2 weeks Ago By Lindsay Clark
For the world's two dominant ERP vendors, the cloud is their future infrastructure. For customers of Oracle and SAP, getting there can mean technology and business process upheaval, but the commercial relationship with the vendor is also transformed. Speaking to The Register ahead of Gartner's IT SYM/Xpo in Barcelona this week, Phil Dawson, VP analyst, says users should be ready for the change in the commercial relationship when they shift to a cloud-based consumption model, which is more complex than going from capex to opex.
Gartner estimates that the disruption in the server virtualization market will result in more than 60 percent of enterprises moving and promoting public cloud migrations more aggressively and exploring revirtualization of existing workloads. However, Dawson warns that users should treat infrastructure migration, cloud transition, and application modernization differently. At the same time, suppliers are moving their customers off longstanding commercial models.
For example, customers are set to move from "buying" software on a perpetual client access license to paying for it on a consumption basis. "If they're on a traditional IT budget model that is plus or minus 5 percent [of revenue] year-on-year, whatever that budget's doing, refactoring that to a consumption model, people think, 'Oh, I'm moving from capex to opex.' That is not an easy transition, especially when you have to look at things like implementation costs and upfront costs as well," he told The Register .
Dawson says that moving to the cloud might involve different commercial models: one where the user pays a host of third parties for the initial project work, and then the vendor on a rental basis; another where the vendor takes on the whole project – as with SAP's "RISE" model – and factors the upfront costs into ongoing subscriptions. "The implementation of the traditional cloud model was done by the partner or the vendor," he said. "If that implementation is done as part of the core service, then the cost of doing that is fulfilled through the subscription, even though it's an upfront cost.
The dynamics are moving. I call it a siloed meatballs and spaghetti model versus a horizontal lasagna model. It's the same ingredients but totally refactored.
" As the commercial arrangements change, vendors are telling investors that they expect to accrue higher margins in the cloud , which the customer presumably pays for. Meanwhile, cloud migrations can hit user discounts that have built up over time, Dawson says. "I don't think it's just that they get higher margins in the cloud.
The big stealth cost in the cloud is, if you were buying a system that's two or three million dollars, then your discount will be 35 to 55 percent depending on the business you've got. As soon as you go to a cloud contract, your discount's down to 15 percent. It isn't only margins up, discounts are down as well.
" However, in seeking alternatives to cloud migrations, users find themselves in an equally unappealing bind. Sweating assets by maintaining old versions of databases, applications, and hardware on-prem can be appealing in terms of short-term cost optimization, but users then end up with a bigger bill to pay when they modernize applications, Dawson adds. While SAP has sought to marshal users into cloud migrations with its one-hand-to-shake RISE with SAP model, arch-rival Oracle is a different proposition.
The two big differences are that Big Red has a more fragmented legacy of enterprise applications and infrastructure, gained through acquisition. This includes PeopleSoft, Bea, and JD Edwards. The other difference is Oracle has its own cloud infrastructure, OCI, and hardware stack, meaning users are dealing with fewer third parties compared to SAP migrations.
With Oracle, users can also move to the cloud while staying on-prem. It offers a Cloud@Customer scheme through which Oracle supports its hardware to run OCI within a customer's datacenter. "They can do Cloud@Customer with their own hardware, their own OS, the VM environment with Oracle virtualization, and then the app and the business logic with the database as well.
That's one big difference [compared to SAP]," Dawson said. While users might be faced with the IT equivalent of switching from making meatballs and spaghetti to lasagna, like with any cooking, the key to success is preparation. The Gartner analyst suggests that careful planning, robust testing, and proactive risk management are essential to ensure a smooth and successful transition to the cloud.
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