The Supply Chain Information Technology blog

I got a couple of emails recently pitching HighJump’s report, WMS in the Cloud, Real World Business Option or Just Fluff. HighJump has its sights firmly set on cloud computing as a key component of its sales and marketing strategy for its Warehouse Advantage WMS product.

So it shouldn’t be a surprise that the report outlined reasons why moving to the cloud for WMS functionality may make sense for some organizations. The reasons given were sound and familiar to anyone following cloud computing – lower capital investment, reduced impact on IT resources and faster implementation times.

However, HighJump’s pursuit of WMS opportunities in the cloud isn’t unique. RedPrairie reached for the WMS cloud last year through its acquisition of SmartTurn, but SmarTurn is a pure multi-tenant SaaS solution. It is only sold on a subscription basis where customers pay a monthly fee for usage. Its functionality and features appeal to small to modest size operations with limited complexity.

This is not a market segment that RedPrairie’s flagship WMS product can effectively address. HighJump is offering its Warehouse Advantage product on a hosted basis; users will pay a subscription fee to access a unique instance of the application in a remote data center. And HighJump will continue to sell Warehouse Advantage as a traditional on-premise, licensed basis.

So HighJump is effectively becoming the software vendor version of a brick and motor fashion retailer that has decided to open an ecommerce channel.

Offering a hosted solution means HighJump can reach customers that will not or are hesitant to buy an on-premise solution, but it also means that its existing customer pool now has a choice in deployment models. It will be interesting to see how HighJump factors this choice into how it prices, supports and markets both models.

A multi-channel retailer can anticipate that a substantial portion of its customer base will use both channels. I don’t think that this assumption holds true for software vendors looking to sell the same application on a hosted and on-premise basis.

I haven’t seen a quote from HighJump for its WMS cloud option, but I have seen quotes from other vendors offering the same package on both hosted and on-premise terms. While these vendors don’t break down the components that go into their hosted pricing, you can see the elements by comparing the hosted price to on-premise license fees and maintenance costs.

Of course, the vendor needs to cover hardware acquisition and operating costs in its subscription fee. However, they also appear to recoup the license fee over a three- to four- year period, as well as cover the maintenance contract element of their on-premise pricing model.

Depending on the subscription fee, a customer who utilizes the WMS for eight years might end up paying double for license usage for hosted services over an on-premise approach. The latter requires an upfront capital investment for licenses, while the former is spread out as an annual expense.

Still, 2x is a heavy premium for avoiding a capital investment. Maintenance may seem a wash for both options over the eight year period, but an on-premise customer can always choose to go off of maintenance at some point during the system’s lifecycle. I doubt the hosted customer will have this choice.

WMS vendor hosting services also cover IT infrastructure and operating expenses. These costs and associated headaches are hardly inconsequential for top-tier WMS solutions. You can always turn to another third party for IT hosting services, though there is comfort in having a single source provide and support both the application and the hardware.

I don’t think there are any WMS bargains to be found in the cloud if you only look at the proposition from a license, maintenance and hardware fees perspective. This doesn’t mean that I don’t think HighJump and other vendors can’t generate significant business with their hosted services.

I think success in the cloud will boil down to the value adds that a vendor can provide through a hosting model.

There should be a synergy between providing the application and hosting IT services that go beyond the data center. Any WMS vendor who can exploit this synergy by making the implementation process and ongoing WMS operations more effective and less costly for the customer will really have something.

If they can’t look beyond annual subscription fee and hardware infrastructure, then their hosting options may only be viewed as a method to hook customers into an annual revenue stream.

So what is your take on WMS in the Cloud? Is it for real or merely fluff?

-- Tom

Photo Credit: Fractal_Artist 

Tags: cloud computing, warehousing, wms