The Maturation of the Cloud ERP Market

Oracle’s acquisition of NetSuite is a clear indication that the rapid adoption of cloud alternatives to traditional on-premises applications is shifting from front-office customer relationship management to back-office enterprise resource planning solutions. Now, the question will be whether Oracle can buy its way into a leadership position in this emerging marketplace.

Due to increasing frustration with the cost and complexities of traditional on-premises financial management systems, CFOs have been looking for cloud-based alternatives.

NetSuite’s rapid growth has been a clear indicator of the accelerating adoption of cloud ERP across every segment of the market. Following years of market focus on front-office cloud applications that aim to improve an organization’s ability to acquire new customers — such as CRM, sales and marketing automation — many organizations now are relying on the fundamental advantages of the cloud to make dramatic improvements to their internal operations and management capabilities.

NetSuite and other cloud-oriented ERP and financial management solution providers have benefited from this trend.

Blurred Boundary

Oracle’s acquisition of NetSuite was expected for a while because of Larry Ellison’s strategic investment in the company, and the companies’ unwritten pact that for a long time seemed to be in place to avoid intense competition between them.

NetSuite aimed most of its sales efforts on small and mid-sized businesses, while Oracle concentrated on promoting its applications to large-scale enterprises. However, NetSuite found more large-scale enterprises interested in the advantages of its cloud-based ERP solutions.

Also, Oracle discovered that its customers wanted ERP systems that could be deployed more quickly and support more targeted business processes, while still having the scalability to grow over time.

In other words, the line of demarcation between the needs of SMBs and enterprises has blurred, and cloud-based ERP solutions are better suited to span both worlds than traditional, on-premises systems. Oracle couldn’t recast its legacy systems fast enough or economically enough to respond to that market reality and finally acquired NetSuite to fill the void.

More Disruption Ahead

In addition to offering NetSuite’s cloud-based ERP solutions to customers seeking to put new management systems in place, Oracle can take advantage of the growing acceptance of a two-tier approach to ERP deployment. Organizations are augmenting rather than replacing their existing on-premises systems with cloud-based extensions.

They also have plenty of system integration partners, like Accenture, willing to accommodate the two-tier model.

While offering a variety of cloud and on-premises alternatives would appear to make sense in today’s hybrid world, Oracle still must prove that it truly can integrate the two options and satisfy its customers’ needs. Recent reports of high churn rates indicate Oracle still has a long way to go in this regard.

To Oracle’s credit, it has allowed previous cloud acquisitions to continue to operate in a relatively independent fashion, and many of the employees have chosen to stick around after their company’s integration was complete. On the other hand, Oracle’s acquisitions haven’t produced radically new innovations that provide net new value for customers.

As a result, there is still room for the emergence of cloud companies that can recast the nature of today’s enterprise applications even further, and continue to disrupt the marketplace.

Jeffrey M. Kaplan

Jeff Kaplan is the managing director of THINKstrategies, founder of the Cloud Computing Showplace, and host of the Cloud Innovators Summit executive forum series. He can be reached at [email protected].

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