This article is reproduced with the permission of CAmagazine, published by the Canadian Institute of Chartered Accountants, Toronto.
By Fred Blauer
Are open source business systems and software as a service the next generation of ERP?
In the early days of computing, you couldn’t run an IBM System 34 program on a Digital Equipment Corp. VAX mini-computer. Software had to be written for a specific operating environment, which often included hardware. In today’s business world all that has changed thanks to the influence of IBM and later Microsoft with the advent of the IBM PC standard and Microsoft DOS/Windows.
The traditional software model involves developing source code (program instructions) that is protected by a legal patent (intellectual property) so that no one can use, copy or modify it without purchasing or licensing it from the author. Now there is a shift from proprietary software to open software (which allows you to freely use, copy and modify) and standardized software (which runs on any platform). This trend is driven by companies such as IBM, Novell, Google and Sun and by the power of the Internet and innovative developers around the world. A good book on the subject is The Cathedral and the Bazaar, by Eric S. Raymond. It is amazing how so many divergent contributions and inputs can result in such high-quality products. But it seems to work.
The original open source philosophy was espoused by US-based Richard Stallman, founder of the Free Software Foundation for the promotion of free and open source software and creator of computer operating system GNU, the first free and open operating system, based on Unix. Many people are familiar with open source software from the Linux Operating System developed by Finnish engineer Linus Torvalds. It is very popular on servers, desktop personal computers and as a free alternative to Microsoft Windows. Many Linux distributions have proliferated. The three most popular ones are from such companies as Red Hat, Novell and relative newcomer Ubuntu (the company behind it is Canonical). Ubuntu is an interesting story about a South African software developer turned multimillionaire turned Russian astronaut named Mark Shuttleworth. He decided to give back to the open source community that helped him build a security certificate company, Thawte, and sell it for $500 million. He formed Canonical, based on the open source model, and pledges to give away its main software product and keep it free and open. Its slogan is “Linux for human beings.” The distribution is freely available on its website. (I use this operating system to run all my home and small business applications and test various new systems I am experimenting with. It seems Linux systems are not as susceptible to malware as other systems, and you don’t have to worry about installing antivirus software and constantly updating it. I have Windows Fundamentals for Legacy PCs software running in a “virtual box” or in a logical disk partition of the hard drive, in case I have to go back to the old stuff for compatibility reasons. And they run nicely side by side on a network. You don’t have to give up the old environments until you are ready.)
Many European governments and municipal organizations have already mandated software based on open source standards. In Canada, the Quebec government is being sued by FACIL (the local free software foundation) because it didn’t get the opportunity to bid on upgrades to the proprietary packages from Microsoft that are used in the civil service. FACIL accuses the provincial government and its federal counterpart of lagging behind in terms of adopting open source software in the public sector. Governments around the world are looking to reduce costs and reliance on specific software makers. France, for example, migrated more than 400,000 public-sector employees to open source software in 2006, while the Netherlands banned the use of proprietary products in government. It’s not clear why so many people and businesses are still using Microsoft Office when most would have everything they need with the open source equivalent, OpenOffice. There is no cost for the software or upgrades.
There are other types and classes of open source programs. The most popular are infrastructure or utility based. For example, the most utilized open source technology stack is called LAMP, or Linux/Apache/MySQL/PHP or Python. Apparently Google and other tech companies are making extensive use of the open source tech stacks for their servers and services. Large firms such as Sun, Novell, Yahoo and IBM are investing in the new community-based development model and purchasing open source software companies such as OpenOffice, openSuse, MySQL and Zimbra.
SaaS, or cloud computing
There has been a lot of press on the new Web 2.0 or cloud computing type of applications also known as software as a service (SaaS). This type of cloud computing delivers a single application through the browser to thousands of customers using a multitenant architecture. On the customer side, it means no upfront investment in servers or software licensing; on the provider side, with just one app to maintain, costs are low compared to conventional hosting.
One example of this type of software delivery model is the Google Online Office Suite, or Gmail, which is free but not open. In other words, you do not have access to the source code. An important distinction is made between free and open, the former being akin to free beer, and the latter akin to free speech. A new cloud-based program, myERP.com, was launched at Google Developer Day Paris 2008. It is a new SaaS ERP based on Google Web Toolkit and integrated with Google Apps. This program provides an intuitive solution to fit business needs: CRM, accounting, sales, purchases, logistics and stocks, production and point of sale software for the retail industry. It’s a desktop-like application directly accessible from your Internet browser. There is nothing to set up or worry about — myERP.com manages all the backend (backups, security, availability, etc.) and is free with unlimited access to all features. Additional services such as support, training and customization are available for purchase.
If the open source development model is successful for operating systems and development tools, why not business applications? There are several new programs. Currently, most of the traditional ERP systems are available under the traditional model, whereby proprietary software licences are sold and there are fees for services and maintenance contracts. There are various open source revenue models but most are based on charging for services, customization and documentation. For the SaaS systems, the revenue model is usually advertising or fee for use of the software and hosting the service (such as NetSuite, or Salesforce).
There are many low- to high-end business and accounting systems as well as software designed for such areas as manufacturing, distribution and point of sale. In addition there are applications for operating systems, utilities, productivity, personal finance, accounting, CRM, Report Writer and business intelligence, work flow, budgeting and eCommerce (including B2B and B2C).
Advantages and challenges
There are a number of advantages to open source software. The new systems are designed around open standards and are generally platform independent and multilingual. In other words, the server and client side will run on Windows, Mac or Linux, in any language. The presence of a collaborative community is also important for support and the assurance that the system will continue to live on after the developers are gone or out of business, because of the availability of the source code. Integration can be done at the application programming interface level or even at source level if necessary. So many mashups, or systems that work together, and combinations with other systems are possible. And generally, you don’t have to worry about licensing issues. So, if you are an accountant and want to host a system for your client, it should not be a problem. Most systems are Web-based, so all the data is available anywhere you want to access it or share it with another party. Because you are not paying for marketing and proprietary intellectual property in addition to services, costs are lower, which is a big benefit during tough economic times. Security should also be better because the systems are transparent and subject to more eyes (or testing) to find potential holes or problems. However, because there are many systems and approaches to choose from, there is a downside. Too many choices can be time consuming to go through. A phenomenon known as forking can also cause fragmentation of the community. Because anyone can copy the software and start their own project, one group can decide to split and take the development cycle and management down a different path.
An initial survey of the market for free and open source business systems was very encouraging, and further testing is warranted. . As new systems mature, this will become a viable alternative to proprietary software solutions for the business mainstream. Be aware of the difference with cloud computing and the potential risks inherent in that model. If you decide to go that route you should seek guarantees for security, backups, guaranteed uptime, etc., and have a strategy to eventually migrate in-house behind the firewalls, to avoid potential business disruptions.