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What’s Different About Plex Systems?

 

Reflections From PowerPlex 2013

I’ve just returned from Plex Systems’ 12th Annual PowerPlex Conference. While in beautiful downtown Columbus, Ohio, I spoke with Plex execs and staff, customers and other industry analysts. At the conference, Plex introduced its new CEO, and made several announcements including:

  • New analytics capabilities that add real-time visibility into profitability
  • A brand new website to support “The Plex Community,” a virtual, collaborative ecosystem that allows Plex employees, partners and customers to contribute to addressing issues, solving problems and sharing best practices
  • The rollout of a new education services program that includes classroom training and live online instruction and Plex TV, which will offer courses so customers can learn at their own pace
  • Introduction of the next generation Plex Manufacturing Cloud user interface, which features an intuitive look and feel for an optimized customer experience

This is all great stuff, but throughout the event, first and foremost I was struck by how different this company is. I’ve been in this business almost 40 years and while others might share some of the characteristics, I have yet to find another quite like it. So what’s different? In short, it is its culture of engagement and sharing. The conference theme was “Get Connected,” which was appropriate but nothing new at Plex.

This culture of sharing has deep roots that reach back to when and why Plex first became a “SaaS only” company in 2001. It wasn’t because SaaS and cloud were the hottest topics back then. It wasn’t because the company wanted to be on the bleeding edge of new deployment options. It was because the founders had developed technology and processes to rapidly develop applications and SaaS was the only way they could deliver software as fast as they could develop it. They wanted to share new functionality and new technology as it was developed, not 12 to 18 months later, when the next release was scheduled. As a result, early on, customers didn’t buy the Plex Cloud because it was SaaS. They bought it because of the broad and deep functionality, in spite of the fact that it was deployed and delivered through the cloud.

So the frequency of updates is obviously one way Plex is unique. The company could be updating the software as often as every day. Does that mean the system appears to the user to be in a constant state of flux? Of course not. Most users don’t see anything different from day to day. All innovation is delivered in what Plex likes to call “opt-in” enhancements. You have to make a conscious decision to turn them on.

This spirit of sharing also created very close relationships between Plex and its customers. Of course back in 2001, ERP systems were not as full-featured as today and this naturally led to gaps. When you have a development team excited about new rapid application development tools and anxious to please customers, those gaps get filled quickly. Unlike most providers of multi-tenant SaaS solutions, Plex willingly “customized” the software. But the enhanced software wasn’t custom for long (if at all). Plex always incorporated these enhancements into the product. Remember, because the Plex Cloud is a multi-tenant SaaS solution, every single customer runs the exact same software. It just might not look or behave identically from customer to customer because of those “opt-in” enhancements.

As a result, the lion’s share of innovation came from customer-driven enhancements. In the world of the Plex Cloud, customer-driven also means customer funded. So a customer would pay Plex Systems to enhance the product and other customers would benefit. In other cultures this does not happen, at least not consistently. The typical way of thinking is, “I paid for it and it’s mine and only mine.” In the land of Plex, customers simply view this as making a contribution to the community. And they expect others to do the same. Each gives a little, and everyone gets a lot. When everyone is running the same software, literally, not figuratively, it creates a unique sense of community, one of being “all in” together.

In other ERP “cultures,” particularly those that grew up around traditional on-premise solutions, if an enhancement is put in the standard product, customers expect to get it for free, figuring they are already paying for it with their maintenance dollars. The mindset of a Plex customer is different. The customer has already chosen the Plex Cloud as the system of choice, which means that customer is willing to fork over the cash to subscribe to the software. But it is also willing to pay to make it just that much closer a fit. Of course having to pay also keeps customers from asking for something that doesn’t really add value. So there are built in checks and balances.

This is part of the “cloud DNA” that other companies that are new to SaaS are seeking, largely through acquisition. SAP admitted openly that the acquisition of SuccessFactors was more about acquiring the company’s “cloud DNA” than it was about expanding its human capital management (HCM) offering. I suspect Oracle was attracted to Taleo for much the same reason, although it failed to embrace that DNA and Taleo customer satisfaction was rumored to have plummeted.

Of course there is more to cloud DNA than customer community. There is also the struggle to get employees, particularly sales people, to buy in. When a sales person is accustomed to getting that big commission up front from initial software licenses associated with on-premises solutions, it is hard to get them to make the shift. Cloud DNA requires a new way of thinking. But that’s the natural way of thinking at Plex.

At Plex, nobody takes a customer for granted. They can’t afford to. All contracts are signed for one year. Admittedly, it isn’t easy for a customer to walk away from an ERP system, but if a contract has to be renegotiated every year, the smart service provider will do whatever it can during the year to make sure the renewal goes smoothly. Pricing, combined with this “year at a time” approach is also unique at Plex Systems.

Most ERP vendors price their software on a per user basis. Plex negotiates a fixed price for the enterprise, each year. Of course this is based on usage, which is closely related to number of users, but even if usage expands more than predicted during the course of the year, the price remains fixed until renewal time. When paying strictly on a per user basis, as usage grows with the adoption of a new module or the addition of new employees, companies are tempted to pull back so as not to incur additional cost, limiting usage and (in turn) limiting value.

Plex operates on the assumption that the more the ERP is used, the more value will be derived. Therefore it encourages companies to continue to grow and expand. Of course if usage has simply been allowed to expand with no added value, the customer has a chance to reconsider and scale back as part of the renewal process. This seems to be working. Our 2013 Mint Jutras ERP Solution study finds about 50% of employees at manufacturing companies use the ERP system, but that percentage grows to 73% at companies using the Plex Cloud. And I heard more than one conversation between customers indicating PowerPlex had energized them to do even more with the system.

Those Plex customers also help to make the company different. At conferences like PowerPlex, if you listen carefully in sessions or over lunch, you often detect an undercurrent of dissatisfaction. Customers come primarily to “network” with other customers and sometimes “networking” means hanging out, venting and complaining. Not only did I not hear this kind of muttering, I didn’t even see a lot of “hanging out.” When sessions were underway the hallways were empty except for a few Plex employees guarding the doors of those rooms that were already stuffed to capacity with eager and engaged Plex customers.

Many of these differentiators can be attributed to Plex being run as a small company. Yet with the infusion of capital from new investors (Francisco Partners and Accel Partners), a new CEO, to be followed by a new CMO and VP of Sales, I don’t expect Plex to stay small much longer. While it has grown quite steadily over the past decade, I also expect future growth to be both accelerated and more focused and planned. Growth means change. Can the company preserve this culture of sharing and engagement as it grows in this way?

Letting customers guide product direction has many benefits, including an engaged installed base, and a more robust solution to meet the needs of its target market. But significant growth will likely require Plex to expand its target markets. In the beginning, Michigan-based Plex focused exclusively on the automotive market. It then saw similarities in the requirements of automotive to those of aerospace and defense, and then food and beverage (think traceability). It leveraged its strengths and used customer-driven enhancements to push deeper into those markets. But to really grow significantly, Plex will have to take the reins and determine for itself where it needs to take the product. That means less customer-directed enhancements and more Plex-directed (and funded) innovation. Will that change the culture?

Although only time will tell, I don’t believe that it will. But that doesn’t mean there won’t be some change. First of all, I expect to see less customization required. Plex will likely be more selective than it has in the past in taking on major customization efforts. This is partly because of the maturity of the product. There are just that many fewer gaps in functionality today. Significant gaps means the product isn’t a good fit for the prospect and Plex seems willing to walk away from that business. Furthermore, the ability to custom-configure the product without programming has advanced significantly, particularly with its VisionPlex (for customizing look and feel) and IntelliPlex (business intelligence) products.

To help make this transition, Plex has assured customers that customer-driven enhancements are not going away entirely. It has empowered both customers and partners with an SDK (software development kit) and made it easier for both to create their own enhancements. How does this work in a multi-tenant environment? Think of it as developing the enhancement in a separate compartment and registering the change with Plex.

But more importantly, it is also publishing its own road map, which shows active and planned projects, as well as those that are under consideration. Industry veteran Jim Shepherd, VP of Product Strategy, and his team own these roadmaps and will be updating them periodically and sharing them through the new Plex Community portal (also announced at the conference). This will allow customers to keep tabs on what other customers are requesting and is an important element in keeping the customers engaged while Plex holds a tighter rein on directing the product’s future.

The other announcements made at the conference, beyond this new community portal, are all important in helping Plex Systems scale its business without losing sight of trends in the market such as mobilization, the consumerization of IT, the demand for more and better data for decision-making and increased executive engagement with ERP.  But most importantly, they help Plex Systems to preserve its differentiation and its culture of engagement and sharing through this transition of high growth. It’s really about Plex being Plex.

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Plex Systems gets a new CEO

I had a chance to talk to Jason Blessing, Plex System’s new CEO yesterday. I’ve worked with Plex and its former CEO Mark Symonds now for almost seven years, and have always enjoyed my interaction. Plex has come a long way through that stretch. Back in 2006, Mark was almost a one-man show. Not only did he drive product and company strategy, sales and development, but he was their chief evangelist as well. Today there is far more depth to the organization and it is also backed by two investors: Francisco Partners and Accel Partners. It is quite a tribute to Mark that he hands over a company that is poised for what could very well be explosive growth.

Jason comes to Plex after a short stint at Oracle, where he was senior vice president of application development after the acquisition of Taleo where he held a variety of executive roles. For those not familiar with Taleo, it has been a pioneer in cloud-based talent management solutions. So he certainly has the cloud credentials. But someone like me, who has grown up (professionally) in the world of ERP and manufacturing, but has also been involved with human capital management  (HCM) applications, including talent management, knows full well the difference in scope between ERP and HCM, particularly when it is ERP for manufacturing.

While those specializing only in HCM hate it when I say it, HCM is pretty intuitive. Everyone that has ever managed people understands the requirements for talent and workforce management. Anyone that has recruited talent knows what recruiting is about. We’re all human “resources” so we know about human resource data, benefits and compensation. But manufacturing is anything but intuitive. And the scope of ERP (and its role in managing the business) dwarfs that of HCM. And Plex isn’t the first ERP vendor to bring a former HCM executive in and put him in charge of something much bigger than HCM.

So Jason might have felt a little like he was on the hot seat yesterday when we spoke. And he will probably be a bit relieved to hear that what I heard yesterday was encouraging. While a lot of his background has been in HCM, including both Taleo and previously Peoplesoft, I learned he also worked as a management consultant for Price Waterhouse. And I also heard him acknowledge what he didn’t know about ERP and manufacturing, but that he was confident because the original founder of the company was still involved and he also had some great depth of expertise in the company, including Jim Shepherd, his VP of Strategy. Shep and I go back almost 30 years when we both worked for ASK Computer Systems, and our paths would cross more recently when he was an analyst with AMR, which was later acquired by Gartner. It was reassuring to hear that Jason understands the value of having someone with Shep’s depth of knowledge and vision for manufacturing.

Plex has enjoyed consistent growth over the past few years and even before the investment by Francisco partners had been self-sustaining. This is an incredible achievement in the world of SaaS solution providers, when many others far larger than Plex are still struggling to show a profit. It has one of the most active and engaged installed bases of customers in the industry. This is partly because of the close relationship between its customers and its product direction. For many years, the development organization was primarily driven by specific customer requested enhancements. Plex’s adoption of rapid application development methodologies allowed them to respond quickly and efficiently and deliver against these requests even with a multi-tenant solution.

But in order for Plex to take that next jump and grow globally into new markets, it will have to mix that strategy with more traditional product strategies to take it someplace where its existing customers won’t. Jason seems to understand this. His limited expertise in ERP and manufacturing won’t be what takes them there, but listening to his staff and using invested capital wisely very well could.

Its competitors have always underestimated Plex Systems. A word of caution to those competitors… watch out!

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Accel Partners Invests $30 Million in Plex Systems

Earlier this week Plex Systems announced global venture capital and growth equity firm Accel Partners has made a $30 million strategic investment in the company. As part of the financing, Accel Partners will gain a seat on its board of directors, where Francisco Partners, which acquired Plex Systems earlier this year, already holds three seats.  Accel Partners has invested in some pretty high profile companies, including Facebook, Kayak, Qlik Technologies, Dropbox, Walmart.com and Cloudera. According to Sameer Gandhi, a partner with Accel Partners and newly appointed Plex Systems board member,  “Accel’s investment philosophy is to invest in companies that have the greatest potential for success due to their market position, disruptive technology and prospects for future growth. Plex Systems represents an opportunity to help move a highly complex and diverse industry – manufacturing – to the next computing platform, based in the cloud.  We believe the manufacturing ERP market represents at least a $5 billion opportunity, and that less than 10 percent of the market has transitioned to SaaS so far.”

While I don’t get involved in market sizing, the $5 billion opportunity sounds reasonable and my research indicates the percentage of manufacturers that have transitioned to SaaS ERP in particular is somewhere around 6%.  However that doesn’t mean manufacturers haven’t made any investment in SaaS solutions, or that they won’t in the future. Based on a recent survey of 300 companies, 50% of which were manufacturers, only 21% of manufacturers have no business applications deployed as SaaS. Obviously that means 79% do. While many think manufacturers lag behind in terms of embracing SaaS, my survey found them more knowledgeable and more willing to move solutions to SaaS than those in other industries.

Why is that? Because manufacturers are generally pragmatic. Walk around a typical manufacturing facility today and you see plenty of automation. Sometimes you see more automated equipment than people. But manufacturers would much prefer to spend their technology budgets on equipment and technology that will produce more products. Business applications might make them more efficient but they don’t produce parts and product.  Manufacturers’ core competencies are in design and production, not business applications and the hardware and software needed to run them. Therefore many are quite content to let someone else worry about the care and feeding of those applications.

Does that mean most or even many manufacturers are going to run right out and switch to SaaS? No. My survey results indicated it will take 5 to 10 years before almost half (45%) of business applications will be deployed in a SaaS environment.  There are simply too many existing solutions out there and the vast majority of companies are not rushing to replace them. Although the number of replacements has been increasing recently and that still represents an enormous opportunity in general and for Plex in particular. It has a growing installed base of very loyal and engaged customers and a broad portfolio that dips deeply into the shop floor.

Indeed, this implies a lot of opportunity for companies like Plex Systems and Accel Partners’ investment is a further validation of the company’s viability in the market. Unlike other new entrants to SaaS ERP, Plex has been delivering it for more than eleven years. It made the move to pure SaaS long before it was fashionable or even widely accepted. In its early years, it was successful in spite of being SaaS, not because of it. As a private company now owned by Franciscan Partners it doesn’t disclose financials, but I do know that it was self-funded for many years, only tapping into another round of venture capital to accelerate growth. “Self funding” equates to profitable, something many other larger pure SaaS providers still cannot claim.

Many of its competitors make the mistake of underestimating the competitiveness of the company and the product. In addition, Plex has made some strategic and smart additions to staff recently, starting with the hiring of Jim Shepherd as Vice President of Strategy. I know Jim well and he and I worked together at ASK back in the 1980’s, but he has spent the better part of the last 20+ years building a strong reputation as an industry analyst, first with AMR and then Gartner. Plex has also brought on some other industry veterans lately and continues to hire.

An Infusion of Capital to Fuel Growth

Plex has always been very responsive to customers. It uses rapid application development methodologies to respond quickly to specific customer requests, including customizations that most SaaS-only solution providers would never touch. In fact those customer requests were what drove the majority of product decisions and development. I am sure that was a big factor in making them profitable. After all, they seldom built features, functions and products on speculation. While this is admirable in making the company customer-centric, and also mitigates risk, it also limited its ability to expand into new segments of the manufacturing market. This additional strategic funding should help them expand without having to sacrifice that customer responsiveness.

I’ll be watching very closely (and you should too) to see what directions this new infusion of capital takes Plex Systems.

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Plex Systems Announces Pending Acquisition by Francisco Partners

Yesterday  (June 6, 2012) Francisco Partners announced the pending acquisition of Plex Systems, one of only a very few SaaS-only ERP solution providers and the one that offers the deepest and broadest offering for manufacturers. If you look at Francisco Partners’ website you see the company describes who it is and what it does as follows: “Francisco Partners (FP) provides transformational capital to technology companies facing strategic or operational inflection points.”

It is pretty clear that SaaS ERP is at one of those strategic inflection points. While a short 5 years ago only about 10% of manufacturers would even consider a SaaS ERP solution, my research indicates that percentage had grown to 45% in 2011 and I expect to see another jump this year. While in the past I have called ERP the last bastion of resistance to SaaS, that resistance is fading and more and more ERP vendors are jumping on the bandwagon, which only increases the acceptance and the hype. But Plex is not following that trend; it is leading the way.

Unlike many other ERP solution providers that are new to SaaS, Plex has been offering SaaS ERP (exclusively) to manufacturers for the past 12 years. For years, deals were often won largely because of functionality and in spite of being SaaS. More recently SaaS has also been a key selling point. I would agree with Petri Oksanen, a principal at Francisco Partners who is quoted as saying,  “We believe that Plex Systems has the potential to lead the transition to cloud ERP for manufacturers, and that this will be as transformative as the adoption of cloud solutions has been to sales, marketing, and human capital management.”

As a result of this acquisition, Francisco Partners will own 100% of all existing shares of Plex. This is also a divestiture of shares by Apax Partners, which happens to have recently acquired Epicor and Activant and merged the two companies as Epicor Software. Mark Symonds, CEO of Plex called the sale of Apax shares “a natural course of events.”  Apax had invested for six years and this is a logical exit strategy for them.  However, unlike the Apax/Epicor/Activant deal, this acquisition is not a mash up of multiple solutions or solution providers.

Which means few, if any, strategic and operational changes for Plex. That is good news for employees and customers, both of which are extraordinarily loyal and engaged. Plex was recognized by the Detroit Free Press as one of the top workplaces in Michigan in 2011. I believe at least one of the reasons customers remain happy is because of the relatively instant gratification they get from Plex’s approach to rapid application development and opt-in enhancements. Unlike the traditional on-premise approach where customers request enhancements, which get put into 12-18 month planning/development cycles (and then those same customers often delay upgrading for another year), Plex updates software frequently, sometimes on a daily basis.

Mark indicates Plex will largely continue along the same path it has been on for the past several years, but Francisco Partners will bring added resources and possible relationships.  This might open doors to Systems Integrators that might have remained closed to a company of Plex’s size and I have to think it might also attract new channel partners. Plex will continue to serve the automotive, aerospace and defense, food and beverage and electronics industries and will also continue to seek to stretch the boundaries of those sectors to expand incrementally.

Plex and Francisco Partners see the market entering into a period of increasing replacement cycles. My research indicates one in four companies surveyed are planning to purchase a new ERP within the next three years and another one (in four) are still undecided. Of those planning a purchase, three out of five will be replacements, while one will be a new purchase for the entire enterprise and one will be a purchase for a new site not currently supported by ERP. Clearly there is lots of opportunity in the niche Francisco Partners calls “Manufacturing ERP.”

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How are you paying for ERP? Here’s how others are.

Back in May I posted some commentary and a warning not to confuse how you buy ERP with how you deploy it. There is much written today about deployment options in general and cloud computing in particular. Although how you pay for ERP is different from the way it is deployed, the two are definitely intertwined because you will either be paying for software or you will be paying for a service or both. This service is not to be confused with the consulting and implementation services you may contract for. This is either software as a service (SaaS) or hosting services, which may also be combined with Application Managed Services (AMS), where the company hosting the software also manages the applications and perhaps even the business processes the software is used to model (e.g. Accounts Payable or Accounts Receivable). But how are companies generally paying for ERP these days?

Just to recap:

Enterprise application software is typically not bought and sold; it is instead licensed for use. It may be licensed to be used by a company, on a particular computer or by other criteria such as number of users. This is similar to consumer software. Buying it once doesn’t mean you can duplicate it and share it with all your friends, or even sometimes use it on all your own computers. For enterprise application software how you pay for that license and the term of the license can vary tremendously.

A software license can be perpetual. Early findings from our Mint Jutras 2011 ERP survey indicate that 76% of responding companies have perpetual licenses. That means you pay for it once and can use the enterprise application forever. Maybe. This used to be the case, but more and more often today a perpetual license agreement might have a stipulation that you have the right to use that software only for as long as you continue to pay maintenance to the software vendor that provides the product. In fact, if you are buying ERP today, expect this requirement to pay a recurring maintenance fee in order to continue to use the software. In our survey 62% of those with perpetual licenses have this requirement.

A maintenance agreement, which is a recurring cost, typically provides both technical support and certain innovations. Some of those innovations will be included in your maintenance fee and others may still need to be purchased. Maintenance is typically priced as a percentage of the software license and the going rate at list price today is around 22% for ERP. While anecdotal evidence tells us that most companies actually pay less than this (closer to 16%-18%) this is largely due to specially negotiated rates and older rates that have not necessarily escalated at the same pace of increased list prices. But if you are purchasing a new ERP solution, expect this to be the starting point for negotiation.

But perpetual licenses are not the only type offered. Instead your license might be for a specific period of time.  This is generally referred to as a “term” license. At the end of the term, you must either renew the license or discontinue use of the software. In fact the application might have the equivalent of a kill switch in it that will disable it and prevent you from continuing to use it at the end of the term.  This type of license is less common and in fact only 7% of our survey respondents indicated this was how they paid for their ERP. Effectively managing this type of license requires some license management code to be embedded in the solution and this was not always done, particularly in older legacy software. If it was not, and you don’t renew, you are in breach of contract and you might find some software auditors on your doorstep.

Subscription-based pricing is another alternative, particularly for those who are looking to expense their investment as an operating expense rather than a capital expense. About 15% of survey respondents pay by subscription. You might pay a nominal startup fee, but you avoid the big front-loaded expense of a software license. Unless this is coupled with a SaaS deployment, this does not necessarily address the up-front cost or the on-going expense of the hardware. Only 28% of the subscriptions paid by our survey respondents were SaaS-based.  Running in a hosted environment where the supporting hardware costs are embedded in the subscription fees may indeed address these capital costs and allow you to account for payment completely as an operating expense.

The findings noted come from the 2011 Mint Jutras ERP Solution study. Look for more data to be shared in the upcoming weeks. If you are in any way involved in the selection, management, maintenance or use of ERP in your company, please participate in our survey. By doing so, you will receive the full executive summary and also have access for inquiry to Mint Jutras for a 6 month period. Your contact info is entirely optional but we will need your email address to deliver your report and an access code for inquiry. Mint Jutras makes it a policy to never share contact info under any circumstances.

To participate click here: 2011 Mint Jutras ERP Solution Study Survey.

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Don’t confuse how you deploy ERP with how you pay for it

With all the hype circulating about the cloud, it is no wonder that there is ample confusion over how ERP is bought and paid for. Even for seasoned enterprise application buyers, terminology can be confusing. SaaS. Cloud. On Demand. Hosted. On Premise. Perpetual license. Term license. Subscriptions. Multi-tenant. Multi-Instance. Do you know how all of these are different and where they have similarities? Let’s get down to basics. For those familiar with some of this, bear with me. For those who need a primer… here goes.

Let’s first talk about how you pay for ERP, or any enterprise level software for that matter. Enterprise application software is typically not bought and sold; it is instead licensed for use. It may be licensed to be used by a company, on a particular computer or by other criteria such as number of users. This is similar to consumer software. Buying it once doesn’t mean you can duplicate it and share it with all your friends, or even sometimes with all your own computers. For enterprise application software how you pay for that license and the term of the license can vary dramatically.

A software license can be perpetual. That means you pay for it once and can use the enterprise application forever. Maybe. This used to be the case, but more and more often today a perpetual license agreement might have a stipulation that you have the right to use that software only for as long as you continue to pay maintenance to the software vendor that provides the product. So be careful to read all the fine print in the contract. If all you are familiar with is consumer software, there may be no equivalent. If I buy a product like Microsoft Office or Adobe Acrobat, I can continue to use the software on my computer as long as I want to. But if Microsoft or Adobe comes out with a newer version, they don’t just give it to me. I might get a break on the price if I buy the newer product, but I still have to buy it.

A maintenance agreement, which is a recurring cost, typically provides both technical support and certain innovations. Some of those innovations will be included in my maintenance fee and others I may still have to purchase. Maintenance is typically priced as a percentage of the software license and the going rate at list price today is around 22% for ERP.

But perpetual licenses are not the only type offered. Instead your license might be for a specific period of time.  This is generally referred to as a “term” license. At the end of the term, you must either renew the license or discontinue use of the software. In fact the application might have the equivalent of a kill switch in it that will disable it and prevent you from continuing to use it at the end of the term.  This requires some license management code to be embedded in the solution and is not always done, particularly in older software. If it is not, and you don’t renew, you might find some software auditors on your doorstep.

Subscription-based pricing usually represents a form of a term license. And this is one source of confusion. You are able to use the software as long as you keep your “subscription” current. But this is where some confusion starts to creep in. Often people equate subscription to SaaS. But SaaS is an acronym for Software as a Service. In this case, the customer doesn’t purchase a license, but instead pays for the software as a service. So generally most applications that are delivered as SaaS are paid for through a subscription, but not all subscriptions are delivered as SaaS. A subscription based license may be offered as a way to reduce up-front costs and therefore knock down barriers of entry.

When software is installed at the company’s site, it is generally referred to as “on-premise.” But some companies prefer not to invest in their own computers or may choose to outsource the care and feeding of the application to a third party. But this doesn’t necessarily mean the software is delivered as a service. Often, the software is just delivered to a different destination and is licensed just as it would be if it were running “on-premise.” This is generally referred to as a “hosted” environment and services may also be purchased to perform that care and feeding in addition to the hosting fees.

In a hosted environment, the company that licenses the software may in fact be responsible for running the application itself and just outsource the technical infrastructure and maintenance. Or it may decide to also outsource much of the work involved in running the application. This is generally referred to as Application Managed Services (AMS).  

If the software is not located at your physical site, but you can access it virtually, this operating environment is generally referred to as a “cloud.” A cloud can be private – nobody can access it except your company. This in fact is likely to be the case in a hosted environment.

Or a cloud can be public – you access it through the Internet and you may indeed be sharing the software with other companies, even though your data is secured from anyone else seeing it. This is more likely to be a SaaS environment. In a SaaS or on-demand model (and I use the 2 terms interchangeably) the software itself is neither licensed nor owned by the company using it. The software is delivered as a service and is typically paid for through a subscription for the service provided. Cloud terminology is often intermingled with SaaS, but reference to the cloud simply refers to the operating environment and not how the software is bought or paid for.

Now SaaS purists will insist that in order to be true SaaS, the solution must also be “multi-tenant.” This means there is only one instance of the software itself. The data belonging to each subscriber to the software as a service is segregated and secured.  But everyone runs a common set of code and configuration settings tailor and personalize business processes. But in fact, the software can be delivered as a service in a single tenant or multi-instance, rather than a multi-tenant environment.

In reality, whether the solution is delivered multi-tenant or multi-instance matters far more to the vendor than to the end user. It is the solution provider that benefits most directly from being able to offer a multi-tenant solution because this allows them to scale delivery with less cost. Obviously delivering bug fixes and product innovation to a single instance of software supporting many different customers is far easier and more efficient for the vendor.

But in fact, some vendors choose to not deliver their SaaS solutions as multi-tenant for one of two reasons : Either their solution is not architected to support this, or because they feel they can deliver a more customized solution through multiple instances. And in fact some companies purchasing ERP solutions prefer not to run in a multi-tenant environment for the same (latter) reason. While it is not impossible to deliver customized solutions through a multi-tenant SaaS solution (in fact Plex Online does this) it adds a level of complexity for the solution provider that few have mastered and most are not willing to absorb.

To the non-technical ERP users the most important aspect is that they are able to connect to the application and its data from any computer with a browser. This may be accomplished with any of these deployment and license options.  If in fact this is possible, often times the end user does not know, care or need to know which of these deployment options are actually being used to deliver the application and they are even less likely to care how it is paid for. But for those responsible for the purchase and deployment decisions, it is of paramount importance to understand all the potentially confusing options.

Still confused? Contact me at cindy@mintjutras.com

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Plex Systems grows while others stall

I’ve been watching Plex Systems now for about 5 years. It is one of the bigger small ERP solution providers. Not being one of “the big guys” you might not have heard of them. But if you are a manufacturing company in search of an ERP solution, the company is one you might want to get to know – that is if you are either in active search for or are at least willing to consider SaaS ERP. Because that is all they offer. Unlike some of the new entrants into the SaaS ERP market, “as a service” is the only way Plex delivers its solution. But also unlike these new entrants, Plex has been serving up SaaS ERP for more than 10 years.
How and why they began offering a SaaS deployment model for ERP long before it was “hot” is an interesting aside. Plex’s founder didn’t go looking for SaaS. He was an advocate and a pioneer of rapid application development and he was looking for a way to deliver new enhancements at an equally rapid pace. SaaS was his answer. But SaaS presented an obstacle to selling in its early days, particularly in selling ERP. When I was at Aberdeen and first started following the SaaS ERP market I called ERP “the last bastion of resistance” to SaaS and openly questioned whether it was a chicken or egg kind of problem. Were companies unwilling to consider SaaS ERP because there weren’t many options back then or were there not many options because people weren’t willing to consider it?
That’s a moot point today because the barriers are starting to break down and there are more options to choose from. But interestingly enough, one of the reasons software vendors were unwilling to offer SaaS models was because of the subscription-based pricing that now seems so appealing to both software suppliers and consumers of software. In an era when budgets were cut and credit was tight, accounting for the purchase as an operating expense instead of a capital expense was (and still is) very appealing.
However, making a move from selling on-premise solutions to SaaS has some immediate impact on fiscal reporting. When you sell an on-premise license, you get a bunch of money up front. The on-going maintenance is of course a recurring revenue stream, but that nice chunk up front was pretty hard to give up and if the software supplier gave up too much of that too quickly, revenues would also take a hit. If you were a public company that could very well be a hit you couldn’t afford to take.
You might think that Plex System dodged that bullet by offering a SaaS solution throughout the last 10 years. But in reality, the company didn’t always price their solution as SaaS. In the early days, prospects bought Plex in spite of its being SaaS, not because of it. In order to counter this and remove one obstacle, Plex priced it just like an on-premise solution. In fact it was quite a creative answer to a problem, but it did leave money on the table. That revenue leakage was something they knew they would eventually have to plug up. And they did. Several years ago they made the switch to more traditional (for SaaS) subscription-based pricing but they were smart enough to do it while they were (and are) still a private company and didn’t have Wall Street breathing down their necks.
They not only survived and thrived through that transition, but they are now very actively growing. During a year when most ERP solution providers struggled with a downturn during the first half of the year (some started to see growth in the second half), Plex saw substantial growth. They not only added 54 new employees (they now have 175 so the percentage growth is even more impressive) but they grew revenues by 27% and software sales subscriptions by 26%.
How did they do that? While they may still be a relatively small ERP solution provider, their solution is anything BUT small. I lost count of the number of modules they offered long ago – suffice to say it is a lot and quite complete. It also dives deeper into the shop floor than the typical ERP solution and they have particular strength in automotive. Not surprising because in their early days much of their selling was done locally in and around Auburn Hills, Michigan.  But today their strength pushes well beyond automotive to food processing, medical devices, aerospace/defense, industrial and consumer products. Part of the reason for the impressive footprint is the approach to rapid application development that drove them to SaaS in the first place.
The other significant factor is their very engaged installed base of customers. Enhancement of the product is driven entirely by customer and prospect requests and innovation is delivered every day. So in one way, everything is customized. But in another way, nothing is customized, because all enhancements are added to the product in such a way that the customer opts in to turning them on.
Mark Symonds, CEO of Plex Systems sees this growth continuing through 2011, with specific opportunity arising within the food-and-beverage industry because of the new federal food safety laws. Compliance and traceability has been part of the Plex DNA from the beginning and should position the company well in this new era of requirements and regulations.
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