November 21, 2006. Call in at 10:55 a.m. Eastern Time

TeleconferenceHosted Enterprise Applications Market Update: Whys And WhereforesWilliam Martorelli Principal AnalystForrester Research

2Entire contents © 2006  Forrester Research, Inc. All rights reserved.

Trends in ERP hosting

• Industry consolidation nearly complete with AT&T/USi acquisition

• ERP hosting remains something of a stepchild within the broader SaaS movement

• Duality of ERP hosting confounds

» Between new development ASP/SaaS approach versus post-implementation applications outsourcing approach

» Value propositions vary but often intertwine

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Drivers for hosted ERP: Who buys it and why?

• A broad range of enterprises as compared by size

• New spinoffs, acquisitions, and divestitures

• Organizations with limited supply of qualified staff

• Enterprises fearing upgrade challenges

• Companies seeking regulatory compliance

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Current usage and interest in SaaSNovember 2006, Data Overview “The State Of Enterprise Software Adoption”

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Traditional objections still pertainNovember 2006, Data Overview “The State Of Enterprise Software Adoption”

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Sentiments against SaaS vary but not much by customer size

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Overall adoption of SaaS in ERP-relevant categories

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Demand by company size confounds easy assumptions

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Principal hosted ERP suppliers

• Large outsourcers/telecoms

» IBM (Corio)

» ACS (BlueStar Solutions)

» EDS

» CSC

» AT&T (USinternetworking)

» Capgemini

» Others

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Principal hosted ERP suppliers

• Managed services companies

» NaviSite, Mercury (Oracle)

» Itelligence, Freudenberg (SAP)

» NetASPx

• Offshore providers

» Satyam

• Leading ISVs

» Oracle

» SAP

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If the ASP market “failed,” why did it get acquired?

• Existing customer base

• Midmarket channel

• Automated service delivery facilities

• Rapid scoping methodologies

• Coinciding implementation/management decisions

• Extension of existing services into emerging SaaS domains, SaaS platforms

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Is hosted ERP really SaaS?

• ERP license relationships typically remain distinct.

• ERP packages have a legacy architecture past.

• ERP packages usually require substantial involvement of IT organizations.

• ERP SaaS offerings fail “Web 2.0” test.

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Contrasting custom and packaged approaches

Custom Packaged

Infrastructure stack Unlimited Typically narrowed to one stack

Shared infrastructure elements

Minimal Shared SAN but typically dedicated servers for production, virtualized servers for development, DR

Disaster recovery Unlimited Minimal choices. Custom needs drive higher cost.

Release management

Flexible Dictated by supplier

Pricing mechanism Fee per month Typically fee-per-month for SAP, user-based charges in PeopleSoft/Oracle

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Pricing drivers for hosted ERP

• Standardization of infrastructure stack

• Data center footprint

• Disaster recovery requirements

• Network requirements

• Package customization

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Additional drivers for hosted ERP

• Continuing growth in SaaS and draw-in from other SaaS categories (principally CRM)

• Evolution of SOA as integration mechanism

• Continuing efforts of vendor/investor community to foster SaaS at multiple industry levels

• Impact of high-profile market entrants (e.g., Workday)

• Impact of Microsoft, Oracle, SAP et al.

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Future directions

• From discrete software fees to pay-as-you-go pricing

• From dedicated to shared infrastructure

• Toward more comprehensive, complex environments (e.g., data warehousing, supply chain, CRM)

• Greater middleware, SOA focus

• SaaS platforms build “around” ERP core

• Greater involvement by Indian providers

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Recommendations

• Don’t do it for cost alone.• Narrow the scope for the packaged approach.

» Diverse infrastructure environments will affect cost.• Integration and security remain challenges in both

conventional and hosted implementations.• Understand service-level requirements.

» Higher targets negotiable, but 99.5% availability is “standard.”• Know the differences between custom and packaged

approaches and the implications.

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William Martorelli+1 203/221 - 2893

wmartorelli@forrester.com

www.forrester.com

Thank you