Will Financial Apps Be Next Cloud Growth Story?Will Financial Apps Be Next Cloud Growth Story?

A growing crowd of software-as-a-service vendors is betting that companies are ready to trust their top-secret financial planning, forecasting, and analysis activities to cloud-based software. But can they convince skeptics that it's okay to put sensitive financial data in the cloud?

The good news for vendors like Adaptive Planning, Anaplan, Host Analytics, and Tidemark is that plenty of customers are opening their doors to cloud-based corporate performance management applications (also known as financial performance management). Adaptive Planning, founded in 2003 and the largest of these vendors, has more than 1,200 customers and 30,000 users, and it has seen an average of more than 80% growth in each of the last five years. Host Analytics, founded in 2000 and the second-largest vendor, surpassed 250 customers and 8,000 users last year with more than 100% growth.

Anaplan and Tidemark are among the category upstarts. Anaplan, launched in 2010, is being used by security software vendor McAfee, collaboration software firm Jive, and Internet audio streaming company Pandora. Tidemark launched in 2011 with backing from well-known cloud business backers Greylock Partners and Andressen Horowitz as well as Peoplesoft/Workday co-founder Dave Duffield.

But data-security concerns may prevent the category from growing as quickly as cloud-based human capital management (HCM)--a category now served by Infor with SaaS apps acquired with Lawson, by Oracle with Taleo, Salesforce.com with Rypple, and SAP with SuccessFactors.

[ Want more on corporate performance management? Read Cloud Vendor Brings CFOs Closer To ERP Data. ]

Whether you view them as cloud naysayers or prudent IT managers raising legitimate concerns, half of the respondents to our recent information 2012 Regulatory Compliance Survey say they are avoiding SaaS as a matter of policy. Among the 422 respondents, 28% say they'll "never put regulated assets in the cloud" and another 22% say compliance mandates are "the main reason we don't use cloud providers."

But as with other SaaS categories, the ranks of organizations that are willing to move corporate performance management into the cloud have made it a fast-growing market. The mix of capabilities varies from vendor to vendor, but those mentioned above all provide budgeting, planning, forecasting, and reporting. They also provide dashboards that expose key performance metrics, with role-based security and access controls and drill-down data-exploration capabilities. Departmental and line-of-business users help set budgets by developing forecasts within these systems. Collaboration features help managers, executives, and financial types set realistic goals. As sales and revenue data rolls in, users can compare actual results to the performance targets. With feedback throughout a financial period, managers can make adjustments to their business plans to close gaps. Widgets not selling? Push high-profit sprockets to make up the difference.

Higher-level executives check rollups of companywide plans and results. Business analysts, financial analysts, and power users typically handle the what-if forecasting, scenario planning, and root-cause analysis when actual performance doesn't measure up to the goals.

Host Analytics has the deepest financial consolidation, disclosure management, and scorecard functionality of the cloud set, a key reason it's the only SaaS vendor in Gartner's May 2012 Magic Quadrant for Corporate Performance Management Suites (Host offers a free download of that report with required registration).

The cloud-based performance management vendors face formidable competition from on-premises incumbents including IBM Cognos, Infor, Oracle Hyperion, SAP, and SAS. But the IT giants also see an opening in the cloud. Oracle introduced cloud-ready Oracle Fusion Financials late last year and backed it up in June with the formal launch of the Oracle Public Cloud. SAP announced plans for SAP Financials OnDemand at Sapphire and it now says that service, which is based on functionality from SAP Business ByDesign, will be introduced in the fourth quarter .

There are natural ties between general-ledger and transactional-system-of-record capabilities and financial performance management systems, as the latter analyzes data managed within ERP. But the two applications don't have to come from the same vendor. Hyperion's software was (and still is) used by many SAP customers before it was acquired by Oracle. Similarly, IBM Cognos performance management apps show up in plenty of Oracle, SAP, and other ERP deployments.

Adaptive Planning is a partner with NetSuite, complementing that vendor's cloud-based ERP applications. Workday is building out the financial functionality of its cloud-based ERP apps, and with the Duffield tie, it's easy to guess that Tidemark will wind up as a partner.

There also are natural ties between business intelligence systems and performance management apps. IBM Cognos and SAP BusinessObjects, for example, contribute their dashboard and reporting capabilities to their respective financial performance management apps. And both vendors also use in-memory technology (TM1 in the case of IBM Cognos, Hana in the case of SAP) for analytical what-if financial scenario planning.

Both BI and performance management apps are trying to make data easier to analyze and understand. Adaptive Planning, for example, introduced extensive data-visualization upgrades in a July release, matching moves by many BI vendors to make analysis easier with intuitive graphics.

Cloud-based financial performance management apps are used mainly by IT-constrained midsize organizations. They also appeal to some larger organizations that don't want to bother with big IT projects to extend financial management capabilities to subsidiaries and satellite operations.

Even if only about half of all enterprise would currently consider running financial performance management in the cloud, as our research suggest, that still leaves a huge potential market. And with Oracle, SAP and other giants now legitimizing the category, it will only get bigger.