Was 2015 the tipping point for cloud-based applications in Finance? It sure feels like it.
Following years of rapid cloud-based application adoption in CRM, HCM, Expense Management, and other areas – Finance has gotten on board. We saw this in the rapid adoption of cloud-based ERP and EPM applications in 2015, and we expect to see this trend continue into 2020.
Just about every financial software vendor is now claiming they have “cloud” applications, but not all cloud solutions are created equal. Make sure you understand the different flavors of cloud that are available and especially what the cost implications are of the various deployment models.
Software Vendors Jumping on the Bandwagon
With customer preference now trending toward cloud-based applications, a number of EPM software vendors jumped on the cloud bandwagon in 2015. The mega-vendors (Oracle, SAP, and IBM) all made announcements or delivered cloud-based applications. We also saw other traditional on-premises EPM vendors announce cloud-based versions of their products.
However, industry watchers have been cautioning buyers to be aware of “false clouds” and to ensure they understand the architecture of the cloud solutions they’re considering. While everyone is using the term “cloud,” not all clouds are created equal. A variety of deployment models fit under this moniker – each with different value propositions for customers.
Not All Clouds Are Created Equal
We’ve covered this in other blog posts, but here’s a quick recap of the different flavors of “cloud” applications available in the market.
- Hosted Applications – This is where the legacy software vendor, or a third party, installs the on-premises application in its own hardware infrastructure and hosts the application on behalf of the customer. Customers still have their own instance of the software, but it relieves them of the need to set up infrastructure and install the software themselves. Everything else is the same as in the on-premises environment – licensing, configuration, maintenance, upgrades, support, etc. Of all three models, hosted applications have the highest costs.
- Single-Tenant Cloud – This is where the legacy software vendor sets up a cloud infrastructure and makes the application available to a number of customers, typically on a subscription basis. Customers are relieved of the infrastructure requirement, and they avoid the high up-front licensing associated with on-premises or hosted applications. But since customers have their own “instance” set up in the cloud, the upgrade process is still painful and costly, and new releases aren’t rolled out automatically, or frequently. Also, in many cases, the features offered in the cloud version of the software are more limited than those available in the on-premises version.
- Multi-Tenant Cloud - These applications are built from the start to be deployed on a shared infrastructure, with a single application code base being shared by a large number of customers. Because the infrastructure and software installation process is eliminated, applications can be provisioned and configured rapidly for new customers. The software is sold on a subscription basis, so it removes the up-front licensing costs of on-premises or hosted applications. And since there’s a single code base, all customers are using the same version of the software, which is upgraded automatically, on a frequent basis, at no cost.
The chart below summarizes the 3 “flavors” of cloud applications and the trade-offs between them.
The industry has recognized the advantage of true, multi-tenant cloud applications over the single-tenant and hosted models:
- Speed – New applications can be deployed and configured within weeks.
- Autonomy – No need for IT support. Departments can control their own destiny.
- Innovation – Application updates are released rapidly, typically quarterly.
- Total Costs of Ownership (TCO) – Costs are lower since configuration is easier and software updates are automated.
This last factor, costs, is really what makes a difference to customers in adopting multi-tenant vs. single-tenant or hosted software. In the next section, let’s take a closer look at this issue.
Why It Really Matters – Costs
In examining the cost advantages of multi-tenant vs. single-tenant or hosted applications, customers will see differences in a number of areas:
- Provisioning the software – Customers will incur the most costs under the hosted model with up-front license fees and set-up fees for the hardware and software infrastructure. These are reduced under the single- and multi-tenant deployment models as the vendor already has the infrastructure and software in place.
- Configuring the system – The steps required to configure the application for a specific company are mostly the same across models. Examples include defining the chart of accounts, setting up hierarchies, creating business rules, setting up user security, and writing reports. However, applications that were built natively for the cloud are typically easier to configure vs. on-premises applications that were moved to the cloud. These may require more IT support to set up vs. multi-tenant applications, which are more end-user oriented when it comes to administration.
- Data Integration - Another important step often lacking in hosted or single-tenant applications is data integration. This is often achieved via flat files and requires manual setup and ongoing hand-holding. True multi-tenant cloud vendors typically provide cloud-based data integration tools that can access data directly from both on-premises and cloud-based applications.
- Running the system day to day, week to week – The end-user interaction with the application is likely going to be similar across the three deployment models. One thing to be aware of is who is responsible for database maintenance and back-ups under the hosted model. That may still be the responsibility of the customer, which will add costs to the equation.
- Updates and upgrades – This is a big area of differentiation across the three deployment models. Updates to the operating system, database, and application software will be the most time-consuming and expensive under the hosted model. They will be less costly under the single- and multi-tenant models since the vendor is taking responsibility for the updates and upgrades to all of the software layers. However, under the single-tenant model, the updates will typically come less frequently, but require more planning and downtime by the customer. In the multi-tenant model, software feature updates are more frequent, automatic, and seamless, occurring in a shorter maintenance window.
One additional thing to be aware of is what happens when a legacy, on-premises EPM vendor moves its applications to the cloud. If the on-premises EPM solution is based on a non-integrated set of standalone applications (as many are), this won’t change as these applications are moved to the cloud.
There will still be multiple points of maintenance and administration for the various modules. There will still be the need to somehow share data across the modules to perform actual vs. budget reporting, run complex allocations, or conduct multi-dimensional analysis. So the costs of using and running the system will remain the same as the costs for the on-premises deployment.
Achieving the Lowest Possible TCO
So what’s the best option for companies interested in gaining the maximum cost advantages from a move to the cloud? Integrated EPM applications that were designed from inception to be deployed as a multi-tenant cloud solution will offer the lowest TCO of all three models.
Industry analysts have published reports highlighting this fact as well. Here’s a link to a recent one by Blue Hill Research that supports this point and names Host Analytics as one of the true, enterprise-grade cloud EPM solutions.
To learn more about the Host Analytics Cloud EPM Suite and its multi-tenant cloud architecture, download this recent white paper: “Introduction to EPM in the Cloud.”