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We live in an age of technological upheaval. The weary model of on-premise business management software is giving way to cutting-edge cloud systems. Sensing their impending demise, some on-premise finance management vendors have tried to prolong the life cycle of their products by disguising them as “hybrid” or “hosted” cloud solutions. This has sown confusion among financial software buyers, complicating their search for accurate information. What distinguishes private, public, and hybrid cloud? Is hybrid really the best of both worlds? What is a ‘hosted’ solution? What is a ‘true’ cloud-based solution? And which option is best for the average to complex business needs of a mid-sized organization?

Let us answer these questions one at a time.

What distinguishes private, public, and hybrid cloud?
A private cloud is a single-tenant environment in which your company and none other occupies the infrastructure, controls access, and maintains hardware. Like every other company in single-tenant architecture, you must purchase your own licensed copy of the software. After purchase, you must then use either internal IT resources or hired consultants to upgrade and customize the software for your needs. Even though it lacks economy of scale and other cloud advantages, some clients choose private cloud because it affords them a greater sense of control over their data.

A public cloud is a multi-tenant model in which your company subscribes to software access and space on an existing cloud server environment. Using advanced virtualization techniques, multi-tenant vendors can host multiple ‘virtual’ systems on the same physical machine. The public cloud operates like a utility, with each client paying for the resources they use. In the financial software market, public cloud systems offer increased flexibility, lower cost, quicker implementation, and the ability to scale capacity up and down based on your needs.

Hybrid cloud is a patchwork environment mingling local installation with private and public cloud services. Hybrid vendors claim that by alternating the workload between private and public clouds according to costs and data needs, they can provide greater flexibility and superior deployment options.

Is hybrid cloud really the best of both worlds?

Usually, hybrid cloud advocates employ some combination of the following arguments. They frame the hybrid cloud as a compromise, a way to get the benefits of all and the vulnerabilities of none. They claim to supply modules at low cost and high benefit. According to them, the ability to disperse functions among environments makes the hybrid cloud ideal for varying degrees of sensitivity.

Yet beneath the hype teems a host of problems. Hybrid cloud solutions suffer from numerous and fundamental flaws in finance, management, and technology. Since hybrid cloud uses vendor software to coordinate two or three different platforms, these problems include both those affecting the entire system and those specific to its components.

Hybrid solutions are only as strong as their weakest integrations. In the hybrid model, your organization must secure full API (Application Programming Interface) compatibility and robust network links. Yet vendors often fashion connections using RAD (Rapid Application Development), a form of coding designed for speed at the expense of integrity, unity, and security. Attackers seem to understand this—according to Alert Logic’s 2017 Cloud Security report, hybrid solutions draw twice as many attacks as any other platform, including on-premise. Even without hasty coding, hybrid providers and their clients must invest time and energy into enabling ground-floor functions and establishing basic security.

You also stand at risk wherever your hybrid vendor’s private cloud touches the public cloud: at risk for integration problems, SLA (Service Level Agreement) breaks and other public cloud disruptions. In order to minimize these risks, companies can build hybrid work tasks that interface with public cloud solutions, but only by rapidly complicating architecture design and testing.

Gartner has cautioned that these loosely connected hybrid solutions can create greater risk of fragmentation and value dilution, and that the sum of each part is lesser than the whole. Due to subpar insight and faulty integration, hybrid clients risk making poorly informed strategic choices. A solution’s value for any specific customer hinges on the alignment between its business objectives and financial software strategy, an alignment which hybrid cloud is unlikely to facilitate.

But the problems don’t end here. All hybrid solutions ground critical functions in the private cloud, which brings stubborn flaws. No matter how inexpensive the hardware, no single vendor has the resources to maintain, let alone to update, thousands of disparate, radically unique single-tenant structures. In other words, the private cloud outsources maintenance of your ERP system to a vendor incapable of performing it.

As the inherent advantages of multi-tenancy gain more recognition, it grows increasingly difficult for private cloud solutions to compete with the public cloud, and even harder for hybrid providers to reconcile the two. For most companies, it does not make sense to invest in private cloud or in solutions that contain it. Whether the organization has to purchase the infrastructure or the vendor provides it, it will come at a higher cost than a public cloud. Indeed, everything relating to a private cloud is both less secure and more expensive.

There are many indications that hybrid cloud solutions will only be a temporary phenomenon on the road to the superior functionality of public, multi-tenant cloud. Unfortunately, many companies will probably have to make the mistake of investing in hybrid cloud solutions before the market realizes their inferiority. It is interesting to note that many of the hybrid cloud’s biggest pushers are aging on-premise vendors.

What are hosted cloud solutions?
On-premise vendors have responded to market trends in another, less transparent, way. Although all cloud solutions function through hosting, some sources apply the term hosted to a new phenomenon: on-premise products that vendors have pasted into private, third-party cloud. Here is how it works. When on-premise solutions near the end of their life cycle, their vendors often attempt to ‘cloud-wash’ them. They arrange for a third-party VAR, or Value-Added Reseller, to ‘host’ their aging system in a single-tenant (private) cloud. Clients who fall for this must pay for all available resources, no matter how many they actually use, and pay more whenever they exceed an upper limit. Vendors might argue that hosted solutions enable you to upgrade at your own pace. But they do not tell you that any upgrades will require intensive labor and high expense, nor that you will have to write much of the code on your own.

Beyond price, though, hosted solutions fail to deliver promised benefits. The model poses numerous risks, from upgrades to integration and the financial standing of the VAR. Hosted solutions might come through a provider like SAP, but that does not mean they have SAP’s security and durability behind them. Instead, you must rely on the VAR, one of hundreds of companies SAP has contracted to host its software. Each VAR has to spend substantial resources to keep hosted stacks running. These companies often fail, leaving clients high-centered, unable not only to upgrade but even to maintain their heavily customized systems. The system does not scale with you, you and only you occupy it, and each instance requires a separate infrastructure. Furthermore, it is highly unlikely that VAR hosting can achieve the same level of security as the public cloud.

So would the true cloud please stand up?
The true, genuine, unadulterated cloud is public and multi-tenant. It is built from the ground up on a web-based platform within a shared cloud infrastructure.

The term multi-tenant indicates that a single instance of the given application serves multiple clients, or tenants. In other words, all customers are on the same instance, or version, of the ERP application. This has many benefits. If there is ever an error, bug or security issue in the system, the vendor owns that problem and can fix it at once, in one place, and with the necessary security upgrade. All fixes will apply to all customers.

Multi-tenancy also means that all customers run on the latest version of software. In Xledger’s case, this ensures that our entire customer base has access to new innovations and functionalities as they develop, without having to wait for and purchase the next version. Our development team can focus their resources and creative energy on improving the system, rather than on the wasteful repetition consuming teams behind ‘hosted’ and ‘hybrid’ solutions.

True-cloud solutions leverage economies of scale by drawing on common resources. A multi-tenant system like Xledger can handle spikes in server demand by distributing excess resources among customers. This contingency model maximizes efficiency and enables the system to scale up or down with ease. Add in low band-width and smooth integration, and true-cloud systems such as Xledger offer compelling technical advantages.

Another benefit of the true, multi-tenant cloud finance software model is that it implements by configuration rather than customization. In configurable systems, the vendor can adjust multiple ‘levers’ to each customer’s needs. These settings remain through upgrades. With multi-tenant cloud, clients never have to re-implement or re-customize after an upgrade.

By contrast, all other variations of the cloud require code-breaking customization. With every upgrade, the responsible IT team must re-write and re-test the code, making system improvements prohibitively expensive.

Identifying one cloud platform as ‘true’ might seem presumptive. But consider the alternatives. On-premise software is the clear opposite of cloud. Private, single-tenant cloud systems forsake most benefits of cloud computing—swift upgrades, multi-tenancy, configurability—for illusory increases in security. Hybrid solutions try to join together fundamentally incompatible modules, including on-premise relics. Hosted solutions join private cloud with on-premise coding. Therefore, language that distinguishes between ‘true’ and ‘fake’ cloud is perfectly legitimate. Only businesses that adopt genuine, undiluted cloud—cloud that is public and multi-tenant—will experience the full fruits of the cloud revolution.