One MSP’s Clear View Of The Future Of Cloud ERP

March 25, 2013 Alex Woodie

Tom Bruno understands cloud ERP better than you. After all, as the president and CEO of Velocity Technology Solutions, a managed service provider (MSP) based in New York City, it is his job to make sure his customers’ JD Edwards, Lawson, Kronos, and Hyperion applications run safely and securely in his private cloud. Bruno recently got on the telephone with IT Jungle to share his view of the future of private clouds and enterprise software’s place in them.

Velocity runs ERP and other critical systems for more than 250 midsize to large companies out of five data centers in North America. The company not only provides infrastructure as a service (IaaS) with its production and backup cloud environments based on IBM i, Unix, Linux, and Windows servers, but it provides expertise and management for individual applications as well, which makes it somewhat unique among cloud MSPs, which typically offer just IaaS.

Bruno, who started out as an RPG programmer working on the System/32, has heard all the reasons why companies will never move their production ERP environments into private cloud environments. And they are proving hesitant: cloud hosting accounted for just 12 percent of ERP installations in 2012, according to a recent study by Panorama Consulting Solutions. Panorama says adoption of cloud and software as a service (SaaS) deployment models are growing quickly, but it will be many years before they gain parity with on-premise deployments.

Bruno, who founded Velocity in 2003, expects cloud deployments to increase dramatically as a generational gap plays itself out among the leaders of IT departments. “The way I was raised, when buying computer equipment, we found a place to house it, power it, keep it cool, secure it, and protect it. And then we hired people to support it from the ground up,” says Bruno, who is 50.

“The generation Y folks that are going to come up in IT really look at it much more as a utility than we ever have, and perhaps ever will. There’s something different in the buying patterns between the two generations. They look at applications in an instant-deployment mentality, whereas we tend to look at applications as something that needs to be protected.”

It’s not that Bruno doesn’t think servers don’t need to be protected, that applications don’t need to be secured, and that access rights don’t need to be hashed out and enforced. They do, of course. It’s just that Velocity can provide these things as a managed service–and do it better and cheaper than companies can do themselves, Bruno says.

“The concerns to me [about roadblocks to cloud ERP adoption] are generally more emotional than factual,” he says. “There are concerns around compliance. I can assure you, we can produce a more stringent compliance environment than most private companies can produce themselves. Around security–Velocity is penetration tested constantly, and ultimately guarantees security to its customer.”

“Customers are concerned around control of the applications,” Bruno continues. “We spend a lot of time there. I don’t think that early cloud application providers did all they could for customers in terms of putting them in control of their software environment, so we spend a lot of time developing mechanisms that provide control, whether they be over the application or the security policies. We built a security center that allows customers to configure their security policies, establish single sign-on to all the multiple applications from authentication perspective, and actually audit security directly themselves, as opposed to asking the vendor to do it for them.”

Velocity has written more than a dozen software utilities that allow its customers to manage their cloud environments in the manner that they want. For example, it offers a performance management interface that shows how well an ERP or transactional system is running, both from a technology view, and from a human or user point of view. It also has an extensive change management system that ensures customers can get in and make modifications when needed, in adherence to industry regulations. It also has ways to ensure auditors that nothing has changed.

“Ultimately we found, as a cloud provider, that we had to also be part of that attestation process, so we developed an internal control center, which allows us to affirmatively guarantee or not that the application running today is identical to the application running yesterday,” Bruno says. “It sounds rudimentary, but when you have large environments with people modifying software, you’d be surprised if you can’t go in and make that attestation. Certainly when it comes to regulated companies or public companies, it becomes critical for them.”

It is common for cloud MSPs to have to write their own system management utilities, as existing ones were written typically for smaller on-premise environments. Bruno says Velocity’s utilities give it an advantage. “Ultimately, anybody can throw software onto a platform, and say we’re in the cloud business, and offering a data center as a service,” he says. “But it is, in fact, a cloud management platform, which don’t actually exist today, in commercialized form. Nobody out there is selling software that provides this type of functionality. So for Velocity, it’s really enjoying the reaction that it gets from customers when it starts to hand them devices that allow them to control their environments in ways they before couldn’t.”

Most of the big ERP players, like Oracle, Infor, and SAP, have yet to widely adopt subscription-based licensing models. That means that, even though Velocity can deliver a 20 to 40 percent savings on the day-to-day care and feeding of an ERP system and the hardware it runs on, Velocity’s cloud customers still have make large capital expenditures to buy perpetual licenses for their ERP systems, and that’s a problem.

“There are economics that need to be managed at the macro level,” Bruno says. “If 100 percent of Oracle applications were sold under a subscription model, it would create an EPS [earnings per share] crunch that would be distasteful to the shareholders, so you have to ease your way into it. I really do believe this is generational in a lot of ways. The direction of licenses is not really the large upfront purchase. It’s going to be the utility subscription fee.”

In the meantime, Velocity helps its customers by sometimes financing software expenses for customers, especially for its large base of JD Edwards World customers who went off maintenance and now must pay a fee to upgrade. “We’ll work with vendors to create a subscription program that relieves the upfront customer licensing, and gets the customer onto the most current release,” Bruno says.

Not only will the licensing model have to change in the cloud ERP future, but the entire sales process needs a swift knock on the knees to make the process palatable for the future Gen Y IT leaders and their shorter attention spans. Velocity is helping to be at the forefront of change with its application test drive program.

“Today when buying software, everybody goes through some small requirements definition, then they go through structured demos, issue an RFP, negotiate with the vendor, and then buy. The lifecycle is fairly traditional around business applications,” Bruno says. “What we’re starting to do today is much more of what I expect the generational shift will bring, which is a much more of a try and buy, test drive type of environment for software purchasing.”

The test drive program is starting small, but Bruno expects it to grow. “We’ve started to experiment with smaller simpler to use apps such as forms management. But I see it happening in larger and larger purchases, where they may try two different forms management tools or two different analytic tools in your dev environment, and see which one you like the best.”

This is a clear cut trend, Bruno says. “A lot of people say that will never happen in ERP. I’m pretty hesitant to say that things will never happen. They always end up happening, anyway,” he says. “As the next generation starts to come up, I just don’t think they’ll have the patience to sit through the selection process that perhaps I would have.”

Bruno is currently in the midst of overhauling Velocity’s server environment to allow it to stay current. His goal with the new environment, which he calls “Velocity 3.0,” is to standardize on a server platform that will become a versatile “Lego” that can be used for all types of workloads. IBM PureSystems and Oracle Exa engineered systems are all in the running.

“For us, the question is, what’s the best hardware object to serve a particular function, whether it be running applications, database, or satellite applications,” he says. “In some cases, essentially what Velocity has been doing with this Lego strategy is pretty much building PureSystems without the label on it. We’re ultimately looking at the software to define the compute environment.”

Whatever system it picks, it will help Velocity stay on the cutting edge of virtualization without impacting customers. “Our environments are our customers’ environments,” Bruno says. “That shell that we provide, that container if you will, that you run your applications in, that’s your sovereign shell. Our job is to provide screaming fast compute platform so that, from a user experience perspective, you’re not receiving complaints, and also to provide resiliency so that when a component of that infrastructure fails, it doesn’t affect your availability. But beyond that, it’s your environment.”

Backed by private equity, Velocity has made two acquisitions in the past two years, and it will likely make more as it seeks to expand its position in the market for private cloud hosting. With clear views on the direction of cloud ERP, you can expect the $75 million company to grow.