Battle for top position in cloud has begun
As the pace of cloud adoption accelerates around the Western world and begins to pick up speed in laggard regions like the Middle East and North Africa, the race to be in the number one position is beginning to take its toll on global incumbents.
The inorganic process of growth, through acquisition of products and smaller players, while attractive to shareholders and their book of accounts, has begun to play havoc with the vision of an integrated portfolio of cloud products that work well with each other. One particular race that has begun to extract its toll is the movement of ERP to the public cloud or SaaS.
SaaS trends
The worldwide public cloud services market is forecast to grow 17% in 2020 to total $266.4 billion, up from $227.8 billion in 2019, according to Gartner. At this point, cloud adoption is mainstream. The expectations of the outcomes associated with cloud investments therefore are also higher. Adoption of next-generation solutions are almost always cloud-enhanced solutions, meaning they build on the strengths of a cloud platform to deliver digital business capabilities.
Within the spending on public cloud services, software as a service SaaS will remain the largest market segment, which is forecast to grow to $116 billion next year due to the scalability of subscription-based software. The second-largest market segment is cloud system infrastructure services, or infrastructure as a service IaaS, which will reach $50 billion in 2020.
Various forms of cloud computing are among the top three areas where most global CIOs will increase their investment next year, according to Gartner. As organisations increase their reliance on cloud technologies, IT teams are rushing to embrace cloud-built applications and relocate existing digital assets. Building, implementing and maturing cloud strategies will continue to be a top priority for years to come.
In March 2019, Gartner released its assessment of the Middle East and North African, MENA regional IT market. According to Gartner, MENA IT spending is projected to reach $160 billion in 2019, a 1.8% increase from 2018.
In the enterprise sector, despite the growth of SaaS in the region, 25.8% in 2019, the region is below the global average in the percentage of total cloud spending. The MENA region is not expected to reach the level of cloud usage that the US had in 2017 until the end of 2022.
In addition, organisations in the MENA region are paying off years of technology deficits, and implementing software systems that standardise and automate existing business processes. Only a few leading local organisations are overcoming technology hurdles, and moving more quickly toward artificial intelligence and digital business systems, and participation in digital business ecosystems.
Vendor’s cloud journey
While legacy on-premises ERP include players Oracle, SAP, Epicor, Infor, amongst others, not all have been equally successful in moving their installed base of on-premises customers to the cloud, without a hitch. As an example, top executives who worked in these incumbent organisations for a lifetime of decades, have come to the realisation that it is safer and more viable in the future term to move to born in the cloud players.
This would be better, than continuing the painful process of bolting together components acquired through inorganic growth, and having to deal with managing customers navigate through a complicated process of on-premises to cloud migration.
It started in 2019, as an example. In February 2019, Bernd Leukert, member of the Executive Board of SAP SE, mutually agreed with the Supervisory Board of SAP SE that he would depart the company. Leukert, had been named to co-lead the SAP Digital Business Services organisation. He was a respected voice on the growth of Industry 4.0 and digitisation.
In April 2019, former SAP veteran Robert Enslin announced he is joining Google Cloud as its new President of Global Customer Operations. In April 2018, Hala Zeine was appointed President of SAP’s Digital Supply Chain and Manufacturing. She left in September 2019 to join Celonis as Chief Product Officer.
In 2002, Bill McDermott was appointed by SAP as the CEO of SAP America. He left 17 years later in October 2019, to join ServiceNow as CEO.
In December 2019, The Volkswagen Group’s Car Software organisation announced that Björn Goerke was to be its new Chief Technology Officer with effect from January 2020. Goerke was previously Chief Technology Officer and President SAP Cloud Platform with SAP.
A retiring executive, with 30 years of SAP experience, pointed out that SAP may not have delivered what it had promised in terms of end to end integrated business processes. The addition of multiple, new, acquired technologies only makes this ability to create an integrated landscape almost impossible. The days of an integrated ERP from this vendor may be over.
Multiple acquisitions to be bolted on, to grow the cloud product portfolio at breathtaking pace and take on the pure play cloud players, creates its problems of up and down communication, channel partner disconnect, and application development shortcomings. Of fundamental importance here is that cloud is a tool for business agility, empowerment, scalability and simplicity, and not an achievement of technology bricks and mortar.
ERP in cloud
The market for cloud management suites is benefiting from the addition of new functionalities and the rise of digital capabilities. According to Gartner’s Magic Quadrant for Cloud Core Financial Management Suites, released in May 2019, by 2024, 60% of all new midsize core financial management application projects, and 30% of large and global ones, will be public cloud implementations.
Through 2024, digital technologies will bring new capabilities and efficiencies, as well as integrated best-of-breed financial planning and analysis and financial close capabilities, into the core financial management suite. The major attractions of cloud solutions, according to the Gartner’s May 2019 report are:
- Ability to keep up to date with new releases
- Consumer-like interface easing training and onboarding
- Digital capabilities, including artificial intelligence, machine learning, robotic process automation
- Digital capabilities cannot be retrofitted to legacy on-premises platforms
- Improved agility, gained through faster introduction of new functionalities
- Emphasis on end users managing the applications, with less reliance on IT.
The market for cloud suites will continue to evolve during the next five to 10 years. Many large organisations with extensive on-premises business application architectures are investigating cloud solution capabilities and gauging when they should switch to the cloud. Most are looking for solutions that are capable of providing functional parity with on-premises counterparts. They will find capabilities in today’s modern cloud solutions surpass those of dated solutions.
Market dynamics
Cloud solutions improve agility and collaboration, offer superior analytics, ease of use, geographic coverage and industry capabilities. Consequently, the market’s focus has shifted rapidly toward cloud-based solutions. The rate of cloud adoption varies widely, however — by industry, business domain and by organisations’ size, sophistication and resources.
Gartner’s survey of reference customers shows they value functionality significantly more than technical architecture. However, different architectural styles have different strengths and weaknesses and should be evaluated against an organisation’s cloud standards.
Resellers and third-party system integrators may have insufficient knowledge of current releases of vendors’ software, and in many cases the vendors have had to step in to help. This reflects vendors’ rapid updating of applications, with new functionality typically being added in two to four cloud releases each year.
Cloud services
In simple terms, a cloud service must confer the benefits of SaaS on its users. In other words, the application software must be delivered and managed remotely, based on a single set of common code and data definitions, and must be consumed in a one-to-many fashion by all contracted customers at any time. The cloud service must be purchased either on a pay-for-use basis or through a subscription based on usage metrics.
It must be a public cloud service that uses shared resources to provide elasticity and to support multiple consuming organisations. Gartner’s definition of a cloud service is not associated with a specific technical architecture, such as one involving multitenancy at the application level.
Four types of cloud service solution meet Gartner’s inclusion criteria:
Born in cloud
These are architected from the outset solely as cloud services and have multitenant application architecture.
New generation
These are architected for multiple deployment models, typically public cloud, private cloud and on-premises. They often support multitenancy at the database or operating system level, and may make use of virtualisation techniques.
Existing solutions rearchitected
Vendors have made substantial changes to the underlying architecture of existing solutions in order to support public cloud deployment.
Existing solutions SaaS delivered
These are solutions for which the underlying architecture has not changed, but for which vendors have developed an infrastructure-provisioning layer.
Level playing field
Gartner surveys the behavior trends of customers referenced by participating cloud vendors. Each vendor has adopted a specific position in the market based on how it faces an industry and the size of the customers it wishes to address. Therefore, the term Leader or Visionary that Gartner uses to describe a specific position in the market does not negate one vendor versus the either.
Each of the products is as worthy as the other. Vendors may struggle to become Leaders because they may not have the reach to address the complete market, and yet have worthy products.
Shoot out for top position
SAP
SAP is a Visionary in this Magic Quadrant. Reference customers for SAP reported that their top-three product selection criteria, in order, were analytics, ease of use and cloud capabilities. SAP reference customers reported having a higher degree of technical expertise than those of the other vendors in this Magic Quadrant.
Strengths
SAP scored in six of 11 key areas surveyed. Analytics, ease of implementation, overall experience received the highest scores. Respondents cited SAP Analytics Cloud’s discovery and visualisation capabilities as major reasons underpinning their scoring. Deployment speed results continue to improve over prior years’ results, with reference customers citing deployment times of less than six months.
Additionally, SAP scored for those taking one week or less to upgrade to new versions of its solution. Respondents cited satisfaction with SAP’s accelerated feature development and roadmap, and integration with other SAP and non-SAP offerings.
Cautions
Only 50% of SAP Analytics Cloud reference customers surveyed would recommend the solution without qualifications. The rest would either qualify their recommendation, or stated they were unsure. They cited the need for tighter features and more usability improvements, in addition to better planning workflows and more frequent communications related to changes being made to the solution.
SAP Analytics Cloud customers surveyed placed application governance, life cycle management, solution flexibility, performance and meeting needs versus money spent as lowest. Customers cited the need for deeper integration between parts of the solution, planning and analytics, and analytics functions and response time improvements, when using large datasets.
Oracle
Oracle is a Leader in the Gartner Magic Quadrant, due to its market traction, sales and product strategy, business model, vision with respect to close integration with Oracle ERP Cloud. Reference customers for Oracle reported their top-three product selection criteria, were functional capabilities, ease of use, compatibility with MS Excel.
Strengths
Oracle has many large customers, global reach, and both a large implementation partner ecosystem and service organisation, with broad business domain and industry coverage. Reference customers cited the partner ecosystem as having become more reliable in implementing Oracle cloud-based financial planning and analysis solutions.
Oracle continues to have a high degree of name recognition in this space. It had the leading market share in the past with its Hyperion solutions, and Oracle continues to lead the market today in the number of customers leveraging its cloud financial planning and analysis solution.
Cautions
Respondents scored Oracle in the middle or below in 11 key areas, with three scores being especially weak. Lowest scores were reported in ease of implementation, application governance, life cycle management, performance. Both implementation and application governance scores improved slightly since the last Quadrant. These scores should be taken in the context of Oracle’s numerous complex deployments involving a large number of users.
Key takeaways
- Cloud is a tool for business agility, empowerment, scalability, simplicity, and not an achievement of technology bricks and mortar.
- Gartner’s survey of reference customers shows they value functionality significantly more than technical architecture.
- The market for cloud suites will continue to evolve during the next five to 10 years.
- Large organisations with extensive on-premises business application architectures are investigating cloud solution capabilities.
- Resellers and system integrators may have insufficient knowledge of current releases of vendors’ software, and vendors have had to step in to help.
