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We all know where this train is going. Enterprise IT is making an inexorable departure toward a cloud-based future, while many of their core systems like Oracle and SAP are still sitting on the platform.
Over the last 20 years, businesses constantly replaced on-premises application suites and desktop tools with on-demand SaaS and cloud-based services. Companies naturally prefer procuring software flexibly on a pay-as-you-go basis, rather than a license-per-seat or per-datacenter basis.
The great switch-out of CapEx for OpEx started with CRM tools to support the most remote work function: sales. Salesforce and MS Dynamics brought on the first SaaS wave, but this buying pattern gradually spread to many other aspects of the business: recruiting, time management, expenses, productivity and file sharing.
Still, for most companies, there’s still some big iron enterprise systems that haven’t yet been loaded onto the train to cloud. Will they make the trip without going off the rails?
No more waiting for the right time
CIOs are tasked on one hand with ‘keeping the lights on’ for critical business systems, and on the other hand with modernizing the enterprise’s entire IT estate to meet the digital transformation needs of the business.
Oh yeah, and most importantly, at the lowest possible cost. There’s seldom any leftover margin for growing IT budgets. Strategic sourcing and procurement teams try to apply predictive cost models to inform technology selections and aid price negotiations with technology vendors.
For the largest vendors like SAP and Oracle, the IT business buyer may not have much leverage over ongoing costs. They can’t live without the core system, and can’t afford the work to replace it, so they must continue to pay for licensing and support.
To top it off, the release train for updates to the current on-premises systems has ground to a halt. Oracle was only updating its major ERP suite once every 4-5 years or so and recently moved customers onto a track of small, lower value updates each year, and SAP also has announced no plans to make any further significant changes to their big iron apps.
Both vendors have determined that they will effectively freeze updates for the on-premises apps, and have simply extended support for the last major release through 2027 (SAP) or 2031 (Oracle). While the vendors may push out those support retirement dates, if a business wants to get further updates, they’ll need to migrate their data to the vendor’s proprietary SaaS cloud or a new customer-managed edition, if available.
To get customers to switch, vendors are offering some tasty incentives to use their proprietary cloud — maybe offering starter discounts or waiving the cost of unused existing licenses for some cloud credits in the SaaS platform. A feeling of vendor lock-in ensues, just as the clock is ticking on the need to modernize to cloud.
Choosing a risky track to cloud
Risk-averse IT leaders may reflexively see moving their implementation to the Oracle Cloud or SAP S/4HANA as the safest path forward to cloud. It just seems easier to have the vendor managing the system’s day-to-day operations, even if it’s a little more expensive, since they built it.
A well-known aspect of cloud computing’s value is the replacement of CapEx purchases like software licenses and hardware, with pay-as-you go OpEx pricing that is rightsized for cost but always up-to-date and scalable to business needs.
But what if you already own the purchased licenses to your system, and the data on it? Here’s why going down the vendor-driven SaaS track to cloud may present more of a risk than you might expect:
- Oracle and SAP aren’t known for being R&D leaders in developing cloud infrastructure and cloud-ready software architectures, much less managing massively elastic-scaling cloud environment operations.
- Some on-premises big iron systems might never be supported in a move to the vendor cloud platform, as they may be considered obsolete or too customized for the company’s needs. These critical systems need to remain in the data center or migrated to your favorite hyperscaler, with integration to newer cloud-based systems. There will always remain a Hybrid IT element of complexity to reckon with.
- And what about modernizing toward newer cloud-native applications in that proprietary vendor cloud architecture? Will the new microservices-style cloud apps or Kubernetes clusters the development team is proposing be able to live in the same region, or talk to my SaaS-based ERP?
- Once the business moves to the vendor’s SaaS environment and sunsets their own on-prem systems, they no longer own their own implementation. Even if the customer technically owns the data on it, they quickly become beholden to the SaaS system for critical operations, with its own proprietary data source. Migrating that data back off again would be a herculean effort.
- The expected compute and storage cost savings are akin to what other applications realize. Unfortunately, as a captive audience, you are now paying rent on that critical system. Once the initial short-term incentive deals expire, the vendor can put the pedal to the metal on pricing, or on how capacity is consumed — likely charging 2X or 3X the cost of an equivalent system footprint as hosted on AWS or Azure.
Take heart if you are in this position — there is a silver lining. If you already have your enterprise monolith’s keys and data, you might for once hold a winning hand against draconian vendor deals. This is the perfect time to rethink IT relationships and dependencies!
Managed support: the alternative track
Third-party support (TPS) and integrated application management services (AMS) are gaining prominence as an alternative way to better manage current systems, move core systems to the cloud, and gain expected OpEx cost savings and elastic scalability, without the risk of vendor lock-in or unforeseen implementation complexity.
Third-party operational support can lift the business out of the single-track-to-cloud agenda of a big iron software vendor. The customer offloads the labor cost of maintaining the systems to the TPS/AMS, reduces annual support fees by 50%, gets additional capabilities like support for custom code at no additional cost. The business gets to keep its data and the customized features it has built up over the years, without having to stay on the train of mandatory maintenance fees, vendor upgrades and patches.
A TPS/AMS partner with specialized core systems and cloud expertise accelerates migration and adoption of leading cloud IaaS vendors like AWS and Azure, while managing utilization and cloud costs on behalf of the business.
Is this a one-way ticket? Will the big vendors ‘make something bad happen’ to the business if it disembarks from the update train for a while, or will they penalize a customer that changes its mind and wants to return to the software vendor some day? Not really. It’s a built-in benefit of the third-party support strategy.
The point of maximum customer leverage with a software vendor is just before signing that big first contract. At some point in the future, when customers are deciding on their software platform for the next decade, they are again at that point of maximum leverage.
Maybe there will be some reason for bringing some ERP modules back to the major vendor’s SaaS platform in the future, in which case, I’m sure they’ll be happy to bring paying clients back on board.
The Intellyx Take
There’s no need to let major vendors dictate a one-track cloud migration strategy that benefits their own interests over that of the business.
A skilled TPS/AMS partner with a solid track record of managing complex ERP systems and databases – whether in the data center or on cloud infrastructures – can help eliminate the risk of deployment and upgrade failures (no need to upgrade just to stay supported), and significantly reduce support and maintenance costs, while controlling cloud OpEx costs.
But most importantly, this partnership puts IT and executive leadership back in the driver’s seat on digital transformation initiatives, while freeing up valuable employees for innovation and effort that will contribute much greater value back to the business.
Read the entire article on DZone here: https://dzone.com/articles/jump-the-vendor-track-and-cost-effectively-steer-e
© 2020 Intellyx, LLC. Intellyx retains editorial control over the content of this document. At the time of writing, Rimini Street is an Intellyx customer. None of the other vendors mentioned here are Intellyx clients. Image source: Michael Coghlan, flickr (edited).
