Cloud gives flexibility for the ERP vendor but not for the customer?
28 Dec 20
There is hardly any doubt that cloud-based services are becoming the dominating service model in the IT industry. The trend that has been strong for several years is at least as strong going forward. The system vendors who have not yet begun their technology shift to a cloud-based architecture have a difficult uphill ahead.
The arguments for a cloud-based infrastructure are many, of which flexibility is often highlighted as one of the most important. And with the meaning that it gives the customer flexibility to be able to modify and develop their IT systems and environment in a relatively short time without being hindered by systems cast in concrete. And in light of the fact that technological development today holds a very high speed, the demands on customers to ensure mobility and flexibility in order to be able to change and adapt their systems to changing needs from the organization are increasing.
But is it actually true that the cloud creates flexibility for the customer? An example is the conditions for signing up for a cloud-based subscription. It is always easy for the customer to, at any time, add new licenses. Normally it is enough with just a “click” and you can immediately distribute these licenses to new users.
However, if we turn the role around and the customer instead wants to decrease the number of licenses, it is suddenly no longer as simple. It turns out, based on our analysis of subscription terms for +50 ERP vendors, that the subscription normally is bound for a period of 12-36 months. It differs slightly from vendor to vendor. Thus, the customer can immediately increase the number of licenses but cannot decrease the number of licenses for a very long time.
What is the logic behind this distorted flexibility? What is it that motivates the customer being permitted to increase the number of licenses immediately but is then tied up for several years before these licenses can be terminated? It is hardly a demanding or costly process for the vendor to end the subscription.
The argument put forward by some vendors points to the investments that the vendor makes to maintain a modern, high-performing environment, and where these continuous investments require long subscriptions in order to be able to keep the monthly fee down.
Of course, this reasoning does not hold. It is instead about creating security for the investors. By tying up the customers to long subscriptions, you create security for investors regarding long-term and safe earnings. Should customers have the possibility to quickly end their subscriptions, uncertainty is created about the company’s earnings for the coming months and years. And in theory, the supplier’s earnings could actually cease completely in a very short time if all customers ended their subscriptions. And this without the supplier having any means to protect itself against the lost revenue.
Regardless of the arguments that the vendors use to justify their long commitment periods, it remains that the model provides flexibility for the system vendor but not for the customer. It is an extremely distorted balance between the parties. All credit to the few ERP vendors who stand out in the crowd and dare to offer the customer full flexibility in both increasing and decreasing licenses with immediate effect.