Analyst: China Martens, Jay Layman
As we head into 2011, we're expecting incremental but constant change to occur in the ERP applications arena. Faster deployment times and ease of customization will become even more important issues than ever for customers. Against this backdrop, commercial open source ERP vendors may win over additional customers, particularly if they can field apps tailored to those twin needs. That's one reason why xTuple has been bringing more capabilities to market this year, some designed specifically to woo smaller firms, others aimed more at larger organizations.
Increasingly, we hear about commercial open source apps providers seeking to appeal to customers that don't have a particular open source agenda, but are simply in search of cost-effective alternatives to their existing ERP software or are looking to take on their first full-blown business apps. Some of these customers, both small and large, are also seeking more modular, flexible apps offerings as alternatives to the bigger, more comprehensive suites from larger players.
The 451 Take
While 2009 saw xTuple double its paying customer base, this year's focus for the commercial open source ERP vendor has been on putting features in place designed to broaden its appeal to new sets of potential users. The timing for such a move is good since the ERP apps space is undergoing change, both in terms of ongoing consolidation and more user interest in SaaS or hybrid deployments. In offering a range of options for users, including Cloud Access, xTuple is positioning itself well in line with these trends.
The acquisition of rival Compiere by Consona holds both pros and cons for xTuple and its peers. On the plus side, xTuple has already picked up some former Compiere users and partners; conversely, the sale may cause some user nervousness about opting for a commercial open source player, and we do hear rumors of possible further consolidation. Ultimately, we anticipate that many of this year's moves from xTuple will bear fruit in terms of more customers — perhaps some AS/400 refugees from Infor and Oracle's JD Edwards — and existing users picking up more modules.
Context
Nine-year-old xTuple proudly touts its continued independence. Unlike many of its commercial open source peers, the profitable ERP apps company has yet to take on any external funding. Of course, lack of third-party investment means that Norfolk, Virginia-based xTuple tends to grow at a slower rate, but that situation appears to suit it. In addition, xTuple is betting that its lack of funding and thus lack of expansion into more services leaves more room for channel partners, which have indeed grown. Headcount for xTuple now sits at 25 fulltime staff, an increase of only two employees over the past 12 months or so. At the same time, the company is working a lot closer with some of its partners, a move that along with its open source community is helping to widen the number of people continually working on enhancements and new additions to its software.
Products
xTuple offers a number of versions of its ERP software. PostBooks® is its community free edition, which the firm recently began selling as a commercial product. The idea is to provide partners around the world with a paid offering that sits between the free version of PostBooks® and xTuple's two existing paid editions — Standard and Manufacturing. Partners can also sell the commercial version of PostBooks® themselves and either add in more vertical capabilities to the software or bundle the ERP application with third-party products. While Standard and Manufacturing have a minimum five-user purchase, there's no such limit on the commercial license for PostBooks®. All paid licenses include product updates and online customer support.
The vendor will end the year having unveiled two major releases of its ERP: xTuple 3.5.0, which appeared in the spring, and xTuple 3.6.0, which is about to be released. The upcoming release will include fresh time and expense management capabilities as well as a new project-accounting module. In adding new features, xTuple has looked to appeal to two particular audiences as well as its existing clientele. For smaller companies, it's offering more ease-of-use functionality as provided in its QuickStart Wizard and Desktop interface software with custom workflows. The idea is to guide users step by step as they both set up and then begin using the ERP apps.
For larger organizations, the focus is on increasing product sophistication. One example of that is xTuple Connect, a stand-alone integration platform that grew out of the company's Batch Manager and aims to hook into third-party apps such as computer-aided design and project lifecycle management software. In 2011, xTuple plans to promote Connect more strongly, particularly around the type of integrations that it makes possible.
Over the past few years, the most requested xTuple user feature has been better email integration. The firm really wanted to offer multiplatform email integration and realized that it needed help to do so. It hit upon the 'feature mob' concept whereby xTuple reached out to everyone who had expressed interest in that feature and encouraged them to help sponsor the development. As more people signed up, the proposed cost for sponsorship went down, and xTuple has attracted 56 paid sponsors for the project so far.
xTuple's apps have long run on Windows, Linux and Mac servers and the company also offers a hosting service known as XTN Hosted. Earlier this year, xTuple also started providing some cloud capability, dubbed Cloud Access, so that users could run any of the versions of the xTuple database on Amazon EC2. It stresses that this paid service is aimed at smaller firms that are looking to have all of their IT needs managed by a third party, whereas XTN Hosted is for organizations requiring administrator access to the hosted servers. It's early days for Cloud Access; of xTuple's 260+ customers, only a dozen are using the commercial cloud service.
Customers and partners
xTuple's customer base includes Bausch Advanced Technology Group, Bergin Fruit & Nut Company, Cedarlane Natural Foods, Ebénisterie St-Patrick, E.A. Patten, Katoomba Trading, Stone Plastics & Manufacturing and Windkits. We continue to keep an eye on one potentially large rollout at self-storage and shipping company U-Haul. The project, in which xTuple replaces Oracle apps in U-Haul's truck fabrication and assembly operations, is continuing, with around five facilities so far having made the migration.
The community version of PostBooks® has now been downloaded more than 420,000 times since it first debuted on SourceForge several years ago. Community-wise, xTuple boasts 25,000+ active users, and the health of that community is demonstrated by the number of features that it both requests and helps develop. As for open source, xTuple says interest and use center on community and or reliability, which is consistent with a couple of our findings among open source software users and customers: first, there is increasing concern about vendor lock-in, thus driving the desire for a community of fellow users and developers; the second finding is the changing rewards of open source software, which appear to be expanding beyond cost savings and time to more innovative factors such as performance and reliability. Perhaps the biggest, most consistent reward of open source software among users, however, is flexibility, and xTuple reports that its customers and partners are demanding flexibility in the form of features such as support for add-ons or extensions and compatibility with legacy and other technology that is not necessarily open source.
Partners are also very important to xTuple, and they number about 50, with a mix of local and regional VARs and systems integrators with plenty of ERP knowledge. The partners function as a valuable first focus group for the company given that they are on the front lines with customers that are managing ERP implementations on a daily basis. As we hear from other open source players, xTuple's partners often function almost as though they're an extension of the company itself, which is how close the working relationship can be between vendor and partner. Earlier this year, xTuple signed up new partners in countries including Brazil, Canada, Japan, Mexico and Singapore.
Competition
The xTuple customer base is a mix of those deploying their first formal ERP apps and those replacing existing, typically older on-premises ERP installations. In the former camp, the commercial open source player is most often attracting users moving up-market from Intuit's QuickBooks accounting or Microsoft's Excel spreadsheet software. Among the latter group, xTuple's primary rival is Microsoft with its four Dynamics ERP families ? AX, GP, NAV and SL. SAP is another longtime rival, but xTuple hasn't run into SAP's Business One apps suite lately and has yet to face off against the troubled SaaS midmarket Business ByDesign suite, which remains in limited availability; xTuple is more likely to encounter SAP's on-premises and partner-hosted Business All-in-One suite.
More customers than in the past are coming to xTuple from acquisitive apps vendor Infor Global Solutions, particularly users that have been running Infor's ERP on IBM's midrange servers. After many name changes, Big Blue's AS/400 — also known as iSeries or System i — servers are now part of the Power Systems family and, as there has been for many years of the AS/400's life, there continues to be lively debate as to whether IBM might sunset the servers. We have also seen Oracle's strategy for its JD Edwards ERP customers that rely on IBM's servers be impacted by Oracle's purchase of IBM server rival Sun Microsystems. Some of xTuple's partners are already helping some users in conversions off of their existing ERP apps and AS/400 servers. There has always been a strong sense of community around the AS/400, one that xTuple hopes migrating customers might also see reflected in the open source arena.
xTuple is bumping into on-premises and SaaS ERP player Epicor Software more often. In general, it doesn't tend to encounter SaaS pure plays, although xTuple recently signed up a couple of former NetSuite customers that have found subscription renewal rates for the SaaS apps suite much higher than the promotional rate they enjoyed in their first year as NetSuite customers.
To date, xTuple doesn't tend to vie with fellow commercial open source ERP players in the US on a regular basis; such firms include the likes of Belgium's OpenERP and Spain's Openbravo, both of which recently opened offices in Silicon Valley. The vendor has benefited from the fallout following ERP rollup merchant Consona's purchase of commercial open source ERP player Compiere earlier this year. XTuple has attracted some of Compiere's partners concerned about the future direction of the latter's ERP apps given that Consona's drivers for buying Compiere were the target's platform and its expertise in the distribution industry. Since Compiere's customers tend to be larger and more internal IT projects, xTuple hasn't seen many users coming to it so far.
SWOT analysis
Strengths
xTuple continues to grow steadily and has debuted a range of interesting features likely to attract new users and fresh modules, which should encourage existing customers to buy more of its paid software. The company's community approach is serving it well in terms of being a lively and supportive development environment for new capabilities.
Weaknesses
In casting a wider net in terms of potential customers, a small company like xTuple has to be very careful not to lose sight of the needs of its current SMB user base. It also has to ensure that its resources, both in human and dollar terms, don't become overstretched and constrained.
Opportunities
The trend of veteran on-premises ERP vendors getting their toes wet in the cloud and hybrid apps waters is providing validation to those deployments, which is helpful to all players in the field.
Threats
There's plenty of competition in the ERP arena, particularly at the SMB level, where there's still no clear market leader. Some of the newer areas that xTuple is entering, notably project accounting, are markets already overstuffed with apps rivals.
Reprinted with permission from 451 Research