Multi-Tenanted ERP Applications Outflanked by Virtualization

March 23, 2010

In earlier days of Cloud Computing, there was an industry-wide presumption that all applications delivered in the Cloud needed to be multi-tenanted in order to achieve the cost efficiencies of a shared infrastructure. Today that is still more or less true, except that virtualization technology and server hardware has improved to the extent that similar platform sharing efficiencies can be gained through virtual environments for single tenant applications. In effect, virtualization gives the single tenanted application much of the benefit of a multi-tenant application.

In the case of relatively simple applications like email, web servers, banking applications, small business accounting, payrolls etc, I would suggest that the multi-tenant model is still the more logical, cost-effective design. Anywhere that there is a high degree of similarity of function between users, suits multi-tenanting because at the end of the day, all users are using the same instance of the same system.

However, for more complex systems where there is a relatively high degree of customization and integration to other external systems, I believe that the multi-tenant design becomes difficult, if not impossible to operate successfully. This is certainly the case with ERP systems for medium to large enterprises.

The most difficult challenge to multi-tenanted ERP systems would have to be version upgrades and the necessary change control processes required from the customers’ perspective. ERP upgrades require testing, sign-offs, documentation changes, user training, checking and updating reports and customizations etc. In short, an ERP system can only be updated for a customer, once these processes have been completed and signed off. So how do you manage that if you have many customers sharing a single instance of the ERP application?

Consider instead the option of a virtualized environment. Under this model, each customer has their own virtual server(s), running their own instance of their ERP software (plus other applications) all sitting on a shared infrastructure within the data center. Version upgrades can be performed at the customers’ pace as and when they are ready and their change-control processes have been completed. Cost efficiencies still apply, because the infrastructure is shared (in effect multi-tenanted at an infrastructure level instead of an application level).

I have tested this argument with many colleagues in the ERP industry and I haven’t yet found anyone to disagree with what I’m saying.

Why are the large ERP companies investing so heavily in multi-tenant ERP? Perhaps they didn’t foresee the rapid advent of virtualization.

What are your thoughts on this?

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