Obvious fact: cloud ERP is central to every vendor’s lexicon. It’s seen as the future of enterprise tech. However, I don’t necessarily think this is where most customers want to be; it’s more about where vendors believe the market wants them to go. Investors, trends, and other market forces drive this shift. Organizations have been moving their enterprise workloads to the cloud for over a decade. The surprising thing is that many vendors thought this transition would be completed in five to ten years, but in many cases, we’re still barely getting started.
Take SAP, for example. There were about 50,000 ERP customers around the time of the S/4HANA release. Of those, around 25,000 licenses for S/4HANA have been sold, but half of those are net new. That means only about 12-13,000 of those 50,000 customers have moved to S/4HANA, let alone cloud ERP. With Rise with SAP, adoption numbers are around 6,500. There might be more S/4HANA Cloud customers, but in terms of the Rise construct, only about 6,500 have adopted it. That leaves 35,000-38,000 on-premise ERP customers who haven’t moved those workloads to the cloud.
When looking at cloud adoption, it’s often the financial products and older ERP systems – manufacturing planning, data warehousing – that are slow to move off-premise. CRM, on the other hand, has seen faster cloud adoption, driven by Salesforce, which has become the de facto CRM platform for large organizations.
This brings up the need for integration between cloud and on-premise systems, especially when using non-SAP or non-Oracle solutions. Old financial solutions, ERP systems, and similar workloads are slower to move off-premise. Despite cloud being central from an infrastructure standpoint, there’s still a long way to go.
A significant challenge for ERP vendors like SAP and Oracle is the lock-in approach they use compared to the more flexible “what would you like to do?” approach of the hyperscalers. This makes hyperscalers more appealing to organizations, particularly those with enterprise agreements that provide cloud credits. Organizations don’t want to lose those credits, so they have an incentive to use them, even if their ERP vendor would prefer them to stay on their platform.
One hyperscaler, AWS, has been very competitive, particularly in the manufacturing sector due to its IoT capabilities. Companies like Oracle and SAP, which also have their own hosting solutions, find themselves in a complex competitive landscape. For example, with Rise with SAP, the deployment is in SAP’s environment on whichever cloud provider you choose, whether it’s Google, Microsoft, or AWS, but it’s still within the SAP contract. Interestingly, very few organizations use just one cloud provider; almost all use two or three, and the larger the organization, the more they have.
Lastly, it’d be remiss to not talk about AI, around which the cloud conversation has definitely been evolving. AI has introduced new considerations, particularly around automation, data analysis, and operational efficiency. But in my research, it hasn’t moved the needle on ERP adoption yet, as people are waiting to see what happens. They’re also waiting for use cases – and to see what it’s going to cost them. This is why so many vendors are partnering with hyperscalers as it’s still very expensive to develop AI. As always, even if everyone is talking in as high pitched a volume about cloud and AI as they possibly can, money always talks louder.
