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ERP May Be Moving to Service-Based Subscription Model as Software Industry Matures

By Ed Silverstein, TMCnet Contributor

There are increasing questions being posed about the future of Software as a Service (SaaS (News - Alert)), ERP and software licensing models – as the software sector matures. From his vantage point, Flexera Software’s Mathieu Baissac said he has heard many questions from professionals who want to know when SaaS will be more prevalent.

He says in a recent blog post that some in the field doubt its use will jump as predicted. On top of that, Forbes recently predicted in an article that Enterprise Resource Planning (ERP) software is close to its demise. The dire prediction comes from Tien Tzuo, CEO of Zuora (News - Alert). In part, he argued that, “Success is no longer gauged by counting how many units of your product you have sold. Rather, success is measuring how many customers are using your service on a recurring basis and how successful you are monetizing those recurring relationships.”

He cites as evidence a Gartner (News - Alert) study which predicts that in three years some 35 percent “of Global 2000 companies with non-media digital products will generate incremental revenue of 5 percent to 10 percent through subscription-based services and revenue models.”

But based on his own experience, (he is vice president of Product Management at Flexera Software where he directs  products sold to software publishers and high-tech manufacturers) Baissac says there is no near-death of ERP but a transition from a product-based version to a service-based subscription offering.

In addition, Ned Lilly, president and CEO of XTuple, argues this new version lets users track customer-related and services-based information. ERP systems are reportedly selling well in such places as China, too, according to one of several comments posted in response to the predicted death of ERP.

Overall, SaaS is becoming more popular and more businesses are using it, according to some news reports. Gartner, for instance, recently predicted in a study that SaaS will grow through 2015.

At that time, global revenue will be $21.3 billion, Gartner projected. Customer relationship management (CRM) is the biggest market for SaaS, Gartner adds. In addition, 75 percent of delivery by SaaS is cloud services, and the percentage may jump to 90 percent by 2015, Gartner said. The SaaS model will likely converge with cloud services over the next few years, Gartner added.

One other related trend is that software vendors and enterprises want more value from software licensing and pricing. It was highlighted in a recent study from IDC (News - Alert) and Flexera called “The 2011 Key Trends in Software Licensing and Pricing Survey.” It also offers predictions for the market in 2012.

In a related video interview, Jim Geisman, founder of Software Pricing Partners, says the shift is taking place to an annual subscription model. “Licensing is something that has been underappreciated for a long time,” he said. Technology changes, internet delivery of software, SaaS, and virtualization are among the challenges facing software vendors, he adds.