IT MegaVendors-Who Will Acquire Open Source ERP
The global IT industry is on a constant consolidation trend. This trend is powered by two vectors – small software companies find it next to impossible to compete against the industry leaders ,while IT MegaVendors, are always looking to broaden their product and service portfolio, usually through acquisitions.
The business software world is especially centric and the competition is fierce. Companies that have been selling technology and middleware to support the deployment of business applications are looking for new revenue streams. These companies can either develop business applications from scratch (highly unlikeable) or acquire existing business software vendors. Open source ERP solutions are perfect acquisition candidate for this strategy.
These post will discuss the possibility of an Open source ERP acquisition by large IT vendors, focusing on potentials buyers.
Acquisitions In The Business Software World – Motivation
There are many reasons why large IT companies buy smaller software companies, but if you look closely you will find that the acquiring company is buying one of two assets:
- Best of Breed or Vertical solutions – in this type of acquisition, the acquiring company is identifying customer requirements its current portfolio does not cover well. Instead of taking hordes of programmers and putting them on the project, the IT vendor can acquire a company with a proven technology that can fill that gap.
- Customer Base – IT companies are constantly looking to expnad to new markets. Vendors who are well established in the enterprise, fortune-500 world are looking to become a household name in small and medium businesses and vica versa. The easiest (and probably most expansive) way to move into a new market is to buy a company that is well established in that target market. In that scenario, what the IT vendor is paying for is not necessarily a unique technology, but a strong,loyal customer base,creating an entry point into these customers. Being able to get leverage the acquisition to sell other products and services will really depend on the level of synergy of the merged portfolio.
An acquisition of an Open source ERP application by one of the large IT vendors will be thean acquisition of best of breed application (an ERP targeted at SME’s) – it will allow the vendor to bundle their existing technology and middleware with a business management application to offer a complete solution (along with services) to SME’s.
IT MegaVendors That Needs To Consider Acquiring Open source ERP:
Sun
Sun is the most natural candidate to acquire an Open source ERP solution. There are several reasons for that:
- Sun can offer a turnkey solutions to SME’s or to hosting providers – it is currently positioned uniquely amongst IT vendors, as its product portfolio includes a reputable operating system(Sun Solaris, one of the leading Unix flavors) on top of a robust hardware (the Spark platform), a database (its recent acquisition of MySQL),an application server and a programming language (Java).
- Sun has close ties with the open source community. It released a version of its popular Solaris OS as open source(Opensolaris). The Java language source code was also released under an open source license some time ago. It offers commercial versions of the open source GlassFish application server as well as OpenOffice productivity suite (Staroffice). Its latest acquisition of the most popular open source database software is a strong signal by Sun on where it’s heading.
It makes so much sense for Sun to buy one of the Java-based Open source ERP solutions that I wouldn’t be surprised if talks are already under way. Adding an ERP solution to its portfolio will allow Sun to ship a complete ERP-in-a-box or an ERP appliance – a Spark machine running Solaris OS,MySQL database and an Open source ERP solution, bundled with support services for the entire solution.
Sun could also provide that bundle to hosting providers looking to offer Open source ERP in a SaaS model. It would be a great go-to market strategy on Sun’s part.
It will also help Sun leverage its expansive acquisition of MySQL, being able to provide an entire application stack – hardware,OS,database,application server and a business application.
RedHat
The second most likely candidate to acquire an Open source ERP company is an IT vendor who has deep roots in the open source community. Redhat was one of the first commercially successful open source enterprise solution providers. It revolutionized the open source world by proving that the open source commercial model of providing added functionality and services on top of a free,open source software (their RedHat Linux servers) is feasible.
Redhat expanded its portfolio of open source based solutions when it bought open source application server Jboss, trying to imitate the success it had with its Linux operating server offering with the widely used Java applications server.
Redhat was recently elected by CIO’s as the most valuable IT vendor. With that kind of reputation in the enterprise, offering business application might be what CIO’s are expecting from RedHat.
To summarize, acquiring an open source ERP application to complement its operating system and midlleware, going after the huge small-medium business market, is a very likely move on behalf of RedHat.
IBM
The largest IT company in the world, IBM offers everything from global services to storage solutions to databases and Unix operating systems to middleware. IBM is a household name in the large enterprise. Aiming at the mid-market, IBM needs to consider acquisition of an ERP software targeted at SME’s.
IBM also invests a lot of money in open source,financing Linux projects and adopting it. Currently, most of IBM’s hardware can run Linux,even its AS400 and mainframe computers.
Traditionally, IBM took the acquisition path,acquiring hundreds of smaller companies that provide best of breed solutions,instead of developing its own applications to support it huge customer base.
That leads to the conclusion that ff IBM will decide to go strongly after the booming SME market, acquiring an Open source ERP company will be one of their best possible choices.
Oracle
We cannot conclude any discussion about acquisitions in the business software world without mentioning Oracle. Oracle buys everything-it makes so much money off of its excellent database software that it can afford to easily swallow smaller business software companies, especially companies the size of current Open source ERP companies.
I do not see Oracle acquiring another ERP vendor,especially considering the fact that it is indirectly invested in NetSuite, a SaaS ERP solution targeting small-medium businesses,but with Oracle you just never know.
To conclude this discussion, although I am unaware of any ongoing talks between one of the IT MegaVendors mentioned here and any particular Open source ERP companiy, there is not doubt in my mind that such an acquisition is inevitable, as it will highly benefit both sides.
Great post! I’m glad we are almost in the same page as I have been posting about this possibility, Sun entering in the arena of the ERPs by buying an Open Source ERP product.
You can find it here, here and here (please use the automatic translator in the right side)
Regarding Red Hat, despite his award, I cannot see the capability of the company, do they have the resources and muscle to enter in this business?
Regarding IBM, definitely I would be very surprised if they buy an open source ERP as they obtain a very good slice of their business by SAP implementations – are they to resign to the huge investments on people and infrastructure already made o worst, to such amount of good fees money?
Oracle, is another situation. To be honest, they are impredictable – maybe it could make sense to fight in the SME ERP business where SAP with Business by Design seems to be serious
Ola Luis, great to have you here again!
I wouldn’t count out RedHat – they are synonymous with open source for enterprise with their Linux enterprise servers and have a strong channel going after medium businesses. Bundling their OS,app server and ERP application can makes much sense for them,possibly partnering with SI’s to do the actual implementations. Time will tell.
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OK, I agree: but Red Hat do need a SI partner. The ERP business is VERY different than IT Infrastructure business – to start with, you need to manage business requirements rather than technical, the type of people you talk is very different, IT vs functional… it is another world definitely.
Regards
Good post. You make some great points that most people do not fully understand.
“An acquisition of an Open source ERP application by one of the large IT vendors will be thean acquisition of best of breed application (an ERP targeted at SME’s) – it will allow the vendor to bundle their existing technology and middleware with a business management application to offer a complete solution (along with services) to SME’s.”
I like how you explained that. Very helpful. Thanks.
Best Web Based Erp Opensource Software…
I enjoyed reading your blog. It is so interesting reading other peoples personal take on a subject….
Always searching for articles that can help me. Thank you
Great post. Open source doesn’t only affect small businesses. Big players are also positioning themselves to take advantage of emerging trends.