The top ERP vendors -- SAP, PeopleSoft, Oracle, Microsoft, and Sage -- are likely to hold onto their 46 percent of the anticipated $26.7 billion ERP applications market, but the desire to avoid vendor lock-in, more support for Linux as an underlying platform, and ability to gain cost savings are all coalescing to boost open source in this market, estimated to hit $36 billion by 2008, according to IDC research director Albert Pang.
"Combine all of these things together and it's a very compelling situation where open source technologies could become a very significant factor in the ERP market," said Pang, author of IDC's ERP application market forecast for 2004-2008.
The researcher explained that open source projects such as Compiere and GNUCash, a network of open source technologies that enable "common technologies" for basic accounting, inventory management, procurement, and similar ERP-type of functions, are increasingly drawing the interest of business, but more importantly the support of the platform makers.
Oracle is shifting heavily to Linux, with 23 percent of its shipments of the latest Oracle 11i9 software going to customers running the business suite on Linux, Pang said, just behind shipments of Solaris (24 percent) and Windows NT (29 percent). PeopleSoft has announced the porting of its business applications to Linux, most of which will be there by the end of the year.
"That underscores the fact that more of these application vendors are starting to invest in the Linux platform for better cost of ownership and more flexibility, because they're able to do their own coding," Pang said.
Pang reported that in 2003, Linux and other open source technologies accounted for about $408 million of the $25 billion ERP applications market, representing about 1.6 percent of the overall market. That share is expected to grow rapidly over the next four years to account for about 7 percent of the market by 2008, Pang told NewsForge.
"With a 44 percent annual growth rate (2003-2004), it's the highest of about 10 platforms we looked at," Pang said, referring to Windows, OS/400, and mainframe among other platforms. "It's clearly one of the most significant drivers in the ERP platform segment of the market."
IDC predicts consolidation in the ERP market will continue gradually, with the remaining cluster of vendors sticking around because of their aggregated installations, recurring revenues, R&D, and marketing resources. However, new players such as China Dot Com and United Health Group, as well as open source ERP, will shake that market and eventually change how ERP is delivered in the future, according to Pang.
"I think the tide is going to turn and it's going to be very hard for the other ERP vendors to stop them," he said. "It's going to be an enabler because if enough users are going to be turning to open source, it is going to be inevitable. They will look for software and services that uses those common technologies that are interchangeable and easy to customize. It just doesn't make sense to buy proprietary technology."
From the developer's viewpoint: Compiere
Compiere creator Jorg Janke, whose open source business software earned SourceForge project of the month last February, could not agree more. A former Unisys and Oracle employee who wrote the first installation of the free ERP and CRM software for Goodyear Germany, Janke said the creation of open source business software offers some unique challenges.
"Open source and ERP is not necessarily a good fit and the reason is how open source projects usually work," he said. "Open source success lives in a space where the requirements are very well defined. Business applications are not very well defined. Successful business applications, as opposed to open source, tend to ignore people that say they want to have features."
Janke also referred to the fact that when you break something with business applications, "you break a lot."
"That makes it technically different than other open source projects," he said.
Janke, who also referred to a desire to recruit "old guys who have 20 years in industry experience" rather than young, willing open sourcers, said that Compiere contributors tend to add to the software with concepts rather than actual code.
"This is important because if you get the requirements wrong, then you're screwed," Janke said. "What we deliver has to work. It's a more deliberate approach, whereas others are tool-based -- stuff to build applications. Compiere is a run-out-of-the-box kind of thing."
Referencing the added flexibility of open source, Janke said many of Compiere's users are enterprises fed up with the fences of Great Plains or SAP.
"The main thing we hear all the time is vendor independence," he said. "With open source, you can do a little more, especially if you need to integrate business applications. It is more for the retailers or implementers and the main reason they like it is it's vendor-independent. Their business is not at a halt with problems. They like the idea that they have much more flexibility and it's much easier to extend."
While he said some Compiere users stick to the vanilla version of Compiere, many have additional requirements or extensions of functionality needs that are eased by Compiere's open source nature.
Adding that open code means "there is no hiding; if something is wrong, you can see it and it's obvious," Janke told the story of his previous work and frustration over an inability to enable and empower users, which was the basis for Compiere.
"Vendors usually try to cover it up," Janke said. "When I was on the other side, I found it frustrating; it wasn't working. People would be trying and trying and couldn't get it and they'd call support and it was a known issue."
It may be difficult to know the number of Compiere customers, but the ERP software with integrated CRM has been downloaded 690,000 times. Janke said fewer than 100,000 have signed up for support, which Janke refers to as "more of an insurance policy." Those looking for someone to support them tend to take the traditional route of licensing software such as Great Plains or SAP, which are usually tied to other proprietary business software such as Microsoft operating systems, Janke said.
Pang agreed that support for open source business applications is still something not everyone is comfortable with, leaving lingering issues of stability and adequate resources for patching, updating, and other upkeep. Pang also said it can be difficult to "harness the strength of allies" when the allies are all using proprietary software. There are also the legal issues raised against Linux and open source through the SCO claims, Pang said, but that is not stopping a number of open source ERP and related initiatives from coming to fruition within the next 12 to 18 months, he added.
"The legal wrangling could become a source of concern, but still we're talking about a very new market that is searching for direction right now," he said. "It is going to change the way ERP applications are being sold." Pang said open source business application vendors can look forward to the kind of fast growth that Linux and open source has experienced elsewhere.