Cloud ERP gains momentum: study

The worldwide market for Cloud ERP now has its feet well planted and is expected to take off with a solid double-digit CAGR, according to a new ARC Advisory Group Global Market Research Report.  

Enterprise Resource Planning (ERP) is one of the last enterprise applications to get into the cloud environment.  It comes in a Software as a Service (SaaS) model that eliminates the on-premise implementation with its up front capital expenditures for hardware and software, along with the required IT staff. Currently, most of the end users are in Tier 3 (>60 per cent) because of all the reasons associated with the Cloud ERP market that now allow the SMBs access to a full blown, best-of-breed ERP solution at a small percentage of what the traditional on-premise ERP solutions cost.

“Cloud ERP has expanded well beyond the limitations of the traditional market of manufacturing, and the new ERP suppliers are going where ERP has not gone in the past. While the SMBs have benefited the most from Cloud ERP to date, it is about to go ‘up town’ into Tier 2 and Tier 1 companies across a wide spectrum of industries,” asaid senior enterprise application Analyst Steve Clouther, the principal author of ARC’s “ERP in the Cloud Global Market Research Study.”

For Cloud ERP, there are four things that are consistent and constant.  One, Cloud ERP is built around the SaaS model, which is sometimes referred to as “on-demand software.” Two, the multi-tenant environment is definitely the solution type of choice, because the multi-tenant systems house the data for multiple companies on one server.  Three, almost all of the Cloud ERP systems are sold by the supplier’s sales organization, versus representatives /distributors, system integrators (SI), and value-added resellers (VAR), and this will continue.  Finally, end users are the buyers of Cloud ERP solutions, versus OEMs and SIs, and this too continues.

Cloud ERP has strayed from the traditional role of ERP for manufacturing, and it now cuts across manufacturing, retail, education, government, and service. Both suppliers and users are approaching this under the concept of: an enterprise is an enterprise, and they all need enterprise-wide solutions. Resources are not just restricted to the manufacturing processes, and all industries have resources that need to be tracked and managed; these other enterprises need to plan around, and for, their resources.

North America represents the lion’s share of the worldwide Cloud ERP revenue, while EMEA follows in a distant second position, and Asia is third. There are a number of reasons for this positioning, but in the latter part of the 5-year forecast, EMEA and Asia will pick up market share points as they overcome some of the current obstacles

Cloud applications typically attract the small and medium businesses (SMB) community, and this is very true with Cloud ERP.  As a result, Tier 3 accounted for most of the revenues in 2012. However, the trend is for more and more Tier 2, and even Tier 1, companies to adopt Cloud ERP over the period of this report. Tier 2 and Tier 1 will grow with CAGRs above the market as a whole, and at the end of the forecast period, Tier 3 will still be the dominating end user sector, but Tier 2 will be very close behind.