This document summarizes a Forrester Research teleconference on hosted enterprise applications. It discusses trends in ERP hosting such as industry consolidation and the differing approaches of new development versus post-implementation outsourcing. Drivers for hosted ERP include new companies, limited IT staff, and upgrade challenges. Adoption of SaaS in ERP is growing but objections still exist. Leading hosted ERP suppliers include IBM, Oracle, and SAP. The document contrasts custom and packaged hosting approaches and recommends not pursuing hosting solely for cost savings and understanding service level requirements.

1. Teleconference
Hosted Enterprise Applications
Market Update: Whys And Wherefores
William Martorelli
Principal Analyst
Forrester Research
November 21, 2006. Call in at 10:55 a.m. Eastern Time

2. Trends in ERP hosting
• Industry consolidation nearly complete with AT&T/USi
acquisition
• ERP hosting remains something of a stepchild within the
broader SaaS movement
• Duality of ERP hosting confounds
» Between new development ASP/SaaS approach versus post-
implementation applications outsourcing approach
» Value propositions vary but often intertwine
2 Entire contents © 2006 Forrester Research, Inc. All rights reserved.

3. Drivers for hosted ERP: Who buys it and
why?
• A broad range of enterprises as compared by size
• New spinoffs, acquisitions, and divestitures
• Organizations with limited supply of qualified staff
• Enterprises fearing upgrade challenges
• Companies seeking regulatory compliance
3 Entire contents © 2006 Forrester Research, Inc. All rights reserved.

4. November 2006, Data Overview “The State Of Enterprise Software Adoption”
Current usage and interest in SaaS
© 2006, Forrester Research, Inc. Reproduction Prohibited

5. November 2006, Data Overview “The State Of Enterprise Software Adoption”
Traditional objections still pertain
© 2006, Forrester Research, Inc. Reproduction Prohibited

6. Sentiments against SaaS vary but not much by
customer size
6 Entire contents © 2006 Forrester Research, Inc. All rights reserved.

7. Overall adoption of SaaS in ERP-relevant
categories
7 Entire contents © 2006 Forrester Research, Inc. All rights reserved.

8. Demand by company size confounds easy
assumptions
8 Entire contents © 2006 Forrester Research, Inc. All rights reserved.

9. Principal hosted ERP suppliers
• Large outsourcers/telecoms
» IBM (Corio)
» ACS (BlueStar Solutions)
» EDS
» CSC
» AT&T (USinternetworking)
» Capgemini
» Others
9 Entire contents © 2006 Forrester Research, Inc. All rights reserved.

10. Principal hosted ERP suppliers
• Managed services companies
» NaviSite, Mercury (Oracle)
» Itelligence, Freudenberg (SAP)
» NetASPx
• Offshore providers
» Satyam
• Leading ISVs
» Oracle
» SAP
10 Entire contents © 2006 Forrester Research, Inc. All rights reserved.

11. If the ASP market “failed,” why did it get
acquired?
• Existing customer base
• Midmarket channel
• Automated service delivery facilities
• Rapid scoping methodologies
• Coinciding implementation/management decisions
• Extension of existing services into emerging SaaS
domains, SaaS platforms
11 Entire contents © 2006 Forrester Research, Inc. All rights reserved.

12. Is hosted ERP really SaaS?
• ERP license relationships typically remain distinct.
• ERP packages have a legacy architecture past.
• ERP packages usually require substantial
involvement of IT organizations.
• ERP SaaS offerings fail “Web 2.0” test.
12 Entire contents © 2006 Forrester Research, Inc. All rights reserved.

13. Contrasting custom and packaged approaches
Custom Packaged
Infrastructure stack Unlimited Typically narrowed to one stack
Shared Minimal Shared SAN but typically dedicated
infrastructure servers for production, virtualized
elements servers for development, DR
Disaster recovery Unlimited Minimal choices. Custom needs drive
higher cost.
Release Flexible Dictated by supplier
management
Pricing mechanism Fee per month Typically fee-per-month for SAP, user-
based charges in PeopleSoft/Oracle
13 Entire contents © 2006 Forrester Research, Inc. All rights reserved.

14. Pricing drivers for hosted ERP
• Standardization of infrastructure stack
• Data center footprint
• Disaster recovery requirements
• Network requirements
• Package customization
14 Entire contents © 2006 Forrester Research, Inc. All rights reserved.

15. Additional drivers for hosted ERP
• Continuing growth in SaaS and draw-in from other
SaaS categories (principally CRM)
• Evolution of SOA as integration mechanism
• Continuing efforts of vendor/investor community to
foster SaaS at multiple industry levels
• Impact of high-profile market entrants (e.g.,
Workday)
• Impact of Microsoft, Oracle, SAP et al.
15 Entire contents © 2006 Forrester Research, Inc. All rights reserved.

16. Future directions
• From discrete software fees to pay-as-you-go
pricing
• From dedicated to shared infrastructure
• Toward more comprehensive, complex
environments (e.g., data warehousing, supply chain,
CRM)
• Greater middleware, SOA focus
• SaaS platforms build “around” ERP core
• Greater involvement by Indian providers
16 Entire contents © 2006 Forrester Research, Inc. All rights reserved.

17. Recommendations
• Don’t do it for cost alone.
• Narrow the scope for the packaged approach.
» Diverse infrastructure environments will affect cost.
• Integration and security remain challenges in both
conventional and hosted implementations.
• Understand service-level requirements.
» Higher targets negotiable, but 99.5% availability is “standard.”
• Know the differences between custom and packaged
approaches and the implications.
17 Entire contents © 2006 Forrester Research, Inc. All rights reserved.

18. Thank you
William Martorelli
+1 203/221 - 2893
wmartorelli@forrester.com
www.forrester.com
18 Entire contents © 2006 Forrester Research, Inc. All rights reserved.