Open ERP

The Philippine Software Industry Association or PSIA announced its “global domination” campaign last Tuesday at the 9th Philippine e-Services Global Sourcing Conference and Exhibition at the SMX Convention Center in Manila.

The software industry wants to get a piece of the estimated USD 6 billion in revenues in revenue generated by the IT and IT-enabled outsourcing business in the Philippines, which officials in the country are aiming to double by 2010 to USD 12 billion. This will put the Philippines firmly in the minds of decision makers as a top alternative outsourcing destination to India.

Revenues from outsouring in the Philippines are however dominated largely by outsourced voice services such as call centers and back-office processing services. Outsourced software development and software exports contributed only about 10% of 2008’s revenues, with the PSIA reporting about US$624 million in net earnings in 2008.

This will certainly be a tough challenge, with the current global financial crisis and the competitive market for software services from not only India, but countries like Romania, Brazil, Ireland, Czech Republic, Pakistan, Vietnam and many others.

My take on what area perhaps the Philippines can focus on where it can have an advantage? Open source software. Filipino software development companies (estimated at around 400 nationwide), can capitalize on the growing trend in the use of open source infrastructure such as Linux and open source dynamic languages such as Python, PHP and Ruby on Rails. And in a country where annual software developer salaries are just around USD 7,250, open source software lowers the barrier to entry for many small, innovative, entrepreneurial companies to enter the industry.

Industry experts seem to agree. In a visit last year to the Philippines, Reggie Hutcherson, head of Sun’s technology evangelism group, said that there is a lot of opportunity in learning various open source languages and providing services around it for companies around the world:

“The real challenge for the Filipino developer is learn various open source technologies and use them in heterogeneous environments and provide services to local and foreign companies,”

Meanwhile, David Mitchell, UK-based Ovum’s senior vice president for IT research, said the Philippines needs to focus on niche areas where it can compete better in terms of higher-value services. He said:

Smaller economies in emerging markets need to have focus, and avoid competing with larger economies on cost alone.

He said open source is one such area, citing plans to open new IT parks focusing on developing businesses around open source. He adds:

However, the key will be to ensure that the open source businesses that are created develop high-value assets, rather than developing as low-value services businesses.

There is a danger that too many areas of focus emerge in the Philippine ICT economy, meaning that it will become difficult to gain the depth of skills required to develop globally competitive business that can sustain premium rates–as opposed to the low-rate economy associated with much outsourcing and BPO activity.

One such Philippine company (with venture capital funding) focused on global development services around open source is Exist Labs and sister company Mor.ph–which does SaaS platform hosting using open source scripting languages such as Ruby on Rails. Another venture (disclosure: that I am involved with) is (non venture-funded) is an ERP software platform with a Web 2.0-ish spin called ComUnionERP.

It remains to be seen whether ventures like these will become successful and if the Philippines can truly create a cohesive and differentiated strategy to create a niche for itself (open source or not). Its clear that it needs a critical mass of players launching a concerted effort to do it. I hope the PSIA can take the lead in doing exactly that.

Many business executives are looking for more ways to cut costs during these tough times and have a mandate to "do more with less." Open source software fits the bill perfectly as it has little or no upfront costs, licensing flexibility (often times you can install on as many PCs you want and for as much users as you need) , development flexibility (the source code and APIs can be customized, the platform and toolkits are readily available), and the fact that many open source projects actually have better and larger support communities than proprietary products.

This year may actually be a turning point in the adoption of open source software as projects steadily mature (think Linux and MySQL) and interest among corporate users grow. According to a report released by research firm Gartner in November of last year, the adoption of open source software is becoming pervasive among large multinational organizations. Of the 274  surveyed by Gartner, 85% said they were currently using open source in their enterprises and the remaining 15% said they expect to use it in the next 12 months.

The folks over at Pingdom in their Royal Pingdom Blog have collected the financial information of some of the most popular open source software companies.

No surprise that it is only Red Hat so far that has had runaway success with a business model purely around open source. They are a publicly listed company, and in a partner event I attended last year, made a big deal about the fact that their revenues have been consistenly growing year on year and are well over US $500 million (and if their growth continues, will join the mythical billion dollar club of Microsoft, SAP, Oracle soon if they are not acquired or bought out first along the way).

For Novell and Sun Microsystems, the money they make from open source software is harder to pin down as they are  large, very diversified companies (but with open source a key component of their strategy--as the recent acquisition of MySQL by Sun and SuSE by Novell has shown). Same goes for IBM or Oracle.

A few weeks back I was invited to attend an executive briefing on open, collaborative, community-based innovation. The speaker was Michael Tiemann, Vice President of Open Source Affairs at Red Hat. He titled his talk "Exonovation," to avoid the connotation the word "innovation", he says, has with internal organizational efforts at innovation. In his talk-he showed how organizations today (including his own company) are able to leverage the innovation of others to create sustainable competitive advantage that benefits not only themselves, but their community and industry ecosystem as a whole as well.

For those reading this blog who are not fans of boxing, Filipino boxer (and what many say is the best pound-for-pound fighter in the ring today) Manny Pacquiao, beat American-Mexican Oscar, the "Golden Boy" dela Hoya last December 6 in Las Vegas Nevada (December 7 in Manila, Philippines).

What was widely considered a mismatch with a fight pitting the taller and naturally heavier American versus the smaller Filipino fighter proved true but not in the way many pundits expected. By the beginning of the ninth round of the fight, a badly beaten and tired dela Hoya surrendered to the smaller, faster and more accurate punching power of Pacquiao--ending what was largely a one-sided fight.

Now this fight has already been widely dissected and analyzed by experts and boxing fans for its place in history. I want to look at it from a different perspective by using what happened as an analogy to describe what I feel is happening in the enterprise software industry today.

ZDNet's Dana Blakehorn posted an interesting article in ZDNet where he talks about ways companies can monetize open source code.

In a recent Slashdot article he cited, an executive of an open source company wonders if a business model around open source is an essentially flawed model as other open source projects produce free versions of the same extensions and utilities that they offer around their code.

The VAR Guy has another interesting post about a vendor in the US specializing in helping Universities implement Open Source ERP Kuali. According to the post, "universities [were growing] frustrated with traditional closed-source systems. In some cases, the universities wanted to make and share software modifications - but their software licensing agreements prevented them to do so. In other cases, colleges grew frustrated with high fees for bug fixes and maintenance releases."