At its customer event, ERP vendor Epicor laid out its plans to become a cloud-first company, to which it asserted a strong commitment – even though the transition is greatly complicated by multiple factors.

LAS VEGAS – At its 2016 Insights Customer Conference this week, ERP vendor Epicor repeatedly emphasized the importance for its customers to move to the cloud. From CEO Joe Cowan’s keynote formally kicking off the event, through many conference sessions, the message was clear: it’s becoming a cloud world, even for ERP vendors. At the same time, Epicor acknowledged a fundamental reality – that many of their SMB-focused customers don’t see moving to the cloud as a top priority, especially given the complexity and the expense. As a result, the company’s cloud strategy is one of balancing these two contradictory perspectives – encouraging customers to move to the cloud, and partners to gently nudge them there – while recognizing that many customers still see the cloud as a premature part of their ERP business plan.

“It’s inevitable that customers will adopt the cloud, and we see this whole cloud adoption accelerating very quickly,” said Himanshu Palsule, Executive Vice President and Chief Technology Officer at Epicor. “Our ERP 10.1 solution has been architected from the ground up as true multitenancy. To be a cloud- first company, we have to focus on the release cadence in all the things that come out from the E10 basis. So we are moving from a 12-18 month major release cycle to quarterly, with updates being released biweekly.” The latter are specifically designed to eliminate the need for ‘one-off hell” from the past.

Epicor repeatedly emphasized at the event that to make the changes happen in cloud has required a great deal of money.

“We’ve been investing very, very heavily in cloud,” said Craig Downing, Senior Director, Cloud Marketing at Epicor. “We’ve been working on improved visibility, with a systems availability dashboard that allows you to see in real time what’ s going on, as well as planned maintenance. We’ve made big investments to ensure clients also have a pilot system, upgraded in advance of the production system. We’ve continued our global cloud expansion into Hong Kong, Singapore and Malaysia, and are now live with cloud in ten countries.” He added that they expect to be in twenty countries by this time next year.

Downing also told the audience that last year, many of them had asked for a clear path to the cloud which included both technical migration and financial protection.

“Both technical and financial migration paths have been put in place,” he said.

Downing also stressed that Epicor’s cloud strategy has changed completely from their early days.

“Our first foray into the cloud was five years ago, and it was building a small business product because we just couldn’t reasonably serve very small businesses with on-prem ERP. We provided a product that worked well, but the value proposition for the enterprise in the cloud is very different for small businesses. With small businesses, the issue is cost. Without cloud, they can’t afford ERP. With enterprise we’ve got some billion dollar companies using our system, and they want a global system they can standardize on. The value proposition changes.”

Now the core Epicor Cloud ERP is the exact same product as the on-prem ERP 10.1 – just in a different consumption model.

“It’s the same product with the same functionality, with the difference being that we take responsibility for running the back end,” he said. “We don’t have different teams for delivery and support, so we aren’t diluting resources.”

Downing stated that Epicor’s late entry isn’t a big issue in the broader cloud market because their technology is well suited for it.

“Epicor has been long in technology and short in marketing,” he said. “We didn’t feel the need to be a pioneer in this market, and the early movers made decisions that now limit them somewhat. The jury is still out on whether the pure-play cloud companies like Netsuite or Workday have an advantage over companies like us or Microsoft or Accumatica, who have a huge advantage in being able to tell the customer they can move to the cloud when they want. Once a quarter or so, I’ll even have a customer that wants to bring something back from the cloud on-prem. That’s not a lot, but they have the choice with us.” Downing did acknowledge however, that while this choice doesn’t hurt their total business, it likely does hurt their specific cloud numbers.

“One thing that could hurt us is openness about freedom of choice, telling customers that the cloud might be best for you in say, two years’ time,” he said. “If we didn’t have an on-prem option, they would likely opt for cloud.”

Downing indicated that Epicor has already overcome a significant barrier to cloud expansion – convincing their salespeople to buy in.

“There is always an issue of inertia, and even my own sales guys tend to follow the path of least resistance,” he said. “We had to provide evidence internally that we are viable in the cloud, and now that our sales guys see us going after $50,000-a month subscriptions, they have more confidence. We had to fight our way up, from 13 to 20 user deployments, to 40-60 users now, but I can point to 200 user systems. Salesforce also started by selling to 10 employee companies.”

Downing said that Epicor has already subtly changed their sales and marketing messaging around cloud.

“We are beginning to see the shift even now internally,” he said. “Two years ago, we met with our marketing and communications people about this and decided on messaging that was ‘we will be ready in the cloud when you are,’” he said. “This year we continued with that theme of choice, but we flipped it around to ‘we are a cloud solution that also runs on-prem.’ The change may not be visible yet from the outside, but internally, our processes have flipped. We are now two years away from our next phase in North America – which is not cloud only – but cloud and on-prem in extreme conditions. In Asia, we are already cloud first.”

So given that Epicor sees market forces as inexorably moving to cloud, and given that cloud benefits customers price-wise because it is significantly cheaper, why not push harder, both in new sales and to get the install base to switch over. Simply put – it’s because much of the market doesn’t want to go.

In advance of the conference, Epicor polled the attendees on their views about what priorities should be, and some of the cloud-related numbers were surprising, if not shocking. Only 64 per cent said they considered the cloud an interesting proposition – and among manufacturing customers – the main component of Epicor’s business, the numbers were worse than that. Half of these manufacturing customers don’t see the need for either cloud or digitization.

Downing said while these numbers are somewhat frustrating, these do have a logicality to them.

“When you look across the cloud spectrum, it’s easy to embrace low complexity cloud solutions like Dropbox, and it’s easy to look at moving your productivity software into the cloud with Office 365, and never have to pay for upgrades again,” he said. “Even Salesforce CRM solutions are a simpler workload than ERP. ERP is complex. That’s why these numbers seem low. I can’t imagine a customer moving ERP to cloud when they haven’t moved CRM. There’s a logical and organic path to cloud enlightenment. ERP as a workload has lagged in moving to the cloud because doing so requires that customers have already made the journey with the others and are comfortable with the results. Certainly your first solution in the cloud should NOT be ERP.”

Downing also said that in some cases, customers still aren’t fully aware of what they can do in the cloud.

“Customers don’t think of doing things in the cloud they can’t do on-prem, because they don’t do them now,” he said. “Some business don’t fully embrace new capabilities. In mobility for example, some companies see a mobility strategy as meaning that you buy everyone a phone. But they aren’t building custom apps that would really unlock value, or wiring up trucks and the shop floor with the Internet of Things.”

Downing and other Epicor execs acknowledged repeatedly at the event that a migration from on-prem ERP to cloud even from ERP 9x, is complex.

“If the product is older, like a 12 year-old Vista, system, it’s a lot more painful,” Downing said. “But I think the big problem here is not so much about the cloud as it is that so many ERP systems haven’t spent the time necessary to simply upgrade experience. No one years ago made it a priority to fight for automation of upgrades. So we went from having resource pools to pivoting on scheduling and machine availability. It was the right thing to do, but it forced customers to go through a painful re-engineering of how they schedule. The lesson is that inertia is not your friend.”

Downing also said that customers need to rethink their business processes themselves as they move to cloud.

“If your goal is to simply move processes and data to the new products, that’s better than nothing, but you really undersell the investment potential by not redesigning business processes at the same time,” he said. “That makes upgrades more painful, but it’s the right answer.”

Regardless, Downing said that the end game is clear, with only the time it takes to get there in question.

“In 2014, Gartner said that within five years, 47% of organizations will have a majority of their core ERP in the cloud within five years, although only two per cent did at that time,” he said. “Then the vanguard was fighting over that two per cent. Now with that remaining 45 per cent considering adopting, cloud is now neck and neck with legacy on-. We see easily another 10 per cent cloud growth in the next year.”

Epicor also laid out the road map for the core ERP solution beyond the current 10.1.400 solution.

“Our target for 10.1.500 is early Q3, calendar year 2016,” said Neil McLachlan, Epicor’s Vice President Product Management. “We are not going to add a lot of new functionality and jeopardize the solid 10.1.400 00. We are focusing on those areas we continue to need to enhance, looking at how to improve posting engine speed, and looking at expansion of things like supplier statements and credit card enhancements.”

Beyond 10.1.500, as part of the 18 month rolling cadence, customers can expect simplifications and easier use of the product, McLachlan added. “We also want to start to deliver role-based content, so roles like the credit controller or CFO will see interfaces relevant to them. That’s an important part of the product going forward.”