xTuple Reports Strong Growth of Open Source ERP

March 3, 2009 Alex Woodie

While the recession has forced many major ERP software companies to retrench their operations, open source ERP software makers such as xTuple (formerly OpenMFG) are reporting an explosion of new business. The new momentum, xTuple says, is the result of organizations increasingly questioning the value of existing ERP contracts while simultaneously overcoming their reluctance to bet their operations on the community development approach.

Since the dot-com bust of 2000-2001, open source software has made inroads across nearly every aspect of information technology. Up and down the stack, from operating systems and databases to programming tools and Web app servers, traditional open software and “commercial” open source products have gained big followings and eaten up market share. One of the last areas where the proprietary approach to building, selling, and supporting software has remained is the broadly defined ERP, or business application, market.

Attempts to bring the open source ethos to ERP have come and gone. IT Jungle readers might remember coverage of the WyattERP project, which never gained much traction (although it still exists). Indeed, one could find hundreds of open source ERP projects on SourceForge to keep oneself busy.

However, over the last several years, several open source software developers appear to have turned the corner and reached a state of critical mass. In 2008, xTuple, which changed its name from OpenMFG in 2006, doubled its customer base to more than 100. The Norfolk, Virginia, company also says that annual revenues increased by 250 percent compared to 2007 (the company is closely held and would not provide detailed revenue figures).

xTuple isn’t the only open source ERP vendor reporting good results in an otherwise dismal economy. Compiere of Redwood Shores, California, recently reported that its fourth quarter 2008 revenue grew 216 percent year over year. The company, which has roots in Europe, also reported its largest customer to date, La Poste, the French postal carrier, which has 300,000 workers and $27 billion in revenues. Another open source ERP company with building momentum is the Spanish company Openbravo, which reported its millionth download from the Sourceforge Web site.

xTuple CEO Ned Lilly attributes his company’s success to several factors. For starters, incumbent ERP vendors aren’t doing their jobs very well, he says “It’s pretty striking how many people I talk to every week that are feeling trapped with the package they have,” he says. “I read their press releases, and all they talk about is which bankers are working with whom, and what kind of crazy debt instruments they came up with to finance this. It’s hard to avoid the conclusion that it’s all being driven by bankers.”

Of course Lilly, who also runs the blog www.erpgraveyard.com, has a vested interest in making the incumbent entrenched ERP vendors look shaky. After all, the more bad press they get, alternatives such as open source ERP start looking better and better.

But Lilly also has a firm conviction in the power of open source to not only save money, but to increase the attention that ERP vendors pay to their clients. “I hate to say this, but let’s be honest: the ERP space is getting commoditized,” he says. “There haven’t been too many innovations in how to put together a general ledger in the past 20 years. You move inventory, you debit this account, and you credit this account. You scratch your head and say ‘What am I paying all this money for?'”

Developing ERP software isn’t rocket science, but it’s not child’s play, either. When a company installs or updates an ERP system, it’s largely staking its reputation and its future on that ERP implementation’s capability to accurately mark transactions. For this reason, ERP installs are typically high-touch endeavors that require extensive customization. The load-and-go, cookie-cutter approach to ERP or other highly vertical business applications is, and always will be, a model for failure.

Lilly says xTuple embraces the concept that customization is part and parcel of the ERP lifecycle. To that end, whenever a customer tweaks the source code of one of xTuple’s open source products–including the free PostBooks Edition and the more advanced (but not free) Standard and OpenMFG editions–xTuple encourages that customer to incorporate that change back into the product for the next guy to use.

This is really at the core of the benefit of open source ERP software, Lilly says. “If you got the source code [to a proprietary ERP product] and started making modifications, you were kind of off on your own,” he says. “That’s the difference. When our customers or partners make modifications, we encourage them to do that in a very collaborative, public way, so the changes they make come back into the main supported product. That’s where you get the multiplier effect–the peer review, really–of new development, new features, and bug fixes.”

The AS/400 has been late to the open source ERP software movement, which is no surprise. In most cases, the black box and its decades-old green-screen ERP applications are more likely to be associated with the problem that needs fixing than a platform for building the solution. That hasn’t stopped some of xTuple’s customers from running their ERP software in Linux partitions carved out of AS/400s, Lilly says.

xTuple’s products run on Linux, Unix, Windows, and Mac OS/X and the Postgres open source database. xTuple’s free PostBooks Edition, which is distributed under an open source license, has about 85 percent of the functionality of the Standard or OpenMFG editions, which are distributed under standard commercial licenses, according to Lilly. Pricing for the two for-fee editions start at about $80 per month.

Will open source start making a dent in the businesses of its closed-source competitors? Lilly hopes so, and he’s ready to share the glory with his fellow open source ERP software makers. “It’s a big market opportunity,” he says. “It’s one of those cases where the incumbents are ripe for disruption, so in a sense I’d be a little disappointed if we were the only ones out there.”