Open Source for business applications.

Sitting down with some other IT executives last week, the topic came up of how Open Source would fit in the business application space. General conclusion was that it would be difficult to overcome the hurdle of investing the many man-years it takes to get business applications, giving away the Intellectual Property (IP) and still make a living on it. But first evidence is around that there are models that seem to work.

Although our industry is quite young, business models seem to be as rigid as, e.g., the automotive space. Somebody has a bright idea, invest in it and sits like a hawk eye on the IP until somebody else is willing to license it or in the end to buy it complete. A certain volume of sales is needed to amortize the initial investment in IP, assuming that support fees will cover the defect fixing and the development of new functions. The more complex, the more sales revenue is needed to get at a profit. But once over this hurdle the cash is floating in and every new sales, apart from the cost of sales, comes in as bottom line profit. So far the dream of every software entrepreneur.

Then came along the anarchist idea of sharing your IP for free. It works quite well if you have a community of people willing to spend time to fight a common "enemy" or a hobbyist who wants to share his or hers utility that cracked the impossible. But how to run a business from it? Early initiatives were the Unix-distributions which included for some money extras not provided in the for free versions and even offered support options. Business wise this worked: the big investments were done by the community; the neat packaging a relatively limited effort at support cost level, especially by companies that found it a nice marketing thing next to their prime business.

But there it stalled for some time: business applications are much harder to create and fund. One could argument Software as a Service (SaaS) became a sort of intermediate alternative offered by the software establishment: no investment upfront but just a price per use to cover all. Of course the IP still is paid just in another way and the options to customize a SaaS offering are non existing or at best very limited. Two examples popped up of business application vendors that seem to attempt to offer new options:

The starter kit model:

amCharts, a small Lithuanian company, provides Adobe Flash charts that can present Business Intelligence (BI) data from existing data sources in almost any form. The pricing is either "free" when the amCharts logo is always present or with unmarked versions ranging from Euro 85 for a single website license, to Euro 2,300 for a developer license including source code. The solution is used by companies not happy with the basic BI presentation by their ERP package or find the traditional BI solution way to expensive for what they bring (according to previous blogs I came around a lot of those…).

Using companies are not only small but especially also big ones. Usage reports speak of "remarkable easy to integrate" and "really good support". Risks of a small supplier like amCharts going out of business were countered by the availability of the source code, the own ability to develop things further and the price which allows for buying something else from the open market when this would really be required.

The cloud model:

Compiere, a US company founded by ERP veterans, offer a cloud based full blown ERP solution. Opposite to SaaS, they offer the ability to customize the solution, own dedicated data storage and personalized system management. The cloud element is comprising of the complete software environment licensed as a subscription from Compiere and a high quality IT hardware infrastructure rented from an on demand supplier.

The charges include support and the source code. Interoperability with other (ERP) solutions are provided and various Compiere partners offer additional implementation and customization services. Initially aiming at companies under €100M revenue, now also much larger companies are using this solution at a fraction of traditional ERP costs. It seems not by coincidence that very margin aware large retailers and distributions organizations are picking this up.

Two examples of challengers for the IT establishment. What do you think of Open Source business solutions?

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