OpenBravo: ERP Meets Open Source

OpenBravo is an open source, web-based ERP system that is distributed via a free community edition and a paid professional edition, making them the first "freemium" ERP provider and the first open source provider too. This business model is nearly identical to that of the popular database server, MySQL, but how profitable is it?


ERP
As a quick reminder, ERP stands for enterprise resource planning and is the software that helps companies run their operations, anything from inventory to invoices. Originally sold as expensive packages to Fortune 500 firms, the ERP market has trickled down to include medium, small and even micro businesses. OpenBravo is following this trend by making ERP accessible to the smallest businesses, yet scalable up to larger enterprises.


The Bleeding Edge
OpenBravo entered the ERP market with two major innovations for the industry: first, all their code is open source, making it is accessible and modifiable by anyone, and second, the interface is web-based, so it can theoretically be used from any computer, anywhere. The second innovation seems appropriate for our times, as everything is moving to the web, and the rapidly increasing richness of browser functionality provides them an ever-growing playground in which to make their product more functional and usable while keeping compatibility with the maximum number of clients possible.


Open Source
The open source innovation is more radical, and was a gamble for the company. On the one hand they've potentially recruited an army of developers to work on their product at no charge. On the other hand they've exposed the minute details of how their works, even to competitors. However this hasn't stopped companies like Red Hat and MySQL from turning software into profit so why should it stop OpenBravo? The benefits of opening their source code to the world is the sharper side of this double-edged sword.

Dual-Pricing or "Freemium"

OpenBravo has released a community edition of their system that can be downloaded by anyone for free. What is the point in giving away your software for free? The result is a much larger user base than it would have otherwise, and each of these users is combination of tester, focus group, promoter and potential contributor to the source code. In this way they are using the micro-business -- who normally wouldn't pay for a complete ERP system -- to work for them in earnest and make OpenBravo a more marketable product for those who would pay.

Support Services
OpenBravo has decided to provide support services through a network of certified business partners. This has one enormous drawback: because the implementation of ERP software is a complicated but critical service it essentially places the success of their product in the hands of another company. However there is a reason for this decision: it also makes the provision of services highly scalable to a degree that would be very expensive to do in-house. For a start up like OpenBravo it has the potential to allow them grow quickly before the competition has a chance to catch up. Quality of service is maintained indirectly by training the business partners and putting them through a certification process. The quality of this program is a key success factor for OpenBravo.


Report Card
It appears that OpenBravo is following a viable business model. They are taking advantage of the under-penetrated micro-business segment to benefit their software product in other segments. By being open source, they have the potential to be the most widely-used ERP product in the world, just as MySQL is the world's most popular database. Their decision to outsource all services will help them grow quickly, but at the expense of control over their brand and long-term consulting revenues. At some point they may be wise to develop this capability in-house and compete with their own business partners, as large software companies like Microsoft and Oracle do.

3 Threats to Google world domination (seriously)

When somebody uses the words "Google" and "threat" in the same sentence, they are usually talking about the Internet behemoth's latest victim. But how the mighty have fallen in the past: IBM, Worldcom and Lehman Brothers are the first to come to mind. Google is the brightest star in the new economy, but no marketplace remains static, so what will happen when the next revolution comes? Small companies can easily avoid icebergs, but Google is no longer being run out of Sergey's basement. I can't think of many billion-dollar corporations that handle major change well. So here is my opinion on the three greatest threats to Google's continuing success:


Threat  #1: New Search Engines
Quick, name a search engine other than Google. Most people need to think before they answer that question, and many cannot answer it at all. This is because Google has literally become synonymous with Internet search. How do you compete with a challenger like that? It may take a billion dollars in advertising and promotion, but it can be done. Or at least Microsoft thinks so, and their recent advertising blitz for Bing has made it the 23rd most-visited site on the Internet (Google is #1). When is the last time you saw a TV commercial for a search engine? The most recent research I could find gives Bing over 10% of American searches (over 16% if you count every Microsoft search engine), putting them in distant third to Google and Yahoo, but well ahead of also-rans like Ask.com and AOL.


Threat #2: Don't Be Evil?
One of things about Google that people can relate to is that they basically seems like a pretty nice bunch of guys. Employees get free lunch and the company motto is "Don't Be Evil." What's not to love about them? That depends on who you ask. A Chinese dissident, for example, might think otherwise. Google recently blinked in the face of the Chinese government and restored google.cn, complete with censorship of anti-Chinese web pages. Good news for Chinese people who want to search for Lady Gaga, bad news for free speech. Is censoring anti-government sentiment evil? Let's just say Google should start working on a new motto. Once people realize that Google is "human" like the rest of us, they will lose their good-guy status, and a couple billion dollars worth of good will.


Threat #3: Lack of Focus (and too much focus)
Google has thousands of online services, but how many of them actually make money? So far, probably only the ones that are integrated into their advertising platform, like Google Maps. Google is all over the map (pun intended) when it comes to app development, evidenced by the fact that they proudly report that their engineers may -- no, must -- use 20% of work time developing personal projects into Google products. Is it possible to have too much innovation? Possibly, if most of your projects are wildly popular money pits, supported by a single revenue stream. This is what I mean about focus: Google has too little focus in app development, but a laser-like focus in revenue generation. The only exception seems to be Google Apps, which only recently became profitable, and still contributes relatively little to the bottom line. So far it is used mainly for email, and if email hosting is their best attempt at diversification, they may need to go back to the idea jar.

The Foursquare Business Model: Under Construction

There has been a trend in recent years of companies –  usually social networks –  to build websites with absolutely no revenue model in the apparent hope they’ll think of one later. The most notable example is Twitter, and the most recent is Foursquare. Is this the right way to run a company? I’m merely an MBA student, but the VCs seem to think it is, or at least a few of them do, as they've allowed Twitter to run at a loss for the last four years, something normally anathema to their industry.

The reasoning for a business-without-a-business-model probably goes something like this: if we can get enough people (read: millions) to join our network, we can make money advertising to them, selling them stuff, selling their private info to marketers, or all of the above! (Or more accurately, the dot-com behemoth that buys us can do that).

Twitter finally announced their business model last April, by traditional standards rather late for a company that celebrates their 4^th anniversary next month. It is based on adding sponsored links to their search results, and corporate accounts that provide deeper demographic information than is currently available. Not exactly revolutionary, but they makes sense. Both have yet to be implemented. No doubt Twitter will become profitable soon, but will it be profitable enough to make back the tens of millions invested to date, and even more: the opportunity cost? I won’t even hazard a guess.

Foursquare has one valuable and unique asset: they know what upwards of 500,000 people are doing at any given time. This is paydirt for marketers, but a privacy nightmare for Foursquare. Recent scandals at Facebook have revealed (yet again) that while people don’t mind handing over their most personal information to a social network, they are loathe to have it used for marketing purposes, even in aggregate form. Foursquare’s database could be several magnitudes greater in value than Facebook’s for one reason: they've closed the gap between Internet marketing and brick-and-mortar sales, and they’ve thrown in real-time geostats to boot. But the same thing that makes their database more valuable than the rest also makes it a privacy land mine on a scale never seen before. There may be other, safer business models for them to pursue.

Many retail companies have been essentially left out of the Internet revolution. For example, Starbucks has a website like everybody else, with product information and a small online store, but until they find out a way to sell frappuccinos online, the Internet will never be more than a toy to them. Foursquare may finally be able to change that, and to that end this year they launched a dashboard for businesses that lets retailers offer coupons, incentives and rewards to the “Mayor” of their location or anybody that "checks in." They’re not charging for it yet, but one can only presume they eventually will, just as Twitter plans to do. One app developer has even beaten them to the punch and launched a search engine for Foursquare offers that is fee-based for advertisers.

Is the business-without-a-business-model good for consumers? Almost certainly. After all, what is the downside of joining a network that all your friends are using, and is free to use? We are going to see some amazing and innovative networks appear in the next few years. But in the long run it can only work if the network survives, which means generating revenue. Otherwise they are left with a service that is no longer financially viable, and a bunch of pissed-off users. Is it a good model for businesses? That is less clear. While the Internet has a short but rich history of companies that grew wealthy running free websites with improvised business plans, their revenue model is usually advertising-based, a risky model in 2010. Only networks that bring new value to the table, like Foursquare, can justify this kind of risk.

My first blog post

Ever!