A few weeks ago, i wrote on rivers of money as a metaphor as businesses and how that impacts ERP s/w market.
Anyway this post by venkatesh rao on how money spending is usually a spend on relieving pain made me think about the traditionally high prices of erp market s/w and the recent saas based online market opening up various parts of ERP tremendously.
Traditionally, the market for ERP has been a pain relief for big companies struggling to keep track of their accounts, orders, inventory, people, and other resources. So the major pain point was and has been the fact that tracking a resource tended to involve calling up people across the globe in multiple timezones. And there wasn’t much of a solution in those days, ergo the world’s first ERP s/w was born.**
Now, once it had some amount confirmation from the market that it works, it started generating money quick. Organizations were having a huge pain in the ass tracking their resources across multiple locations and time zones, and here was a s/w that made it easier. Sure there was the pain of getting their employees to enter the data regularly, training their employees to learn to use the erp s/w, setting up their existing data on the ERP s/w in the format it required, etc…, but hey it solved a huge amount of pain for the executive management people. it made it simple for them to backtrack. It made it simple for them to find out where it was delayed do an RCA, and assign blame :-P . But with the amount of money and profit margins that an ERP s/w implementation and customization provided, there came the service mindset and more importantly competition + aggressive selling from the ERP consultants (Technical/functional). The employees(aka staff hierarchy) of big organization, were happy to sit back and let the consultants teach them, spoon feed them on how to use their ERP, show them how their ERP makes their work easier, prove the cost cutting effectiveness of an ERP s/w to the organizational top management etc..
There’s recently been a trend of new companies/organizations coming up. Infact if you buy venkat’s argument, we are going through a phase of the decline of big organizations and the rise of a lot of smaller organizations.
So what happens to ERP s/w. the profit margins ought to be going down, because the big companies want to spend less and less on the ERP costs. On the other hand, there’s a growing market for small-scale, low cost, less training/implementation oriented ERP s/w.
One effect of this is that the big ERP service providers start a cheaper version of their as a SAAS product. see ramco, microsoft dynamics, SAP. There’s a handicap they enter the market with though. i.e: the high salaries of the consultants in their payroll limits the price effectiveness they can provide to the customers, which they compensate with the attention of those consultants in helping the business run more efficient.
But before, they offered these solutions, there were a few technology geeks that found an oppurtunity and started jumping and hacking away to create cheap, products. Majority of them, being the geeks and being obsessed with simplicity, decide to focus on a subset of the functions of the ERP system. or what would usually be called a module inside a ERP s/w. (think accounting, order processing, CRM, invoicing, inventory management etc..) . I view the rise of niche products like projectplace, salesforce,basecamp,zoho,quickbooks etc… as being in these lines.
Do note while these SAAS providers provide cheap, online versions of some of the ERP modules, none of these provide or strive to cover all of the functions involved in an ERP s/w. Also note they are mostly DIY. i.e: they focus on delivering few, specific functionalities efficiently and effectively. They usually stay away from customizations and trying to provide customer specific trainings or data conversions etc.
Also note that, given the biased human minds, the customers (usually founders or starters of SMEs) who flock to these products come with unrealistic expectations. (i.e: the customizations, individual attention,training, data setup etc provided by the large organizations at a cheaper cost). So part of the work of these startups is to create a market(nay, educate(in the educate and learn meaning/sense) the market) about the trade-offs between cost and the amount of spoon-feeding they’ll receive about optimizing their business. I do not envy the job of founders of these companies, it’s quite a challenging task. They have to focus on improving their product, educating their customers about the trade-off they make by choosing them, and perhaps more importantly find the actual trade-off ratio that can help them grow into a big corporation 4. Infact it is one of the reasons it is easier for them to restrict their products’ functionality to clear simple functions.
The difference in which erpnext stands out is that, it aims to provide all the modules of a standard ERP s/w. I am probably not the right person to comment on the coverage functionality, but i haven’t seen any other online SaaS provider trying to provide modules for accounting, inventory management(aka warehousing), CRM, order management(aka invoicing) etc. For a better chart and/or comparison see here.
4 – Some argue they prefer to have a lifestyle business and there by avoid the problem of experimenting with the trade-off to become a big s/w product company.
Disclaimer: I was an employee at erpnext from the time period (Jul-2010 to May-2011.)
P.S: Infact venkat goes on to say this is why marketing is hard. Without commenting on the hardness part, i derive from the money spend as pain relief hypothesis that marketing has to not only be unquantifiable, but also immeasurably inefficient. It must be one of the reasons so many new measures come up and go down. because once you have some measure and start focussing on optimizing it, you’re restricting yourself to a narrow target group, which is fine, but the more you optimize, the more narrower you are making your target group.
** — I know that’s an oversimplification of the reality, but hey, am not qualified to write about the history of ERP s/w and my narrative reads smoother :-P