product marketing, said the ICE release and first Windows Azure applications will come in the third quarter, starting with the company’s ERP and human capital management lines. “We’ll also look at Azure with other product lines such as Prophet21 that are going to utilize the ICE3.0,” Meyer said in an email interview, referring to Epicor’s Windows-based ERP system for wholesale distributors.

Sage is developing Windows Azure versions of its low-end Sage 200 and Murano ERP packages for the European market and expects to offer them next year. It also released Sage Construction Anywhere, a vertical-market, cloud-based collaboration service for North America. “We’re looking at Azure for other applications and will announce those at a later date,” said Joe Langner, Sage’s executive vice president for midmarket and CRM solutions, in an email.

Public cloud brings dynamic provisioning to ERP

Analysts agreed that while the public cloud deployment option is in some ways just a new wrinkle on hosted ERP -- and a far cry from the purest form of cloud ERP, multitenant Software as a Service (SaaS) -- it brings real benefits of cloud computing to existing applications, including quicker, easier deployment and scalability.

“You can, on demand, spin up the resources you need and then take them down,” said Bob Parker, group vice president at IDG Manufacturing Insights, a market research company based in Framingham, Mass. “Amazon is really reliable. The [Amazon Elastic Compute Cloud] is proven.”

I would greatly question the performance of putting the database tier in the cloud. [SAP Business All-in-One] may be certified, but you would be certifiable if you do it.

Bob Parker, group vice president, IDC Manufacturing Insights

By moving existing ERP platforms to AWS or Windows Azure, the vendors needn’t worry as much about cloud infrastructure, said China Martens, an analyst at Cambridge, Mass.-based Forrester Research Inc. Customers also like being able to outsource their ERP infrastructure.

"One client liked having an outside person do it. They said, ‘We have an SLA [service level agreement] we can wield over the provider. We don’t have that today [with our IT department],’ ” Martens said.

Epicor’s Windows Azure move is both a hosting option for customers and a new shared platform for the company’s SaaS offerings, according to Meyer.

“Azure becomes an option in place of purchasing the requisite hardware and installing on premise,” he said. “Instead [customers] can deploy in Azure and inherit the benefits provided by the platform, such as lower up-front cost, pay per consumption, high availability and ease of scaling.”

Microsoft-based ERPs follow platform into cloud

Customers could face challenges as a direct result of the three vendors' respective public cloud platform choices, according to the analysts, mostly around databases and integration.

“I would greatly question the performance of putting the database tier in the cloud,” Parker said. “[SAP Business All-in-One] may be certified, but you would be certifiable if you do it.” In the typical, three-tier SAP deployment, Parker said, the middle tier is where business logic resides, database queries come through, and transactions are processed. This tier must communicate with the database tier. “There’s probably considerable latency running that [database] on the cloud,” he said. “You’re going to take all that internal traffic between your on-premise middle tier and your Amazon database tier.”

The AWS deal does gives SAP another channel to sell to small and medium-sized businesses (SMBs) that companies like Sage and Microsoft are stronger in, he said.

What about strengthening Business All-in-One's small-business appeal even more with a Windows Azure version? “SAP is actively working with Microsoft to solidify an Azure cloud partnership strategy,” said SAP spokesman Jason Grosse via email. “To date, it is undetermined as to whether [Business All-in-One] will be a major part of that strategy.”

The groundwork for Epicor and Sage's move to Windows Azure was laid years ago when the two companies elected to build on the Microsoft platform with .NET and SQL Server, according to analysts. But the transition from on-premises .NET-based ERP to Windows Azure is difficult, Parker said, and the .NET code can’t just run unmodified on the new platform. “It may run, but it won’t run well.”

Microsoft is shaking up the platform with the upcoming Windows 8 operating system, which provides backward compatibility with older .NET software but requires switching between its new tile interface to prior Windows screens. “It’s almost like you’re running a virtual machine,” Parker said.

The required SQL Azure database is also a potential trouble spot. It’s precisely the challenge Epicor has faced, according to R "Ray" Wang, CEO and principal analyst of Constellation Research Inc. “They’ve had a hard time getting SQL Azure to work,” he said.

How does this fit into Microsoft’s migration of its own SMB and midmarket ERP line, Dynamics, to Windows Azure? Microsoft is careful to separate the two initiatives -- or at least to cultivate that impression in case cloud ERP platform customers like Epicor feel undercut in the market, according to the analysts. Martens said she spoke to employees on the Dynamics side of Microsoft who claim to be far ahead of other ERP vendors in deploying effectively on Windows Azure, while Windows Azure and Epicor representatives insist they have a close working relationship.

Due diligence needed for public cloud ERP

Parker advised prospective buyers to make sure that these new ERP deployment options are indeed cheaper and that ERP vendors are passing along the savings they are seeing from cloud computing’s resource sharing and economies of scale. Traditional on-premises vendors are often stuck in older, license-based pricing models and have been known to require customers to commit up front to a two-year contract for cloud versions, he said.

SAP said the only additional costs for the cloud version of Business All-in-One are the charges levied by AWS. A Sage representative said pricing for Sage 200 and Murano has yet to be determined. Epicor’s pricing is also still to come, according to Meyer. “Our perpetual licensed products won’t be affected, but it could positively affect our managed services and SaaS solutions prices from a prospect/customer’s perspective,” he wrote.

Martens advised companies to analyze the long-term cost structure of a public cloud computing option to make sure it has real benefits, including factors like worry and labor that are harder to quantify. “It’s very important to talk to the early adopters and find out what they’re realizing [in benefits],” she said. Knowing the potential integration hurdles of tying on-premises systems to the new cloud ERP -- including whether a third-party integrator must be brought in -- is another key component in due diligence, according to Martens.

Parkers emphasized capacity needs. “My advice would be if you have a business that has a lot of variability -- a lot of ups and downs --then I would consider a move to cloud-based delivery because it’s a lot easier to provision and de-provision users,” On the other hand, if business tends to be stable, “I wouldn’t be in a rush.”

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