Rent Vs Buy

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When Dinesh Victor, managing director of SIP Academy India, a children’s skill development company in Chennai, had to set up an enterprise resource planning (ERP) solution in 2007, he was clear about what he did not want — the headache of managing an internal IT support team. So, Victor decided to sign up with Chennai-based Ramco Systems, a company specialising in ERP implementation, for an ERP solution based on software-as-a-service, or SaaS as it is popularly called. The decision helped the Rs 10.15-crore company to set up an ERP solution at 60 times less the cost of an on-premise ERP solution.

In Bangalore, Siddharth Sood, director and chief executive officer of Wildcraft, which makes adventure sports and outdoor equipment, relates a similar story. Early last year, Sood signed up for Microsoft Corporation’s on-demand ERP product Navision to manage Wildcraft’s processes across its 30 retail centres. “The choice was easy. Our upfront costs were zero because the entire software was on Cloud. Whereas, hardware and licence fees alone in an on-premise solution would have cost Rs 30 lakh,” says Sood.

In addition, he would have had to shell out another Rs 10 lakh for an internal IT support team. Today, Navision allows the manufacturing company to manage activities such as inventory management, manufacturing, retail and accounts seamlessly across 11 cities.

Wildcraft and SIP are among a growing population of SMEs (small and medium enterprises) who are choosing SaaS-based ERP or Cloud computing to manage their businesses. SaaS is software that is sold on a pay-per-use basis. The service provider hosts the software and applications on its own servers, and makes them available to the customer via the Internet (Cloud) as per demand.

SaaS-based ERP, which competes with the on-premise ERP packages sold by the likes of SAP and Oracle, is still a nascent business in India. It accounts for just 2.2 per cent or $7 million of the overall $310-million ERP market in the country. However, India, according to Singapore-based IT research firm Springboard Research, is emerging as the Asia Pacific region’s fastest-growing market for SaaS-based ERP. Springboard estimates that Saas-based ERP revenues for Asia would account for $193 million by 2012, and India’s share is estimated at about $30 million.

Going SaaS
It is not difficult to see why SaaS-based ERP is tailor-made for SMEs, particularly companies that count their annual revenues at less than Rs 300 crore. The pay-per-use model enables them to accomplish two important things.

One, as evident from the Wildcraft example, it helps them drastically cut down upfront costs usually incurred on software installation. “Depending on the functionality, the licence fee on an on-premise Microsoft ERP solution can run into Rs 75,000 to 1 lakh per user,” says Srikant Rao, president and CEO of Affordable Business Solutions (ABS), a Microsoft channel partner. About 60 per cent of ABS’s 70-odd customers use Microsoft’s SaaS-based ERP solutions. Several older customers who bought licences for on-premise ERP from Microsoft now want to move to SaaS, says Rao.

Two, in the case of on-premise ERP, payment is on a one-time basis. This often leads to inconsistent service and follow-on support. The pay-per-use model compels the service provider to keep the quality of service consistent. Further, since the software is not hosted on the client’s servers, after-sales support, such as trouble-shooting technical glitches, could be performed remotely on the service provider’s servers and is, therefore, faster and more efficient. There are other benefits. The implementation of SaaS-based ERP takes 2-3 weeks as opposed to as much as six months for on-premise ERP. “The demand for subscription-based solutions has been relatively high and we think SaaS has tremendous potential in the coming few years,” says Sairam Jagannathan, vice-president of the business solutions division at Wipro.