ANALYSIS

Time’s Up for Legacy ERP

It takes prodigious amounts of cash to launch a company these days and that’s especially true when trying to insert a new idea into the collective consciousness. Salesforce spent well over US$100 million to convince us that SaaS CRM was real, Zuora has raised nearly twice that amount defining the subscription economy, and cloud ERP is following suit.

FinancialForce, a cloud ERP provider based on the Salesforce1 platform today announced a financing round of $110 million from lead investor Technology Crossover Ventures, and Salesforce Ventures, which is Salesforce’s corporate investment group. This follows on the heels earlier this quarter of smaller investment announcements by CPQ providers Apttus and Steel Brick.

So what does it all mean?

I think you need to pay attention to the concentration of money and deals in a tight space of ERP and related back office apps. They’re all cloud companies, and it strikes me that the investment community is making a decision about ERP granddaddy SAP in the process.

Out With the Old and In With the New

SAP has tried several times to bring forth a suite of front and back office solutions based on modern cloud technology, and they’ve been only modestly successful. Microsoft has made greater strides in bringing its multiple ERP products closer to the cloud, but progress has been measured.

Time’s up. Small ERP providers like FinancialForce and IntAcct — and not so small NetSuite — have been gathering strength over many years. The economic conditions are right, and the market is, I think, making a call that there’s no more runway for legacy ERP vendors to get to the cloud. It’s time to seek out the next generation of solutions.

The succession plan for replacing legacy ERP is well underway, with a surround strategy that first positions cloud ERP as a helper application that can consolidate data, process it, and feed it up to the legacy system.

This is a meta-stable state and will eventually result in the surrounding solutions supplanting the legacies, achieving over time what a much despised rip and replace would ordinarily accomplish without all the wailing and gnashing of teeth.

ERP in the Pipeline

Much of this is still in the future, but for now, FinancialForce has taken an important step in preparing for a larger role in what is likely to be a big fight. The objective will be to secure stable cash-generating relationships for many years to come.

Finally, more than once Salesforce CEO Marc Benioff has said he had no interest in building ERP. But it looks like ERP is coming to his company nevertheless via the powerful platform technology, Salesforce1, that his company provides.

Apttus, FinancialForce, Steel Brick, and other financial apps all coexist with Salesforce1, and some, like FinancialForce, are completely rooted there. Their success is also great validation for the platform.

I’d really hate to be a legacy ERP provider today.

Denis Pombriant is the managing principal of the Beagle Research Group, a CRM market research firm and consultancy. Pombriant's research concentrates on evolving product ideas and emerging companies in the sales, marketing and call center disciplines. His research is freely distributed through a blog and website. He is the author of Hello, Ladies! Dispatches from the Social CRM Frontier and can be reached at [email protected]. You can also connect with him on Google+.

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