Open-source CRM and ERP: New kids on the cloud

When Nikon decided to merge and consolidate customer data from more than 25 disparate sources into one system, officials didn't want the burden of maintaining it in-house, yet whatever they went with had to meet all their requirements and work picture-perfect.

Flash forward to the early 2000s: The camera and imaging company decided to host its entire CRM needs with RightNow, a cloud computing CRM provider based in Bozeman, Mont. The vendor builds its wares with open-source technologies including MySQL database software, the Linux operating system, Apache for its Web servers and PHP for a lot of the coding.

In moving the application maintenance and support off-site, Nikon has achieved significant ROI, says David Dentry, general manager of Nikon's technical support and based in Melville, N.Y. Nikon had been using at least three systems for CRM-like functions, which included e-mail, product registration and customer call tracking.

When the company was looking for a new Web-based FAQ system -- a way of answering questions via published support articles -- company officials came across RightNow, which also had other CRM features they were interested in. They decided they could consolidate outbound e-mail, contact management and customer records into one system.

Most functions were moved to the RightNow cloud some five years ago.

A study Nikon did two years ago revealed a "ridiculous, 3,200 per cent return on investment figure,'' says Dentry. That figure considered the amount of money Nikon had invested in RightNow -- specifically in end-user support -- and calculated how many calls Nikon staffers were able to deflect because customers had found information for themselves on the Nikon Web site, he explains. The number also took into account how many e-mails Nikon's customer service people could answer without having to generate a phone call.

That translated into a cost savings of over $US14 million after the first three years of the RightNow implementation; a 50 per cent reduction in call response times; and a 70 per cent reduction in e-mail response times.

"The percentage seems so high that it almost feels like it couldn't be true," Dentry acknowledges, "but I implemented the system and generated the numbers, and I know they're correct."

The ROI of on-demand cloud computing

* No upfront capital costs

* Low ongoing subscription fees

* Pay only for what you use

* Reduced internal IT support/maintenance costs

* Cloud computing is quickly provisioned and easily expanded; you can decide to work with a cloud provider in the morning and be up and running the same day

Although Nikon still hosts its SAP ERP system internally because of the "complexities of the system," says Dentry, he feels strongly that Nikon was right to move its CRM applications out of the data center and into the cloud. Nikon uses RightNow for its entire CRM system globally, including modules for service, outbound marketing, sales, customer database, analytics and customer surveys.

RightNow wouldn't disclose what Nikon is paying, but a company spokesperson said the Enterprise Package starts at $US140 per user, per month and the Enterprise Contact Center Suite Package starts at $US250 per user, per month.

"If I was starting a new system I wouldn't consider doing it in-house," says Dentry. "There would have to be very specific requirements to make me consider doing that."

ERP, CRM on the cloud: A 'significant' trend

Moving CRM and ERP applications to the cloud is a pretty significant trend, says Rebecca Wetteman, vice president of research at Nucleus Research, Boston. "We talk to lot of folks and see broad adoption of cloud computing and open-source tools out there," she says.

Rather than pay someone to support a packaged application internally, cloud computing in general allows enterprises to take advantage of applications that they can tweak to address their specific requirements. Leveraging economies of scale, cloud computing providers can make support costs less expensive, and it's generally less costly when it comes time to upgrade as well.

"The cloud is about having a custom-developed application versus something everybody else is packaging,'' Wetteman says. She says, for example, two years ago, everyone was using the same applications for sales force automation. Now with something like Salesforce.com, companies are creating custom HR or e-commerce applications.

Adding open source to the equation allows customers the added benefit of being able to tinker with the code, although only a handful of application vendors are offering an open-source cloud model, she says. (See sidebar, below.)

Of course, flexibility is at least somewhat in the eye of the beholder, observers acknowledge. "The definition of open source differs" depending on who you talk to, explains Saurabh Verma, global services director at Acumen Solutions, Inc., which does both cloud-based and traditional systems integration. Even if CRM is developed with open-source technology, "that doesn't necessarily provide the flexibility to the client of truly using open-source power,'' he says. In other words, "you can tinker with the code to do some customizations based on the model, but you cannot change the way their tool is built."

That's fine with Dentry, who says he's more focused on the cost benefits than on the open-source issues.

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Get off my cloud

Chuck Schaeffer, CEO of cloud-CRM provider Aplicor in Boca Raton, Fla., says he recently "seriously" considered going with an open-source business model and spent a fair amount of time and energy researching it. In the end, though, he concluded the timing wasn't right for two reasons.

The major players so far

Cloud computing isn't yet supported by most of the key corporate vendors, according to Forrester Research, but many vendors have still jumped into arena offering open-source applications. In addition to Compiere and RightNow, they include:

* SugarCRM

* Concursive

* CentraView

* Red Hat

* Zoho

Jaspersoft and Talend, two open-source business intelligence (BI) and data integration vendors, announced in August 2009 a joint partnership with Vertica and RightScale Inc. for cloud-based application deployments. The four companies released a self-service, pay-as-you-go cloud stack that will allow users to implement BI applications from Jaspersoft, Talend and Vertica on the RightScale Cloud Management platform. During the same timeframe, VMware announced it was acquiring SpringSource, an open-source Web application provider.

"Customers are quite willing to pay for mission-critical business software," and his key customer base -- midmarket global firms -- are not yet ready to make the leap into open source for their key systems. The second major consideration was how to make money. "Show me one successful open-source mission-critical application software vendor," he says.

Still, the door to going open source isn't closed forever. "I think this is something we'll come back to, but not in 2010," Schaeffer says. Most companies are running open source somewhere, and after some successes in the enterprise application field, there might be more comfort with the notion.

In the meantime, the open-source cloud computing approach is more of a hit among small companies and startups, which Forrester Research says are the main users of cloud computing at the moment. They don't have a complicated infrastructure of IT investments to manage. Right now, many enterprise-level deployments are experimental and consist of non-business-critical projects.

There are concerns about a lack of control over the data and about security. However, cloud hosting companies maintain that security is one of their core competencies.

Aplicor's Schaeffer explains that most cloud software providers fall into one of two security camps: multi-tenant or isolated tenant. In the first, all customers share one large database and security is provided by the database row or field. In an isolated-tenancy setup, each customer has its own database, kept completely separate from all other customers.

IT also needs check with cloud providers regarding any the limitations of the caching and self-provisioning capabilities, to find out if there's any limit on the number of servers they will make available or that they will allow customers to provision. Most cloud vendors do not provide availability assurances, Forrester says, and service-level agreements are mostly nonexistent. That means a company whose applications are in the cloud has little or no assurance that its provider will still be in business a year from now.

Industry observers are heartened by the fact that some big-name vendors have moved into cloud computing, including Amazon Web Services, Salesforce.com and Akamai. Regardless, it is critical to ask a provider how you can access your data in the event that it goes out of business or is acquired, as well as what happens to the data in the event of a disaster.

But for smaller companies and startups that don't have massive IT investments to manage, the approach holds great appeal. Jerry Skaare, president of O-So-Pure, a maker of ultraviolet water purification systems in Phoenix, says he is "very comfortable with open source as a technology delivery system or application creation system to supply the needs of my company. There was a longstanding argument that with open source you don't have control and someone's going to insert something into [the code], and I think those arguments are long dead."

Full-scale, cost-effective ERP

As a former managing director of IT, Skaare found open-source ERP in a cloud model to be an added bonus. He says when he acquired the company less than a year ago there were very few processes that were automated.

"It seemed to me that a full-scale ERP system would serve us well, especially in these times of trying to keep costs down,'' says Skaare. He spent 28 years in IT before buying his current company, with experience in JBoss and Apache during a job at a large hotel chain. Now, with no IT staff, no data center, and a desire to focus on the other aspects of the business, Skaare says there was no question he would go the hosted route. As the company grows, Skaare says he'll have the ability to provision additional servers, "and it's practically a five-minute exercise."

Skaare heard about Compiere Cloud Edition, from Compiere, Inc., of Redwood Shores, Calif., which offers both multi-tenant and single private hosted versions of its ERP software on the Amazon EC2 Cloud virtual environment. Now, O-So-Pure is using the ERP software in the single, private instance as opposed to the multi-tenant model, giving Skaare the ability to make modifications. "It's as if the product was on site . . . but all the hardware, storage, application and memory requirements are sitting on the cloud and it's totally transparent."

He says he liked "the breadth of [Compiere's] developer community and the number of years the project had been underway." He came away convinced that "the little idiosyncrasies of my company" could be accommodated as a result.

While Skaare is not interested in poring over code or writing script, he says it is appealing to know his staff could make little tweaks if they choose because of the flexibility open source provides.

The Cloud Edition costs $US795 per user annually, which Skaare says was the "second least expensive option that I looked at."

With the ERP system taken care of, Skaare says he'll now be able to allocate one employee to direct sales, who previously was handling manual processes. "Now she'll spend her time talking to customers who are using our equipment and making sure they stay on their annual or semi-annual maintenance schedules."

Skaare estimates he has saved between $US5,000 and $US10,000 in capital costs by not having to invest in hardware. In addition, he'll recoup $US75,000 to $US100,000 savings annually by "the reduction in the amount of mistakes and in anticipation of someone being able to concentrate more fully on additional sales,'' he says.

Finally, he says, "I don't have to deal with losing man hours doing mundane tasks like server administration. The system is ready to go whenever and wherever I'm at."

A force of nature

R. Ray Wang, a partner with Altimeter Group, says that right now, open source in a cloud scenario is still a "unique situation," since typically, people who favor open-source applications are so hands-on, they're more likely to bring a system in-house than have it hosted on a cloud.

But there will be more of a movement toward on-demand, open-source cloud computing if the open-source vendors have reseller agreements with hosting providers to redistribute the code, says Wang, in San Mateo, Calif.

Echoing Skaare, Wang says that once the decision is made to move into the cloud, companies can concentrate on making their applications more relevant to their particular needs. "Once people realize they can do the hosting with open-source code . . . and make [products like] Compiere available with a lot of hosting providers," he says, "it will accelerate adoption of the products." If things work out, he predicts, cloud-based open-source applications could become 10 per cent of the global $US250 billion software market by 2015.

-- Johanna Ambrosio contributed to this story

Esther Shein is a freelance writer and editor. She can be reached at eshein@shein.net.