Open Source: Smallville Becomes Metropolis

Open source started as a small community with a set of ideals about software development, believing that developers should make their products more expedient and user-friendly by making the underlying code accessible to everyone. As the open source software movement has grown, the fundamental tenets have proven its merits. As a result, now open source is being adopted by many of the largest corporations in the world.

Developers of open source software are not the ragtag bunch of misfits that some imagine. They are highly skilled at their craft, and because many of them are sponsored by commercial companies, the code and materials they create are thoroughly tested and scrupulously maintained. Developers and project managers extol the virtues of access and collaboration that are intrinsic to their code.

There is a growing demand for open source systems because they are often cheaper, more customized and more adaptable than the closed source architecture of the past. Companies have sprung up to create profitable business models based on the demand for open source tools and technologies.

“The open source services opportunity has been overlooked until now. The size of the market is relatively small today, but the growth rates are at least five times what they are in the overall IT services industry. Should the next wave of open source applications take off, we will see high double-digit growth in related services for the next decade,” noted Sophie Mayo, IDC’s director for emerging technologies, in a recent study.

Flexibility drives demand. By letting users download software wherever and whenever they want it and test it before any service agreement is reached, there is less risk for users, and a greater likelihood that they will choose to deploy the software after trying it out. This creates a very interesting value proposition, that the value is derived from the support network.

Open Source and SMEs

Open source is now ready to gain a larger share of the business software market. After more than two decades of fine tuning online, open source has proven its commercial viability.

At the enterprise level, the open source community has produced flexible, robust business management applications and systems. With a vibrant development community reusing and building upon existing open source components, development is more agile and less costly. The word of mouth publicity that is a feature of the open source community also reduces marketing costs, which can sometimes account for as much as one third of the price of a traditionally licensed software product.

Although less than half of the largest enterprises in Europe and North America are actively using or piloting open source software, a majority of those use it for mission-critical applications and infrastructure, according to a recent trend report by Forrester Research. SMEs (small and medium-sized enterprises) will increasingly recognize the benefits of open source systems and follow larger enterprises to adoption.

Open source software benefits both its channel and its developers. Because open source vendors sell services rather than licenses, the value placed on the channel is greater. Their determination to maintain mutually beneficial relationships is more important to open source developers than it is to proprietary software vendors. Developers gain increased business in a number of ways, from localizing applications and developing plug-ins and product extensions.

Source code is open, but also secure. Contributors can review, edit, version, port, share or redistribute code. The community’s interests are to ensure that bugs are fixed and that security vulnerabilities are closed as fast as possible. With closed source applications, there are often smaller teams and a greater chance of lag between bugs and vulnerabilities being detected and their being fixed.

The mission of professional open source developers is to keep core code accessible at all times, while simultaneously creating products that are reliable, intuitive and valuable to their intended users.

ERP and the Open Source Solution

Enterprise resource planning (ERP) is an attractive marketplace for any software developer. The global ERP applications market — excluding professional implementation services, which could easily double or triple the figure — grew by 6.5 percent in 2005 to US$28.3 billion as demand for integrated solutions continued to grow across diverse regions and industries, and as ERP applications vendors released products that are easier to implement, according to IDC.

ERP’s first iterations really only linked inventory control and asset planning with accounting, but these early stage efforts evolved into highly sophisticated, cross-functional, modular IT platforms that integrate all of the core functions of any sizable organization, including corporate accounting, human resources, supply chain management, distribution, inventory and warehouse management, purchasing, sales, marketing, customer relationship management (CRM) and much more.

ERP started out as a solution for large corporations, but like many other enterprise systems, it has started to advance into SME territory. Last spring, a Forrester Research report observed: “A growing SMB market, opportunistic investors and middleware technologies converge to make the SMB market for ERP applications one of the most competitive environments for market growth and product innovation within enterprise applications.”

SMEs now have business processes that are often equal in complexity to those of much larger organizations. They are in desperate need of sophisticated ERP systems to automate, streamline and integrate these processes and relieve pressure on increasingly overburdened IT departments.

ERP has traditionally been a major business expense, typically costing several tens or hundreds of thousands of dollars in license fees, not to mention the associated implementation fees typically paid to external systems integrators, specialist programmers, vendor and channel partner consultants and training and support providers.

These costs have traditionally put ERP out of the reach of most SMEs. Worldwide penetration of ERP in the SME segment is still only between 20 percent and 50 percent, which is very low considering the advantages of access to unified information. Software as a Service (SaaS) is in its early stages, and only a few ERP suites are currently fully Web-enabled, but as this trend grows, the obstacles to greater adoption will decrease.

Lowering Costs

Open source, Web-based applications lower costs in three ways:

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1. Licensing restrictions are reduced. While open source licenses ensure the original developers are properly recognized, they provide the end users with an unprecedented degree of freedom: to inspect, use, modify and redistribute the code without the obligation to pay for it.
2. There is much more flexibility. Typically, customizing an ERP package is costly and time consuming, but open source system communities can craft high-quality code cheaply and in a fraction of the time.
3. Web-based systems decrease deployment costs and offer a cross-platform solution.

With its low purchase, installation and operating costs and its high degree of modifiability, open source software is an ideal solution for SMEs that need an integrated IT platform to run the core areas of their business efficiently. While the SME will still need skilled personnel who understand ERP and open source, the barriers to entry for organizations with smaller budgets are significantly reduced.

SMEs now have a chance to build on existing open source projects to create and develop software that will compete with the largest multinational products. SMEs: Welcome to the competition.