Enterprise System Spectator blog: ERP and enterprise system vendor evaluation, selection, and implementation.

The Enterprise System Spectator

Saturday, October 31, 2009

The inexorable dominance of cloud computing

Cloud computing is not just one more way to deploy information systems. It represents a total shift in how IT resources are delivered and ultimately will replace most of not all internally-maintained IT infrastructure.

At least that's the view of Nicholas Carr, who gave a talk at a one-day conference on cloud computing organized last week in London by Google. If you've read Carr's work in the past, his presentation will be familiar. One main point: the on-premise deployment of systems such as Oracle and SAP today are analogous to the on-premise factory power-plants of the 19th century--ultimately replaced by public electric utilities. So, it will be with utility computing.

Carr also gets a little bit into IT budget ratios, which we track closely at Computer Economics. His analysis is spot on and is a strong argument for why cloud computing ultimately will prevail over on-premise systems.

Near the end of the presentation, Carr presented five models for adoption of cloud computing:
  1. Internal clouds: large organizations take advantage of cloud computing technologies by moving their own large IT infrastructures to a cloud computing model.

  2. Cloud as supplement: organizations retain their on-premise systems but use cloud computing to deploy new IT capabilities.

  3. Cloud as replacement: organizations forgoing their own IT infrastructure altogether and going with cloud computing for everything. So far this is appealing, naturally, to smaller businesses.

  4. Cloud as democratizer: cloud computing allowing individuals to have their "own data centers," leading to an explosion in innovation.

  5. Cloud as revolution: cloud computing reducing the cost and increasing the accessibility of data processing, leading to new ways of embedding IT in new products and services.
You can view Carr's 30 minute talk here:



What about the major on-premise software providers, such as SAP and Oracle? Can they make the transition to cloud computing? Although both SAP and Oracle have cloud computing initiatives, such as SAP's Business ByDesign and Oracle's On-Demand CRM, I'm not hopeful. They have too much invested in, and receive too much of their margin, from their legacy products.

Consistent with this view, at the end of his presentation, Carr looks at cloud computing as a disruptive technology, a la Clayton Christensen. I was glad to hear that, as I've long felt that cloud computing strongly qualifies as a disruptive technology that does not give hope to the current market leaders in enterprise software. But that's the subject for another post.

From time to time I bring up issues that buyers should be aware of in evaluating SaaS providers--for example, business continuity concerns. But in the long run, I'm convinced these issues will be worked through. The transition will take some time, but the economics are too strong for cloud computing not to prevail. Therefore, even today, buyers should consider every IT decision in light of the options available in the cloud.

Update, Nov 1. Be sure to read the first comment on this post, from former SAP executive Nenshad Bardoliwalla, who essentially confirms my point.

Related posts
Salesforce.com: more than an itty-bitty application
NetSuite a viable alternative for SAP customers?
Cloud computing: can Microsoft turn from servers to services?
IT departments face extinction
The end of corporate computing
Computer Economics: The Business Case for Software as a Service

by Frank Scavo, 10/31/2009 08:35:00 AM | permalink | e-mail this!

Subscribe!

 Reader Comments:

Hi Frank,

Jon Reed and I did a podcast on the topic of SAP and cloud computing that might be worth your time to listen to. It's located here: http://bit.ly/2KiNl6 . You can also read a transcript of the conversation here: http://bit.ly/2070Ln

From the transcript:

There is no doubt that there is an aura of inevitablity about SaaS and cloud computing, because the value proposition is significantly better than on premise software. With on premise, you assume all the risk, assuming responsibility for installation, training, and patches. With SaaS, the vendor has to handle security, skills needs, patches, installation, compatibility issues.

Removing all the hype, in many cases, the cloud model is better for the customer, so cloud computing will prevail over time and there is a very large shift underway. Example: it's almost impossible to get a venture capitalist to fund an on premise software solution right now. SaaS solutions have a much better chance of being funded.

But that being said, we're still in the infancy of the maturity of cloud-based solutions. Example: Salesforce.com has tens of thousands of customers on one Oracle replica database. SAP has customers with single instances of SAP ERP whose Oracle database is larger than all of Salesforce.com. The idea that with today's technology and cloud computing that a vendor can come in and replace that doesn't make sense.

Years from now, cloud systems will be so powerful that a real alternative to SAP and Oracle on a larger scale. People forget the scale of some of the current deployments of SAP and Oracle, and they forget the business processes that must be run on premise versus the cloud. Example: APO.

There are customers running APO, a statistically rich product, which require one terabyte of main memory to run APO correctly. This is the amount of memory needed to run these scenarios. If you needed to run a processes that required that much memory, it would probably take down all the other tenants in a multi-tenant architecture. Pioneers like Workday and NetSuite, going for the full ERP replacement opportunity, are not ready yet to replace the major big ERP installations. But the change is underway, and more and more customer spend will move to the cloud.

Best Regards,

Nenshad
 
Some projects I've seen, use large numbers of CPUs for parallel processing but only utilize them for a few hours a day. Being able to share this hardware with others in different time zones would improve CPU utilization.

Same could be said for sharing main memory, but to a lesser extent because some main memory in planning systems is occupied even when CPUs are idle.

If a group of large customers spread across multiple time zones moved to a multi-tenant model, the hardware savings alone could be huge. The application architecture would need to support such an approach, of course. And currently available hardware units would limit the number of sharing tenants, but this limitation would reduce over time as ever larger capacity units comes to market.

Also, large multinationals with dedicated (and centrally located) systems for each region would also benefit from a multi tenant architecture, allowing them to better utilize their own in house (on premise) hardware.
 
Post a Comment
 

Links to this post:


 

Powered by Blogger

(c) 2002-2014, Frank Scavo.

Independent analysis of issues and trends in enterprise applications software and the strengths, weaknesses, advantages, and disadvantages of the vendors that provide them.

About the Enterprise System Spectator.

Frank Scavo Send tips, rumors, gossip, and feedback to Frank Scavo at .

I'm interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.

Selecting a new enterprise system can be a difficult decision. My consulting firm, Strativa, offers assistance that is independent and unbiased. For information on how we can help your organization make and carry out these decisions, write to me.

For reprint or distribution rights for content published on the Spectator, please contact me.


Go to latest postings

Custom Search

Join over 1,700 subscribers on the Spectator email list!
Max. 1-2 times/month.
Easy one-click to unsubscribe anytime.

Follow me on Twitter
My RSS feed

AddThis Feed Button


Computer Economics
ERP Support Staffing Ratios
Outsourcing Statistics
IT Spending and Staffing Benchmarks
IT Staffing Ratios
IT Management Best Practices
Worldwide Technology Trends
IT Salary Report

Get these headlines on your site, free!


Awards

2013 Best ERP Writer - Winner

Alltop. We're kind of a big deal.
 
Constant Contact 2010 All Star Technobabble Top 100 Analyst Blogs


Blog Roll and Favorite Sites
Strativa: ERP software vendor evaluation, selection, and implementation consultants, California
StreetWolf: Digital creative studio specializing in web, mobile and social applications
Vinnie Mirchandani: The Deal Architect
Si Chen's Open Source Strategies
diginomica
CISO Handbook


Spectator Archives
May 2002
June 2002
July 2002
August 2002
September 2002
October 2002
November 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
June 2003
July 2003
August 2003
September 2003
October 2003
November 2003
December 2003
January 2004
February 2004
March 2004
April 2004
May 2004
June 2004
July 2004
August 2004
September 2004
October 2004
November 2004
December 2004
January 2005
February 2005
March 2005
April 2005
May 2005
June 2005
July 2005
August 2005
September 2005
October 2005
November 2005
December 2005
January 2006
February 2006
March 2006
April 2006
May 2006
June 2006
July 2006
August 2006
September 2006
October 2006
November 2006
December 2006
January 2007
February 2007
March 2007
April 2007
May 2007
June 2007
July 2007
August 2007
September 2007
October 2007
November 2007
December 2007
January 2008
February 2008
March 2008
April 2008
May 2008
June 2008
July 2008
August 2008
September 2008
October 2008
November 2008
December 2008
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
September 2009
October 2009
November 2009
December 2009
January 2010
February 2010
March 2010
April 2010
June 2010
July 2010
August 2010
September 2010
October 2010
November 2010
December 2010
January 2011
February 2011
March 2011
April 2011
May 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
January 2012
February 2012
March 2012
April 2012
May 2012
June 2012
July 2012
September 2012
October 2012
December 2012
January 2013
February 2013
March 2013
May 2013
June 2013
July 2013
September 2013
October 2013
December 2013
January 2014
February 2014
March 2014
April 2014
May 2014
June 2014
July 2014
August 2014
September 2014
October 2014
Latest postings