SAP is committing to the cloud. For those who don’t know, SAP has a huge business of on-premises ERP software (something like 80% of the Fortune 500 run SAP). This software is customized and implemented by huge tech consulting firms, the largest of which are Deloitte, Accenture, and IBM. (I used to work for Deloitte doing SAP implementations.)

The move of ERP software to the cloud was inevitable. Over the next decade we’ll see more and more software, both enterprise and consumer, move to the cloud. The only question will be who is willing and able to disrupt their own business, as SAP is attempting to do here, and who gets replaced by newer products and companies that are entirely focused on cloud solutions, like Salesforce.com and Workday.

Part of the promise of cloud-based software is the cost savings that result from elimination of customization. Enterprise customers all believe that their businesses are unique and beautiful snowflakes, and they pay out the nose to make sure that their software is too. That kind of customization is extremely lucrative for implementers and consultants, but extremely costly for the customer, both in the implementation and in ongoing maintenance.

One of the most frustrating things about my time doing SAP implementations for Deloitte was that start-from-scratch approach to every project and client. The firm had implemented for nearly every kind of company in every industry, and yet every project was treated as a complete customization. Is Kraft’s business so different from Nestle’s that they require totally different software? Is John Deere so different from Caterpillar? [1]

That’s part of the reason that I saw disruption from the cloud-based solutions coming from a mile away - there was just so much room for improvement, especially in areas that the cloud is so well-suited to handle: scalability [2], maintenance [3], and most of all reduced customization (also known as software that “just works” out of the box, er, browser).

SAP has recognized the potential for cost-savings that comes with reduced customization. Vishal Sikka is quoted in the article as saying:

At some point in the future, complex implementations should go away.

With their purchase of SuccessFactors and this most recent announcement, SAP has stated their intention to cannibalize their own on-premises software business in order to save themselves in the long term. But with this move to the cloud, and the focus on more vanilla distributions of software, what happens to the integrators for whom these complex SAP implementations are a cash cow [4]?

When I posed this question to the head of Deloitte’s SAP practice at a Q&A session for new analysts almost two years ago, he told me (paraphrased):

It doesn’t matter. The economics for Deloitte don’t change whether the software is on-premises or in the cloud.

Only time will tell.

[1] I didn’t perform implementations for these companies, and their businesses might indeed be very different from each other, but not so different that they can’t have the same or substantially similar software.

[2] Anecdotally, I experienced scaling issues with SAP at my client that resulted in downtime on the project while they put more machines on it. This wouldn’t be a big driver for most large enterprises, but it is an issue.

[3] Aside from the initial implementation, the big money for the tech consulting firms (and big expense for clients) is in upgrades to newer versions of SAP

[4] SAP alone made up around a quarter of Deloitte’s technology consulting business when I was there. Oracle was roughly another 20-25%