Cloud computing is a term with a nebulous definition. For the purposes of examining Cloud ERP, we won't just talk about “cloud.” Instead, we will look at ERP as it is deployed with three common cloud computing models:
- IaaS: Infrastructure as a service
- PaaS: Platform as a service
- SaaS: Software as a service
Infrastructure as a service removes the need for on-premises servers and virtualization in order to run an ERP system. Removing the physical servers is the most visible (and audible) change from the conventional on-premises ERP model. Although IaaS often has a higher base price than the equivalent on-premises server, this cost comparison can be misleading. For one, an IaaS server doesn’t need space and thus doesn’t occupy real estate. Electricity is another consideration as servers and their associated HVAC equipment use a significant amount of power to run. As well, the cost of increased reliability should be taken into account as it can be expensive to achieve high reliability with on-premises servers.
Sometimes coupled with IaaS in an ERP deployment, PaaS provides everything needed to run software besides the application and data. This means not only is there no physical machine, but there is no operating system or middleware to manage. An example of PaaS for ERP deployment is Microsoft Azure SQL, a SQL database service. ERP products such as Microsoft Dynamics NAV 2016+ and AX 7+ can be run using Azure SQL, eliminating the need to manage a database server in order to run ERP.
Many people use SaaS cloud applications every day. Google search is software as a service; Facebook is software as a service. The delivery model of Google and Facebook are very similar to SaaS ERP systems in that the software we use is delivered without having to think about servers, operating systems, or databases.
Dynamics 365 Business and Enterprise editions are examples of SaaS ERP software. Like Google and Facebook, when a new version of a Dynamics 365 product is released, we receive the updates without having to do anything. And, like Google and Facebook, we all use the same version of SaaS ERP software.
A disadvantage to always having the latest version of the same software is the potential for customization. Unlike on-premises ERP, our SaaS ERP resources are shared with many other business users whose uptime needs to be considered. As well, base application updates happen frequently enough that updating bespoke code would not be cost effective in an SaaS ERP environment.
Different strategies are being implemented to make SaaS ERP software customizable like on-premises ERP software currently is. An example of such a strategy are events in Microsoft Dynamics 365 Finance and Operations Business edition. Instead of customizing the base application, third-party software can subscribe to events in order to hook into the ERP. Since no code modifications are necessary with events, the base software application can be updated in the normal SaaS fashion without breaking customizations.
What about what I have?
One area where on-premises ERP still has an advantage is application responsiveness. Although the Internet travels at the speed of light, the speed of light is slow enough to cause a delay when speaking with someone halfway around the world. Internet latency can also have good and bad days while local networks are consistently snappy. However, as networks become more robust and datacenters are built in more locations, network latency becomes less of a factor when considering cloud vs. on-premises ERP. It is also the case that cloud ERP may have less latency issues overall for a company that is geographically distributed.
As technology marches forward, the customization and network latency advantages of on-premises ERP will disappear. Currently, the advantages of cloud ERP systems outweigh any disadvantages for an increasing number of businesses. While cloud ERP may not be clearly better than on-premises ERP today, it is only a matter of time before on-premises ERP goes the way of other outmoded technologies... like on-premises music storage. And, unlike the vinyl record, it is doubtful the on-premises ERP will make a fashionable resurgence.