It is the holy grail of business software, but enterprise resource planning (ERP), the lucrative soup-to-nuts business software suite, is coming under increasing threat from SaaS.
SaaS-based ERP is still in the single digits in terms of market share, but the market's momentum is in its favor. The latest indicator that SaaS ERP is making inroads is Tuesday's announcement that veteran SaaS ERP firm Plex Systems got a $30 million investment from equity firm Accel Partners.
Plex is a 17-year-old Auburn Hills, Mich.-based company that targets manufacturing firms with its "shop floor to top floor" SaaS ERP technology. The company, which we profiled last month, is a pioneer of the SaaS delivery model in the extremely demanding and safety-focused manufacturing industry.
A quick look at Accel's investment portfolio, which includes Dropbox and Cloudera, indicates that the company tends to pick multi-stage investments in young Internet-focused startups. So Plex's maturity is a bit of a departure for Accel. But Plex's technology is still very much in the disruptive/growth phase, which is Accel's investment specialty.
"Plex Systems represents an opportunity to help move a highly complex and diverse industry -- manufacturing -- to the next computing platform, based in the cloud," Sameer Ghandi, Accel partner and newly appointed Plex board member, said in a statement. "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."
Plex was acquired by private equity firm Francisco Partners in July. So Plex has been the focus of high-profile attention over the last six months.
"This means we are on the right track. Other people see the opportunity we see," Mark Symonds, president and CEO of Plex, told us. "Toiling away is one thing, but having these really smart people from Silicon Valley say 'my gosh these guys have a huge opportunity before them and we want to participate' is quite another."
The manufacturing industry is undoubtedly the cloud's toughest challenge to date. It has stringent demands for real-time systems response and strict safety standards that are almost unknown in most other industries. And for a long time, the cloud's latency seemed to eliminate SaaS from consideration as a shop floor technology. That is changing. And Plex's prospects are changing with it.
"One of our biggest challenges was brand awareness and visibility. Sometimes we would get to the end of the sales process and the board would not have heard of us," said Symonds. "This will help us increase brand awareness so that we are put on more consideration lists. It will help us get in more deals, and win more deals than we otherwise would."
The US manufacturing industry has been hit with a painful reality check in the last decade. In the 2000s, the US lost 5.7 million manufacturing jobs, according to a report from the Information Technology and Innovation Foundation. The industry practically flat-lined until about two years ago.
According to a report from the Boston Consulting Group, economic and other conditions are setting up a US manufacturing resurgence. Stagnant wages in the US, a weakening dollar, and rising wages in China are combining to make the US a low-cost manufacturer, the BCG report says.
And the suddenly resurgent and low-cost US manufacturing industry is no longer dismissing the cloud as a potential factory floor technology. Cloud benefits such as lower cost, improved business agility, flexibility, and a tighter focus on the core business are producing new resonance.