SaaS, software as a service, has fueled the market for vertical applications. Cloud applications are relatively easy to integrate so that vertical applications can be connected to other ERP software. Cloud computing also offers the possibility of combining applications specialized for particular businesses with standard ERP software, forming a suite of applications tailored to unique industry verticals. It’s a variation on the idea that the Internet allows even the tiniest of niche markets to be served exactly what they want – the so-called “long tail” phenomenon.
Before your company jumps at this opportunity, however, think carefully about just how unique your market niche and IT needs really are. Does your enterprise really need vertical applications to compete and innovate effectively? If the answer is “no” then why should you make your IT operation – and your business – dependent upon a proprietary solution that probably comes with an expensive price tag?
Certain industries have valid reasons to be dependent on vertical applications. Those reasons may include a high degree of government oversight or requirements for extreme security. Companies in the healthcare and financial services industries are two examples that spring instantly to mind. They are highly regulated, depend upon strictly-defined business processes, and face stiff penalties for security breaches. Companies in these industries really do have unique needs and require solutions designed specifically to address those needs.
Some companies also use vertical applications to gain an edge over the competition. In the airline industry, for example, many carriers use such applications, many of them heavily customized, to determine seat pricing. And some retailers rely upon supply chain and other applications designed specifically to deliver a competitive advantage in an industry driven by razor-thin margins.
No matter what industry your firm works in, however, it is important to conduct a dispassionate evaluation of your real enterprise software needs. No matter how much you think you need a customized solution, start by looking at the capabilities of “off the shelf” solutions or those that require a minimal level of customization. Quantify the benefits of a customized vertical application and decide whether those benefits really justify the additional costs you’ll incur.
There are myriad SaaS providers that will try to sell your firm on a highly customized solution. At a recent forum, a number of industry players admitted that while many providers employ open solutions built upon industry standards, many others are still relying on high-cost, high-margin proprietary solutions. It’s in their economic self-interest to sell you on these proprietary solutions, whether or not your company actually needs them.
It may be difficult to admit your company isn’t unique. But really how many are? Most industries are standardized around certain business practices. And, in fact, businesses across different industries operate in remarkably the same way. Beware the suitor who whispers in your ear that you are special. That kind of flattery comes at a price.
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