Analyst: China Martens, Jay Layman
If commercial open source ERP apps vendor xTuple could sum up its plans for the coming year in a single phrase, it would be 'broadening the appeal of its software.' One key focus of its work during its version 3.x releases has been on optimizing its infrastructure so its apps become more modular. In 2010, as xTuple starts debuting the 4.x cycle of upgrades, it will be hard at work on improving its apps' user interface and their overall usability, with the goal of attracting a wider potential user audience, including its partner channel. So far, the vendor has often tended to draw firms with a pre-existing interest in open source software, and over the past year, it has increased the number of manufacturers using its apps and successfully wooed some distributors. Looking ahead, xTuple would also like to win over more organizations that are primarily in search of an ERP offering with the functionality they require, where the business model behind that software is less of a driver in decision making.
The 451 Take
The past year has been good to xTuple — a year focused on filling in some gaps in its apps' infrastructure, as well as a commendable doubling of its paying customer base. While we like the idea of xTuple looking to widen its appeal, we wonder what such a small company can do to reach more firms yet to use ERP in earnest, as well as those who aren't already open source believers. However, we think a stronger international focus through partners and a lower price point with a commercial version of PostBooks could prove very helpful in this regard. As with any smaller vendor, the more high-profile users xTuple can attract, the better, although we realize deployments of any size can literally take years to come to reference-worthy fruition.
Context
Eight-year-old, privately held xTuple has stayed lean, with a headcount around 23 fulltime staff, up from 20 employees a year ago. With its headquarters in Norfolk, Virginia, the company remains purely self-financed, and has been profitable for the last four years. It is not actively seeking external investment, but isn't adverse to conversations with VCs. As xTuple looks to appeal to a larger audience in 2010 and beyond, the company may then feel the time is right to seek outside funding coupled with advice on international markets.
The vendor has successfully navigated a rebranding exercise begun in 2007 when it changed its name from OpenMFG to xTuple. Earlier this year, it completely shook off the old mantle by renaming what had been its flagship OpenMFG manufacturing-focused ERP offering as xTuple ERP: Manufacturing Edition. The name changes have in part been all about attempting to build an xTuple brand, with the aim to riff off the invented name's connotations of exponential growth.
Products
Under the xTuple ERP brand, the vendor offers two paid-ERP products — Standard Edition and Manufacturing Edition — as well as a free community version called PostBooks® Edition. All three use the same codebase; PostBooks® is available under the Common Public Attrition License (CPAL), while the other two are offered under xTuple's own hybrid license. To date, there have been over 313,000 downloads of PostBooks® on SourceForge since xTuple began offering it over two years ago. Typically, the tipping point for users migrating to commercial versions is a wish to deploy the apps across multiple locations, requiring functionality that isn't offered in PostBooks®, such as multi-site financial consolidation and multi-warehouse inventory. Manufacturing Edition is the most complete product and adds more sophisticated capabilities on top of Standard's features, including capacity planning, multi-level material requirements planning and lean/constraint management.
xTuple is currently considering whether or not to provide a commercial edition of PostBooks®, given the interest it sees from some international partners in being able to sell xTuple software themselves and either add in more market-specific capability or bundle the ERP app with third-party products. Entry-level pricing for the two current paid versions may be too high for some overseas markets. With a five-user minimum, annual subscriptions begin at $800 per user for Standard Edition and $1,000 per user for Manufacturing Edition, while perpetual licenses cost from $2,400 per user for Standard and $3,000 per user for Manufacturing. xTuple sees a 50/50 mix between users buying subscriptions and those purchasing perpetual licenses.
Version 3.3 of xTuple (released mid-year) was a major release for the company, not least because it marks the largest input from end-users in both design and code contributions in the vendor's history. Working on improving international tax support was one area in particular where xTuple drew heavily on its 15,000-plus active community members, and the 3.3 release also featured functionality with appeal to distributors. xTuple 3.4, which should appear shortly, includes support for Postgres 8.4 along with drop-ship management and consolidated shipping by customer. Coming in the first quarter of 2010 is xTuple 4.0, kicking off that focus on usability, which we talked about earlier in terms of dashboard support, grid-style entry, an overhaul of menu design and a quickstart wizard. 2010 is also likely to see more third-party apps featured on xChange, an app forum xTuple launched earlier this year. So far, users can purchase five-user starter packs of xTuple's own commercial editions from the site, with the first non-xTuple offerings being free connectors into e-commerce apps osCommerce, Ubersoft and Yahoo Stores.
In terms of cloud or SaaS apps, xTuple doesn't yet see a compelling case for it to go that way. Some of its partners already host its apps, and the vendor is mindful of the potential for channel conflict if it were to offer its ERP on demand. Particularly in relation to manufacturing, the player also sees ERP as a technology that still needs to be implemented, not one that can be automatically deployed from the sky.
Customers
xTuple now has 200 paying customers. That is double what it had back in December 2008, and represents an increase in its core user base of manufacturers, as well as a number of distributors. The vendor hasn't moved as aggressively into the retail space as we had anticipated when it talked about its point-of-sale module, but those retailers it does have tend to be primarily inventory-based organizations. xTuple remains focused primarily on small-to-midsize businesses like Creamer Metal Products and Sitwell Furniture, but it has had some enterprise success with a couple of companies. One now-public multi-year deal is with self-storage and haulage company U-Haul: a gradual facility-by-facility replacement of Oracle apps in the customer's truck fabrication and assembly operations. The U-Haul deal has the long-term potential to be a significant deployment, perhaps as large as 1,000 users. In general, most of xTuple's paying customers continue to be organizations with average annual revenue of $30-50m.
Partners
xTuple has always felt building a strong channel program would be a good way to accelerate its business, and the company has more than doubled the number of its partners this year to over 50. It hopes to double that number within a year and attract more partners outside North America. xTuple sees plenty of potential partners in the market with ERP experience that have either become disaffected with the ERP player they have previously worked with or have seen channel programs they were part of vanish as ERP vendors have been acquired by rivals. It's keen to see extensions partners build on its apps, eventually be offered on xChange and easily snap into its ERP. Such additions could be in areas like time and expense management, as well as project lifecycle management. xTuple's partners are also working on mobile-device support for its ERP; for instance — for iPhone and BlackBerry devices.
Competition
xTuple wins some greenfield business where customers are adopting their first ERP software after previously running their business on Intuit's QuickBooks accounting apps, and it is keen to do a lot more to appeal to these users. As an aside, it is interesting to note that Intuit has begun leveraging a new open source strategy to build its community.
xTuple also sees a growing market for its apps to replace existing ERP deployments. Competitors it most often comes across are Microsoft and SAP. Microsoft recently reiterated its desire to dominate the ERP midmarket space and made a set of technology purchases to add to its industry capabilities, with distribution, manufacturing and retail three of five vertical sectors it's actively focusing on. xTuple tends to encounter Microsoft's Dynamics NAV apps family, and will run into SAP's on-premises Business One and Business All-in-One apps suites. It will no doubt be keeping an eye on Business ByDesign, SAP's wide-ranging midmarket SaaS apps suite, which the company hopes will begin to deliver on its initial promise with its third release, BBD 2.5, in the middle of next year.
xTuple is still wondering about when it might face off against SaaS apps suite provider NetSuite, which offers a variety of vertical takes on its software, including a light manufacturing version. It's also still not crossing swords with commercial open source peers like Compiere and Openbravo, in part due to customer short lists still only name-checking one open source player along with traditional vendors like Microsoft and SAP. That situation may also be a factor of the different technologies the open source trio employ; for instance — xTuple's use of Qt programming and PostgreSQL database.
Like many in the ERP apps arena, xTuple sees Oracle's JD Edwards World users as potential customers, particularly because many of them are SMB manufacturers, whose needs may be overlooked with Oracle's major focus on enterprises.
SWOT analysis
Strengths
Doubling its paying customer base and attracting some enterprise users along the way demonstrates steady success for xTuple. It's also working to improve its infrastructure and its usability, while bringing aboard and incorporating a good deal of user feedback on its apps.
Weaknesses
We worry whether the company's new message of appealing to a broader set of potential customers is the right one when xTuple hasn't previously demonstrated an aggressive need to expand, opting instead for a more gradual approach to user acquisition. Might xTuple soon need to turn to external investors to help it in what it dubs a move to spread 'ERP democratization'?
Opportunities
As the economy recovers, we anticipate more companies taking another look at their existing on-premises ERP deployments, particularly in relation to their flexibility, ROI delivered so far and what they're paying in maintenance. xTuple should be well-positioned to interest SMB and enterprise customers, particularly in the manufacturing and distribution sectors, as well as channel partners.
Threats
The midmarket ERP apps arena is highly fragmented and a lot of players are looking to expand their customer bases. While being hosted by some partners, xTuple doesn't yet have a SaaS or a cloud strategy, which may place it at a disadvantage compared to SAP, although manufacturing is one area where we've yet to see much SaaS activity, bar some SCM startups.
Reprinted with permission from 451 Research