Analyst: Martin Schneider
OpenMFG is looking to get more visible with its ERP suite built using open source components. The company operates under what it calls a 'proprietary GPL' wherein users and partners extend the source code, and OpenMFG writes it back into the core product. But there are no free downloads or SourceForge.net projects here. OpenMFG might talk open source, but it is very much a traditional vendor when it comes to selling the product. However, because of the open source and cheap development model, the company can get small and medium-sized businesses (SMBs) up and running on its ERP suite for as low as $15,000.
Impact assessment
The message
OpenMFG has been selling its ERP suite built on open source components for a few years now. But recently, with the buzz around open source software, the company is looking to ramp up operations. It now has about 20 customers but will look to expand in the SMB space with a low-TCO value proposition and an expanding partner network.
Competitive landscape
On the low end, OpenMFG looks to supplant accounting tools like QuickBooks and some of Sage Group's MAS family of products. The Microsoft Business Solutions unit also has some competing products. But a lot of SMB-focused ERP is not aimed at manufacturers. But if players like NetSuite or Sage really target that vertical, it could make it tough for OpenMFG to build a customer base.
The 451 Assessment
The OpenMFG product is a tried-and-true ERP suite, and it has a lot of functionality for a very low price point. The open source hype can only help the company gain some momentum. But a lot of partnering needs to be done, and perhaps some funding will be needed, if OpenMFG is going to really hit the big time. The SMB space is simply too vast to conquer alone.
License model
OpenMFG has been around for about three years but is just now starting to ramp up sales and marketing around its ERP suite. The company is using what it jokingly calls a 'proprietary GPL' license model for its software. What this means is that the company's 20 customers and 16 partners pay for a typical perpetual or subscription-based license (the company says it sells about 50:50 of each), but then the customers and partners are given the full source code of the suite.
The company encourages its partners and its customers to enhance and extend the core product. And with traditional open source projects, the changes made by partners and customers come back to OpenMFG. Then, the company aggregates these changes and incorporates them into future general releases of the ERP suite. Currently, about 25% of the upgrades and enhancements to the product are generated from projects initiated by partners or customers.
OpenMFG is also pretty open about its pricing. For an annual subscription license for up to 15 users, the company charges just $15,000. Deals usually range higher according to the company, in the 200-seat range, where deals average $50,000. Perpetual licenses start at $2,500 per user for the base ERP suite and $3,000 per user for the integrated accounting tools. So, what OpenMFG has on its hands is a full ERP suite for the SMB space priced well below a lot of proprietary products. And since much of the SMB space is simply using accounting tools like Intuit's QuickBooks and not true ERP, this gives OpenMFG a serious value proposition.
Business model
OpenMFG does sell direct to customers, but it is also very dependent on its VAR channel to get its name out there. After all, there are only about eight employees at OpenMFG currently, so there is not a large sales force that can span the huge sea that is the SMB sector. And though OpenMFG only has about 16 VAR partners at this time, it expects to have as many as 50 by the end of next year. The company notes that since partners can extend the applications as they see fit, there is a lot of added value and additional margin for the partner, thus the high level of interest.
Also, open source has become more of a buzzword in the application space, especially with the hype generating around SugarCRM and other open source application vendors out there. OpenMFG might see some additional opportunities as smaller businesses look to take advantage of the cost savings of the open source concept. But in reality, the SMB space is so underserved by true ERP products that OpenMFG should not have much of a problem with its low-cost offering. Getting the message out effectively and efficiently is the real issue.
Products
The ERP suite is built using three key open source projects. The interfaces have been built using the 'Qt' toolkit for C++, and OpenMFG has standardized on the PostgreSQL database, as well as the Linux operating system. But apart from the open source components, the ERP suite is not very different from any other manufacturing-focused product. There are 12 core modules that cover core ERP activities such as planning, inventory management, shipping and receiving, order management, accounting and analytics functions. The company has also built out OpenRPT, which is a graphical report writer and rendering engine to allow for users to create custom reports. OpenRPT comes bundled with the suite, but the company also sells it as a stand-alone product.
OpenMFG has put out three major releases of the product since it was first released in 2002. The most recent version, 1.2, was made available at the end of this summer. There are more than 200 additions, but highlights include improvements to the financial reporting module, improvements to lot and serial-number tracking for high-volume manufacturers and distributors, and support for three levels of tax rates.
The one downside to the product is that it has little to offer in terms of out-of-the-box CRM integration. For an ERP suite to really generate value from an ERP implementation there must be a continuous flow of data between the CRM and ERP systems. Adding CRM integration is a major priority for OpenMFG and something it must complete very soon as it looks to ramp up business in a serious way.
Competition
In the smallest deals OpenMFG expects to encounter, QuickBooks is still the main product that the vendor looks to supplant. In these cases, OpenMFG should win on functionality alone. In general, the company notes that much of its competition in the SMB space is not necessarily ERP vendors but what it calls 'glorified accounting' packages. A lot of the smaller end products from Sage Group's former Best Software division, namely the MAS family, could fall into this category. But these products are designed to work alongside Act and SalesLogix CRM type products, so that could make it difficult for OpenMFG to supplant or sell against Sage in some cases. Also, if Sage continues to streamline and integrate its products, it could become a major threat to OpenMFG. On the other hand, the Microsoft Business Solutions (MBS) unit has done little to fully integrate its CRM tools with its Great Plains, Navision or even Solomon lines, so OpenMFG could play well into deals where MBS is also in the mix.
On the top end of where OpenMFG looks to play is the JD Edwards ERP suite, which pretty much owned the manufacturing space in its heyday. Now that it is part of Oracle, there is no doubt a lot of uncertainty there, so OpenMFG might look to create a migration plan for JD Edwards users or simply get aggressive in selling to users on older versions.
When we looked at OpenMFG as an open source ERP vendor, Compiere popped to mind immediately, but that product is not configured for manufacturing just yet. Neither is the NetSuite product, which offers tightly integrated CRM and ERP for the midmarket and SMB space. But NetSuite is slowly breaking its product out into vertical versions. If it creates a manufacturing-focused version, it could be just as much a competitive threat as Sage.
SWOT analysis
Strengths
OpenMFG is a true ERP suite that can be deployed by SMBs at a seriously low price point.
Weaknesses
There is little to no CRM integration yet, but this must be addressed ASAP if OpenMFG wants to ramp up business.
Opportunities
The SMB space is ripe for the picking since very few full ERP suites target smaller businesses.
Threats
As Sage streamlines its product set, it could come up with a strong competitive product. And, if NetSuite turns its sights towards manufacturing, it could spell serious trouble as well.
Reprinted with permission from 451 Research