President/CEO Ned Lilly co-founded xTuple in 2001, with the aim of bringing the worlds of open source and enterprise resource planning (ERP) together to solve the unmet needs of growing companies.
It’s no fun when your traditional business relationship with customers is disrupted by upstart technology companies. But, ironically, the same paradigm that’s ravaged the entertainment industry is on the verge of happening to a number of enterprise software companies, who you’d think might see it coming.
Much has been written recently about the challenges facing big enterprise software vendors, including the ever-popular “death of fill-in-the-blank” meme. In particular, a venerable category in the field called Enterprise Resource Planning (ERP) is getting that treatment — in no small part due to the struggles of the industry’s twin titans, SAP and Oracle.
ERP vendors are not at all unlike traditional television networks and Hollywood studios. They spend massive amounts of money in developing an expensive product, and then force the product through the narrow pipeline of distribution channels they exclusively control.
Until recently, if you wanted to watch a specific program or movie, you were forced to do it at a time and method chosen for you — a customer management approach Netflix CEO Reed Hastings rightly labels “managed dissatisfaction.” Even the music industry, which is built around the sale of a personally consumable product, has struggled with issues of customer control. The early days of digital media were consumed with wealth-and-productivity-destroying legal battles waged by the recording and motion picture industry associations, even as consumers were clearly saying “we want to purchase your product; we just want to consume it the way that’s most convenient for us!"
Along came the disrupters. TiVo improved on the classic video cassette recorder by allowing loss-free digital re-viewing of content across multiple devices, even allowing heretical activity such as instantly skipping over annoying commercials.
Apple brought its renowned flair for easy-to-use hardware to the same markets, and practically single-handedly created several new multi-billion dollar markets in the sale of digital music and video.
And Netflix beat the neighborhood video store at its own game — first with DVD rentals by mail, and then with streaming video on demand. Netflix’s latest victims appear to be those same Hollywood studios and networks, as it is not just creating new high-quality programming, but allowing customers to consume it according to their own (often crazy, sleep-deprived binge-watching) personal choices.
What would such disruptive innovation look like in the enterprise software world?
Many people, myself included, would dutifully cite the rise of cloud computing — the ability to have software hosted and maintained by a third party, consumed along more of a utility model. There are few uniform definitions of “the cloud,” however, and many legacy vendors have jumped on the bandwagon with muddied offerings that, upon closer inspection, turn out to be just more of the same “my way or the highway” strong arm tactics.
Cloud, by itself, isn’t nearly enough. Try telling the leading cloud application vendors that you want a backup of your data, and you want to host it locally in your own offices, for a while. Or, heaven forbid, you want to move to another vendor. It turns out that the gravitational pull toward vendor lock-in is just as strong — perhaps even stronger — in the cloud. So, portability and interoperability across multiple cloud environments (public, private and hybrid) must be part of the story.
Back to the Netflix model — specifically the ability to consume as much, or as little, of the product as you wish, when you wish. Most enterprise applications tend to be big, bloated affairs, swelling with features even the largest of companies rarely use. What if a customer of an ERP vendor could opt to start with just one module, such as billing? Or just the Customer Relationship Management (CRM) module for a mobile salesforce? And pay only for that? Good luck with any of the usual enterprise software vendors on that score.
There’s one final dynamic for businesses to take full ownership and advantage of their enterprise software investments: Open source versus closed source, proprietary software. While often described in technical terms, open source is better understood as a fundamental business practice improvement — one which produces both a better product through innovations in processes, such as manufacturing, and the added benefit of ensuring business continuity in the event of unforeseen calamity or change. Open source software, all the rage at the infrastructure level, has seen curiously few adherents among application software vendors.
Why are organizations worldwide — large and small, public and private — embracing the collaborative open source model?
Quite simply to lower costs, improve quality, deliver the flexibility to react quickly to market demands, and mitigate business risks by avoiding the stranglehold of vendor lock-in. Open source is simply a better way to innovate and to do business in a fast-changing marketplace.
Again, Netflix leads the way, as a major user of — and contributor to — open source software. They are able to keep their costs down, and develop their competitive advantage by focusing on content and quality of service. They believe that’s more important to their business model than building a proprietary software application — and the market seems to agree.
There’s no reason that open source, which has produced the overwhelming majority of the software that powers various cloud architectures — and the Internet itself — can’t yield the same benefits for enterprise application customers.
In fact, it’s happening now. Innovative companies, such as xTuple, SugarCRM, OrangeHRM and Pentaho, are disrupting business-as-usual, delivering customer choice to the fields of ERP, CRM, Human Resource Management and Business Intelligence, by way of open source. Having access to source code and a global community of professional power users, who help improve the free version of the product, puts real power in the hands of even the smallest company.
Open source at the application level, using only the software you want, and true portability across cloud environments. That’s a lot to ask of the entrenched players. Their customers might just want to change the channel.
Companies large and small often have a complicated relationship with their ERP vendors, deeply rooted in needless dependency, and an imbalance of power characterized by punitive annual costs in return for little innovation or even ongoing product quality improvement.
Historically, ERP customers have had few options in how, and when, they wish to consume the software that powers their business. It’s a complex, protracted, hugely expensive sales process. Vendors have extracted huge premiums in both the initial sale and ongoing maintenance and support, such as it is. The implementation of the software is equally complex, protracted, and expensive. Not surprisingly, stories of disastrously failed ERP implementations abound.
A good part of this lies in the nature of the ERP product itself — highly interconnected functionality across all elements of the business, built on technology that’s often three or four generations old. But there’s also an outdated business model to blame — one in which the supplier decides preemptively what the customer will purchase, and exercises the awesome leverage they have to force compliance with how and when the product is used.
About xTuple, the world’s #1 open source ERP
Award-winning xTuple, makers of the world’s leading suite of open source accounting, Corporate Relationship Management (CRM) and Enterprise Resource Planning (ERP), is supply chain management software for growing businesses to control their operations and profitability. xTuple integrates all critical functional areas in one modular system: sales, financials and operations — including customer and supplier management, inventory control, manufacturing and distribution — the powerful tools to Grow Your World®.
As a commercial open source company, xTuple works with a global community of tens of thousands of professional users. xTuple gives customers the ability to tailor solutions with multi-platform support for Windows, Mac, Linux and mobile as well as flexible licensing and pricing options. Connect with the company at www.xTuple.com, and join the innovation conversation with the open source community at www.xTuple.org.
xTuple Supports Innovation
From blueprints to buildouts, xTuple helps foster startups in the heart of the Mid-Atlantic technology corridor between Research Triangle, North Carolina, and Washington, D.C., as a committed, passionate member of the Norfolk/Virginia Beach tech community. Learn more at xTuple.com/aboutus.