Cloud ERP replacement doubled last year to 24% - Forrester

Phil Wainewright Profile picture for user pwainewright May 8, 2014
New research from Forrester shows SaaS has leapt across the chasm and is now rapidly being adopted for core systems of record including ERP

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The proportion of enterprises that have replaced or plan to replace existing ERP systems with SaaS has doubled from 12 to 24 percent in the past year, according to research published this week by industry analyst firm Forrester.

In addition, the numbers planning to use SaaS alongside on-premise ERP — for example in 'two-tier' ERP deployments — leapt by more than half to 41 percent. Taken together, the survey shows that 65 percent of enterprises expect to be using SaaS in some ERP role before the end of 2015 — a massive increase of two thirds on what respondents were saying a year ago.

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The research finds equally large jumps in related application categories, including accounting, supply chain management, enterprise asset management, vertical industry-specific applications and BI.

The figures in the report, Application Adoption Trends: The Rise Of SaaS, are taken from the annual Forrsights Software Survey, Q4 2013, which grilled North American and European enterprise software decision-makers in organizations with 1000+ employees. Most were in technology management rather than line-of-business roles.

Hockey-stick momentum

What's particularly interesting about this year's jump in SaaS uptake of core enterprise applications is how sudden it is. A year previously, the rise across all of these categories had been in low single digits. This year's spike suggests that SaaS adoption in core systems of record has just accelerated into a hockey-stick curve.

This expanded momentum bears out Forrester's wider findings that SaaS continues to account for the majority of enterprise spending on cloud, taking $36 billion (62 percent) out of a total public cloud market of $58 billion in 2013.

In contrast, public cloud platforms, including Amazon Web Services, totaled $4.7 billion, a mere 8 percent of the total spend last year. While SaaS will remain dominant, Forrester predicts strong growth across all segments of the public cloud market, which it projects will be worth $191 billion by 2020.

It's not about cost

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In The Rise Of SaaS, author Paul Hamerman, vice president and principal analyst for application development and delivery, states that cost has become secondary to agility and speed as a motive for SaaS adoption. The top drivers cited by respondents included business agility, speed of implementation and faster delivey of new functionality.

He recommends his readers prepare for a number of changes in the way they support business applications, including a shift in perceptions of what counts as legacy:

The new legacy systems are licensed, premises-based applications that are typically customized and difficult to upgrade. As better and better SaaS options become available, look to replace these systems with more flexible and sustainable SaaS solutions.


SaaS has long been the hidden nine-tenths of enterprise cloud adoption that everyone has ignored. The IT industry has ignored it because they're used to selling products, while IT buyers have overlooked it because much of the spend was going through line-of-business decision makers. As a result, the mainstream tech media has concentrated its attention on the infrastructure layer as if enterprise spend on Amazon Web Services and its competitors was all that mattered.

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This has been in spite of repeated analyst research that measured the market spend and consistently found SaaS taking the lion's share. But so long as SaaS adoption was not significantly penetrating into core systems of record, people could still get away with claiming no one serious was doing cloud ERP.

Well, now we have the market research to confirm that people really are serious about SaaS. Cloud ERP has crossed the chasm.

Event notice: Attendees at next week's SuiteWorld conference will have a chance to hear more of my views on cloud ERP adoption when I take part in a panel discussion along with fellow influencers Esteban Kolsky, Cindy Jutras and NetSuite customer Aaron Kleinhandler of Spectrio. My diginomica colleague Derek Du Preez will moderate. The session is on Wednesday, May 14, from 4-5 pm in room 212.

Disclosure: NetSuite is funding travel and expenses for diginomica writers to attend SuiteWorld.

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