The Open Road

While open source has made its mark in just about every product segment within enterprise software, ERP (enterprise resource planning) has remained firmly proprietary. As CIO.com's Thomas Wailgum suggests, however, the time may be ripe for change.

The reason? Years of empty promises and overloaded invoices from the incumbent ERP vendors may finally ring hollow in a global recession:

Does a massive, 18-month, multimillion-dollar ERP rollout, with the odds of implementation and user acceptance stacked against you and 22 percent annual maintenance costs to boot, seem appropriate now?

ERP industry guru Vinnie Mirchandani likes to say that there are too many "empty calories" in ERP spend, especially in SAP and Oracle maintenance fees. Now is clearly not the time to be ordering up large portions of highly caloric ERP software rollouts.

Just as the economy is proving to be Google's toughest competitor and the biggest reason to innovate, so, too, may the economy be chief information officers' biggest reason to get out of the "no one ever got fired for spending way too much on bloated ERP" mindset and shift spending to software as a service and open-source ERP.

Openbravo, Compiere, and other open-source solutions have been around for several years, and they are surprisingly robust and feature-rich. 2009, with all its financial challenges, may well be the opportune time for CIOs to kick the tires on these alternative solutions.

Disclosure: I am an advisor to Openbravo, an open-source ERP vendor.

Dennis Howlett at ZDNet reports that SAP is reversing its earlier maintenance price hike, at least in Germany and Austria. While it appears that SAP was prodded into the move due to legal reasons, I imagine that the customer backlash in such a bleak economy might have prodded SAP to reverse course, anyway:

This is a major victory for SAP customers who, despite SAP management's protestations to the contrary have continued to lobby for reconsideration of SAP's maintenance package pricing. According to the FT, some 50-60% of SAP customers in Germany and Austria were deeply unhappy with the measures, citing economic pressures contributing to difficulty in justifying what was already a tough budgetary sell. Computerwoche confirms that SAP had only managed to persuade 25% of its customers to changeover from standard to enterprise support.

The pricing changes won't kick in until 2010, but by then I suspect we'll see the same policy find its way to other markets beyond Germany and Austria. Maybe SAP and its ilk don't have quite the level of pricing power we thought?

SAP is a great company, but were it able to increase prices at will we'd have serious cause for concern.

Disclosure: SAP Ventures is an investor in my company, Alfresco.

There's nothing like a price hike in the midst of a recessionary economy to raise customer ire, as well as expectations as to what they're getting for their fees. SAP, perhaps more than any other vendor, is feeling that right now. By raising its maintenance pricing from 17 percent to 22 percent, with no perceived increase in actual value delivered, SAP has firmly placed itself on the hot seat, as CIO.com reports:

(Of) 203 customers Forrester interviewed, a whopping 85 percent expressed minimal utilization of (SAP's) Support offerings. In addition, SAP customers told Forrester that they just weren't seeing the innovation in product offerings from SAP that should have resulted from the collective billions they've been paying in maintenance dollars over the years.

Indeed, as the article goes on to suggest, SAP should have been lowering its maintenance pricing over the past few years, given that its actual costs of support have gone down. Fat chance.

This is why we need competition in the ERP (enterprise resource planning) market. Oracle brings this to SAP's doorstep, but these are mostly two birds of a feather. Neither has any interest in lowering customer costs because both have an incentive to raise prices on customers that have little ability to move to other offerings.

It would therefore be ideal to see Microsoft and open source move into ERP in a more concerted way. Microsoft is a proprietary software company but it does tend to lower prices when it enters a market. Open source, for its part, would put both pricing and innovation pressure on a market that has been content to collect monopoly rents for far too long.

The problem in ERP is that it's so mission critical that few enterprises are willing to take a calculated risk on competing solutions in order to save money. For this reason, perhaps enterprises are getting exactly what they deserve, after all. No risk, no reward.

Disclosure: SAP Ventures is an investor in my company.

Openbravo, the open-source ERP vendor, has pulled in $12 million in Series B funding from new investors Amadeus Capital, GIMV and Adara Venture Partners.

As an advisor to Openbravo, I can attest to how hard the Openbravo team worked to finalize this funding. It is an investment well-earned, and should be money well-spent.

Openbravo has emerged as perhaps the leading open-source ERP vendor in a short space of time, in large part because of its strength as a hosted solution and due to its viability in emerging markets like Latin America and under-served parts of Europe.

Congratulations to the Openbravo team!

Yesterday I suggested that Google could allay a lot of concerns about what it intends to do with others' applications, data, etc. by firmly committing to open source, open data, and open APIs. Today, albeit on a much smaller scale, open-source ERP provider, Openbravo, did just that with the Openbravo Manifesto.

Here are just two of the commitments Openbravo made:

• Open Source: A functional version of our software is always published under an open source license. Our goal is to enable any person with the required skills to install, configure and use Openbravo ERP and POS in a production environment.
... Read more

SAP announced today its ERP-in-a-box solution, based on Novell's SUSE Linux and Intel processors. It sounds like a cool solution (though why this would be more appealing than SAP's SaaS offering, I don't know). It's yet another proof point that SAP and the global ERP vendors see the SME market as the future...which is right where open source offerings like Openbravo and Compiere compete best.

Through the optimization work it did with Intel and the right combination of software, including SUSE Linux, SAP aims to provide customers with a 45% savings on implementation and a 25% savings on total cost of ownership over what they'd typically spend for a comparable hardware/software combo, said Jans Peter Klaey, president of global SME at SAP, in an interview.

One interesting (and hitherto unasked) question is why SAP would have done this deal with the distant second-place Linux distribution, SUSE, instead of with Linux frontrunner, Red Hat?

Manel Sarasa, CEO, Openbravo

I'm at Openbravo's first ever community event, and I'm impressed. In a market so heavily dominated by the big ERP vendors (SAP, Oracle, Microsoft), it's gratifying to see a room filled with people interested in an open-source alternative to proprietary, clunky ERP software (with 800 companies contacting Openbravo to become partners).

I particularly like the fact that Openbravo is coming "clean" to the small-to-medium-sized ERP market. Oracle and SAP are trying to go "down-market" to reach this demographic (spending piles of money to sell for a low price to SMEs...?), but this rarely works, as Clayton Christensen has pointed out. It's hard to support the cost model needed to reach this market unless you're built to fit that market, as Openbravo is.

The other thing I like about Openbravo is that it proves you don't have to be based in Silicon Valley to succeed. The company is based in Pamplona (i.e., the running of the bulls). And yet its success has been global and impressive, a true testament to the power of open source:

SAP has finally launched its software-as-a-service offering, dubbed "ByDesign". I'm not sure if this is intended to imply "intelligent design" and the idea that divinity is somehow behind SAP's Big New (old) Idea, but as some point out, the big loser in ByDesign may be SAP itself. Time will tell if SAP can have it both ways: traditional, complex and mightily expensive ERP versus its new SaaS, easier to use and moderately expensive (but comparatively cheap) ERP.

I think this is the right thing for SAP to do as far as its customers are concerned. But it may not bode well for SAP, as Nick Carr highlights:

But in the end the company most threatened by ByDesign may be SAP itself....The big risk is that ByDesign will begin to cannibalize SAP's traditional and very lucrative software business--without providing similar revenues or profits.

... Read more

OpenMFG just took one step forward, and two steps backward. First, the positive. The company, which provides ERP and CRM solutions for small to medium-sized enterprises, has rebranded itself as xTuple. It has also developed PostBooks, a QuickBooks competitor.

Good stuff. We need more software like this. What we don't need, however, is xTuple's flawed licensing scheme that feints at open source, but falls far short.

xTuple's license is a mess, on two primary accounts: