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Open Source Business Applications: The Next Big Thing?

Originally Published on Feb/Mar 2008 Issue of Industrial Automation Asia (www.iaasiaonline.com)

By JEREMY YAP(Director, PBA Solutions) and VARUN SHRESTHA(Director, PBA Solutions)

With over 70 percent of the websites powered by Apache web server and a good proportion of them running in Linux, it is undeniable that open source movement has a leading role in powering the Internet revolution.

In enterprise business applications ie: ERP (Enterprise Resource Planning), CRM (Customer Relationship Management), Supply Chain Management (SCM) and Business Intelligence (BI), adoption of open source software has not been as prevalent, with CIO’s and IT Managers shunning them for commercial systems from established vendors.

CIO’s could not imagine running their business systems relying entirely on a loose band of fanatics that provided support primarily through Internet forums. Open source business applications (OSBA) also carried the impression of not having been tried, tested and proven, a characteristic extremely important for risk adverse CIO’s. Then there was the branding issue, with os softwares being perceived as fit only for hackers and computer enthusiasts and not for those in business suits.

There is, however, a revolution of some sort happening in the os business applications field. The ecosystems around os business applications are constantly in a flux and it has responded to the primary need of all business managers to have a comprehensive, reliable and fully supported business system at the lowest cost possible.

In our experience, business managers and CIO’s are willing to give os business applications a second look with many embracing it wholeheartedly in full belief that they deliver along the dimensions of Cost, Quality, Support and Strategic Advantage.


Support is of primary importance in any deployment of business application. Depending on the nature of the application and the organisation using it, the quality and response time required may far exceed that achievable through Internet forums and emails. This was a major grouse of all managers considering OSBA.

With increasing maturity of OSBA IT vendors have realised that a highly profitable practise can be built out of consulting for and supporting OSBA. It is not uncommon nowadays to find established system integrators offering service level agreements for various OSBA.

The open source nature of OSBA also means that the customer has full access to the entire source code of the application. This allows larger organisations with a sizeable IT team to manage all the support in-house. Even if they do not have an IT team, having the source code gives them the flexibility to switch support vendors as and when they like it. They just have to pass the source code to the next vendor.

Access to the source code also allows organisations to continue using the application even when the main developers have officially discontinued support for it. They just have to find programmers who know the programming language that the application is written on. With commercial applications they would be forced to upgrade to a supported version at a cost dictated by the vendor.

Market consolidation is a potential risk with commercial software when products become obsolete overnight. With no ownership of the code they would have no choice but to change the system altogether, a costly exercise that most managers do not want to go through. Using OSBA eliminates that risk. Customers can always take the source code to a vendor that has expertise in the code and sign them up for support delivery.

With the right ecosystem of supporting vendors, OSBA are no more risky. It in fact provides full insurance against market consolidation and vendor underperformance.

Total Cost of Ownership

It was often argued that even though OSBA do not have upfront license cost, customers often incurred huge support and business disruption cost because reliable support is not available. Perhaps that was true until a few years ago. With a strong ecosystem of vendors around most OSBA, that argument does not hold much ground.

There is now a clear cost of ownership advantage of OSBA over commercial applications that charge per user license fees typically starting at US$1,000. Consequently OSBA can be deployed at 50 - 60 percent of the total cost incurred for an equivalent commercial application.

Open source projects are often guided by the non-commercial objective of creating technically elegant software systems. That may not always be true for commercial systems that must as a rule put profitability above everything else. When there’s a significant technological innovation, as in a new programming paradigm or framework, open source projects can afford to ditch the old architecture altogether and start anew from scratch. Commercial vendors are not able to do so until they have at least recovered most of the sunk cost. It is for this reason that we often find OSBA a lot more elegant in their technical architecture.

Maturity of the software in terms of the breadth and reliability of functions provided is another important measure of quality. Until a few years ago, a mature open source ERP was practically non-existent. Compiere, the leading open source ERP in the market today was only half-baked then. Most of its implementations were plagued with unfulfilled requirements, limiting its use to basic functions within the organisation.

Now that leading OSBA in the market today have matured into full-fledged applications of enterprise grade, the immaturity issue has been mostly eliminated. Compiere and SugarCRM for example compete with the likes of Microsoft Navision, SAP B-One and Salesforce today.

Strategic Advantage

OSBA are increasingly being seen as a tool for gaining strategic advantage in a market where everyone uses the same kind of software system to run their operations. The reasoning goes that if you are using the same kind of standard, so-called the best practises systems, as your competitors, then you do not have any operational advantage over your competitor. Every business is unique in the way it is run; what is generally accepted as best practises may not really be best for your organisation.

It is difficult to derive business benefits out of systems that are not effectively aligned with the organisation’s business model, people, processes and other technologies that the organisation is already using. Extracting business value from business applications calls for extending or modifying systems to fit into the business rather than the other way round.

The Open nature of OSBA greatly facilitates such an approach to system deployment. Even if an entirely new type of system, unique to an organisation’s unique set of processes are to be developed, the time to deployment can be siginificantly shortened by building on top of modules and components that mature OSBA already offer. Such flexibility is certainly not available with commercial applications.

Value Proposition

Oracle and SAP are undoubtedly the market leader in the large enterprise segment of business applications market. It is improbable that OSBA will displace Oracle and SAP from their leadership position in that segment. There is currently no single OSBA that offers the same breadth and depth of functionalities as Oracle or SAP’s enterprise applications.

Within the mid-tier and small business segment, however, the value proposition of OSBA is very compelling and it has indeed made significant inroads into this market segment. As OSBA and their ecosystems mature further, the distinction between OSBA and their commercial counterparts will blur further, leading to more IT vendors gaining expertise in OSBA and this in turn leading to more adoption of OSBA. The long overdue open source wave in business application is starting to gain momentum and, with a strengthening ecosystem of vendors, developers and enthusiasts supporting them, it is certainly not a passing phenomenon.


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