Virtualization and Cloud executives share their predictions for 2017.  Read them in this 9th annual VMblog.com series exclusive.

Contributed by Evan Quinn, director of marketing, QAD

2017: The Year More Manufacturers Choose Cloud First

In 2017 we will find that manufacturers choose to deploy cloud enterprise software more often for net new and new sites than on premise for the first time in history. Why is this important? Because manufacturers typically represent the average of enterprise technology adoption.

Only manufacturers at the top of the supply chain typically adopt new technologies ahead of other industries. The publicly well-known "manufacturers," such as Boeing, GE, and automotive OEMs like GM and Toyota, indeed run along the edge of tech adoption. These "manufacturers," however, focus more on design, assembly and distribution than actual manufacturing. They depend, nearly wholly in most cases, on massive supply chains of tier 1, 2 and 3 manufacturers for components, parts and raw materials.

While huge companies like GE were early adopters of cloud, most tier 1 global manufacturers were not. That tipping point between cloud and on premise, however, will take place in 2017 in manufacturing, where cloud will become the first option for new solutions deployments like ERP and CRM. Don't take my word for it though, there are other proof points.

• IDC, the well-known tech and vertical market research firm, does its own series of predictions toward the end of every year, and according to IDC, in 2017, as quoted in Forbes, "The cloud will be distributed with 60% of IT done off-premise and 85% by multi-cloud by 2018 and 43% of IoT will be processed at the edge in 2019." The takeaway from IDC is that more companies, in general, will use cloud and more often. IDC's recent prediction, however, isn't that new, for back in 2015 in a SiliconANGLE article, IDC saw a "trend towards either cloud-first or cloud-also strategies across all regions ...and says that 61.6 percent of manufacturers will take this approach when considering new IT services, and 56.8 percent would do the same when replacing existing IT services."
• Aberdeen Group, another oft-quoted research firm, wrote a report in July 2016 titled, Cloud ERP's Time Has Come based on survey data. The snapshot of Aberdeen's research below, for the first time in history, found there was more "interest" in cloud-style deployments than on premise - note that respondents could have interest in both.

The last proof point is based on where I work, QAD. QAD has supplied ERP software to manufacturers for over 36 years and QAD's customers are primarily global tier 1 and tier 2 manufacturers. Among the established ERP vendors with a healthy on premise ERP history, QAD was one of the earliest to bet on cloud, first offering a SaaS-based supplier portal in 2003 and a cloud ERP solution starting in 2007. QAD, therefore, is a good barometer to track where manufacturers deploy software.

QAD's subscription fee revenue (cloud) exceeded its license fee revenue (on premise) for the first time in FY2016, which basically is equivalent to calendar year 2015 given QAD's fiscal year calendar. That trend has continued for QAD and even increased, with subscription revenues doubling license revenues in QAD's recent Q2-FY17. While QAD was ahead of the curve relative to its peers, as of early 2016 all peers have cloud options. Several of the largest ERP providers are now experiencing the same "crossing of the chasm" in terms of cloud exceeding on premise revenues for net new and new site business that QAD experienced about 18 months ago.

What this all points to is that the manufacturing industry is crossing the midway point in terms of cloud adoption in 2017, headed in the direction of cloud going forward. What are the implications of this tipping point to manufacturers?

• Faster implementations - cloud typically takes several months less than on premise for a medium size manufacturer to implement ERP
• Faster upgrades - the more modern architectures of at least some cloud ERP solutions provides an upgrade flexibility that simply is not available on premise. That means manufacturers can use more modern capabilities soon and achieve compliance more quickly with cloud.
• Value added interoperability leads to better business processes - all the integration work done between on premise apps down through the years needs to be replaced for cloud to cloud integration. The cloud integration, however, comes with an important side benefit. QAD, for example, works with Dell Boomi to help cloud customers integrate cloud to cloud. Cloud integration, unlike on premise, includes a community of connectors that constantly evolves. QAD has also reimagined its architecture for the cloud, using REST APIs. The combination of modern cloud integration like Dell Boomi and modernized architectures means customers can quite readily apply continuous improvement to business processes.

The news that more manufacturers will use cloud going forward than on premise, start in 2017, isn't nearly as important as the benefits the manufacturing cloud adopters will realize. There oft-quoted "known costs" benefits of cloud due to subscription versus perpetual license, while still interesting to CFOs, is yesterday's news. The real benefits come from improved speed and agility that accrue to positive business outcomes.

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