Can OpenBravo challenge incumbent ERP with open source?

Can OpenBravo challenge incumbent ERP with open source?

Summary: Can OpenBravo open source ERP compete with the established, proprietary vendors? The absolute numbers would suggest no but a deeper dive suggests otherwise. What then of the future?

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TOPICS: Open Source
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There's a paradox operating in the enterprise apps world. On the one hand we have the mega vendors with proprietary technology. On the other hand we have millions of developers who love open source. In the business world, buyers of enterprise software like the idea of a single throat to choke, or at least a few throats. They don't like the notion of having to find a throat that can be choked. Millions of developers will likely say that open source provides the best way of ensuring that new software releases really are up to snuff, have been destruction tested and contain the best features possible.

The real paradox lays in the fact the Internet (mostly) runs on the open source LAMP stack (Linux, Apache, MySQL and PHP.) Purists will argue that MySQL no longer qualifies since it was taken under Oracle's umbrella but that's another story. Surprise surprise - when it suits them, software vendors are not shy of taking open source and using it where it makes sense. Not that you'll get too many of them crowing about it. But at heart, the proprietary software vendors want to corral customers. It keeps customers tied to a long tail of maintenance revenue.

Then we have OpenBravo, an open source ERP trying to make a name for itself. Originating in Spain but now having a presence in the US, OpenBravo recently launched version 3 of its ERP solution aimed at the SMB market. OK - advert over.

Last week when I spoke with the company, I wanted to get a sense of where OSS ERP fits. But first a few facts:

  1. Two million downloads
  2. Estimated abandonment rate 90%
  3. 200 paying customers
  4. In use at somewhere between 1,500 and 4,000 customers in 27 countries

Two million downloads is impressive by any standards. Any vendor getting that level of initial attention should be applauded. The problem is that being a small company, OpenBravo cannot realistically service all those potential customers without blowing itself up, hence (in part) the high abandonment rate.

There is another way to look at that number. I wonder how many companies have invested in commercial ERP only to find that it wasn't what they needed or hopelessly flawed for their purposes? How many of those ground out the implementation rather than cut their losses? I don't know of any statistics that provide answers to those questions other than the generally accepted 85% maintenance renewal rate most vendors regard as the lower end of the benchmark scale.

Of the 10% that didn't abandon OpenBravo, 0.1% have converted to paying customers. That suggests the other 99.9% have found they can survive with OpenBravo without the need for technical support or other services. That conversion rate seems very low when compared to commercial 'try before you buy' SaaS offerings. But does that matter? I'm not so sure. Despite the tiny numbers, it says much more about how well the OpenBravo community of 12,356 registered members and their 522 projects are getting along.

Viewed another way, how many vendors catering to the SME ERP market would give their eye teeth to have 1,200 developers let alone 12,000+ in their community? So how does OpenBravo gain revenue traction beyond the few hundred customers it already has?

It's something of a chicken and egg problem in the sense that marketing works when you've got the marketing funds. But for that you need a combination of deep investor pockets and/or a strong pipeline of paying customers. There is a precedent.

SugarCRM seemed to take forever in becoming accepted as a viable CRM solution. Today it claims seven million downloads of Sugar apps with 7,000 customers. 2010 was a record year for the company which it attributes to fast growth in its channel.

OpenBravo is a different animal. Rather than being a point functional solution, it is trying to go toe to toe with the likes of Microsoft Dynamics as the first ERP once a company has outgrown QuickBooks or as a replacement for an overly expensive solution. Commercial competitors can sow seeds of FUD: (to the sounds of a sharp intake of breath) "Open source...I dunno...who supports it?' It's a problem that all too easily blinds customers from digging into open source solutions without undertaking a thorough test or understanding what OpenBravo offers.

Beyond the base solution, OpenBravo offers a catalog of 275 extensions of which 75% are open source. OpenBravo was developed from the get go as a web based solution with a modular approach that is easily extended. Unlike other web based solutions, OpenBravo offers a multi-tabbed interface. Users are not stuck in single functions that have to be completed but can flip between tabs while completing a transaction. Why would you care? An example might be incomplete customer information that has to be amended at the master record level. Flip over to the appropriate tab, update and your done. With the latest release, OpenBravo introduced the notion of 'agile ERP' where time to value is collapsed and where end users can quickly become productive. Integration to services like GoogleDocs and Twitter is available. It is possible to establish roles that allow organisations to extend access to suppliers and customers. These are top line features that distinguish OpenBravo and should encourage a deeper look.

In talking to the company I got the sense that Spain remains both its spiritual and operational home. Open source solutions generally have done well in Spain and France the last few years, largely because of the cost/benefit compared to commercial software. The French Gendarmerie's foray into open source for example has been well documented. OpenBravo has snagged customers in Spain that are familiar locally like Eroski and Weblogs SL. When you look more closely at the customer lists the references are far from shabby. One reading suggests OpenBravo is attractive in retail at exactly the time that market segment is under severe pressure.

Having made a move into the US, will 2011 be the year it starts to break through and ramp up customer numbers? If extension additions are a leading indicator then the answer is 'maybe.' According to the company, extensions are being added at a rate of around 10% per month.

Open source ERP is a relatively new concept. It is not without risk given the size of the OpenBravo customer base or the modest number of partners but it should not be dismissed. All vendors have to start somewhere. The relatively small number of paying customers should be set against the ability to rapidly deploy, take advantage of an active developer community along with an ROI and TCO that compares very favourably to proprietary offerings.

UPDATE: Colleague Frank Scavo reminded me that open source ERP is not just about cost but about buyer organisations being in control. It's a an excellent point. For more in this, see Frank's research from 2005.

Topic: Open Source

Dennis Howlett

About Dennis Howlett

Dennis Howlett is a 40 year veteran in enterprise IT, working with companies large and small across many industries. He endeavors to inform buyers in a no-nonsense manner and spares no vendor that comes under his microscope.

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8 comments
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  • RE: Can OpenBravo challenge incumbent ERP with open source?

    I have looked at OpenBravo; generally a slick product. I chose not to use it though. Three reasons: the database choices are Oracle or Postgres (neither one I want to support); the webserver choices are Apache / Tomcat (I already have too many other webservers to add yet another type); and (finally and most importantly) there is no Windows Server install (just the source code).

    It doesnt matter how good the software is, I dont have the time or money to buy and setup yet another stack of servers for a one-off app.
    lkujala
    • RE: Can OpenBravo challenge incumbent ERP with open source?

      @lkujala - I am beginning to look at ERP alternatives. Have you decided on a product? If not, what products are you still considering? Looking to compare ideas with you.
      dekle
  • "Support"

    ERP and CRM are less about software than they are about business processes. Companies who acquire one of these, whether open source or proprietary, are in for months of planning, process analysis, training, and customization. The "software installation" ends up affecting everyone from the mailroom clerk to the CEO.

    That's why the hand-holding and 'consulting' is such a big part of it. If a company has never had an ERP system before, they literally don't know what they don't know. And most of what they need to know has very little to do with "software" per se. The problems will end up being more about corporate culture, resistance to change, fiefdoms resisting loss of power and control... all stuff well outside the skill set of most IT shops.

    You can't automate a business process if the people working there don't even know what it is. Get all the people associated with processing an order from the incoming mail through the shipping dock, put them into a room, and ask them to diagram how the order flows through the system. Nine times out of then you'll find that (a) no one person in the entire company knows how an order makes it through the system, (b) there are 'holes' in the process where A sends it to B, C gets it from D, but no one knows how it gets from B or D or why D even needs to see it. (The answer will turn out to be, "Because we've always done it that way.")

    Open Bravo strikes me as an excellent business opportunity for small management consulting shops who can drag all the participants into the conference rooms, figure out how the business processes work, tell IT what to automate, and then train everybody on how it works and what the transition will look like.
    Robert Hahn
    • RE: "Support"

      This is a good point.

      Most of the times the biggest problem is that the organization don't have a clue about what they need, but they suppose we must know and implement everything that wasn't in the requirements.
      José Rocha
  • "throats to choke"

    > In the business world, buyers of enterprise software like
    > the idea of a single throat to choke, or at least a few
    > throats. They don?t like the notion of having to find a
    > throat that can be choked.

    I've been hearing this for more than 20 years now. Can anyone give me some examples where a business has successfully "choked the throat" of a large-scale software vendor? Microsoft, for example?

    There have been a few cases where complete and utter failures have led to multi-year lawsuits that resulted in damages (at least at the jury level), but in the ordinary everyday course of business what happens when a the IT Director of a $200 million manufacturing company calls up TBQ and tries to "choke" improved support - or even a fix for a critical bug - out of them?

    In my experience, absolutely nothing happens - the major vendors just don't care because (a) they know the user is locked in (b) their lawyers are far, far more experienced at beating back user challenges than even the best lawyers the user might hire (and in any case a 'victory' over a critical supplier would be at the very best Pyrrhic).

    sPh
    sphealey
  • Companies are moving to PHP MySQL frameworks

    PHP MySQL frameworks: think wizzyweb.com are the happy medium between open source and closed source. Smart companies which let the developers choose what is best usually pick a framework as the sweet spot.
    cla22
  • A big fan of Openbravo

    I am a big fan of Openbravo ERP. We have implemented OB for one of our clients in about 3 months. Most of our time was spent in requirement analysis and developing a module for major changes in the system as per our client's requirement. The only coding we had to do was for generating new reports. Everything else was generated by the Openbravo framework.
    Kudos to the Openbravo Team who released the new version.
    cifar24
  • Open source requires open minds...

    Sadly this quality is lacking in many businesses. Good post. Would be nicer if you would clean out the spammers.
    jim.love@...