Last week when I spoke with the company, I wanted to get a sense of where OSS ERP fits. But first a few facts:

1. Two million downloads
2. Estimated abandonment rate 90%
3. 200 paying customers
4. In use at somewhere between 1,500 and 4,000 customers in 27 countries

Two million downloads is impressive by any standards. Any vendor getting that level of initial attention should be applauded. The problem is that being a small company, OpenBravo cannot realistically service all those potential customers without blowing itself up, hence (in part) the high abandonment rate.

There is another way to look at that number. I wonder how many companies have invested in commercial ERP only to find that it wasn’t what they needed or hopelessly flawed for their purposes? How many of those ground out the implementation rather than cut their losses? I don’t know of any statistics that provide answers to those questions other than the generally accepted 85% maintenance renewal rate most vendors regard as the lower end of the benchmark scale.

Of the 10% that didn’t abandon OpenBravo, 0.1% have converted to paying customers. That suggests the other 99.9% have found they can survive with OpenBravo without the need for technical support or other services. That conversion rate seems very low when compared to commercial ‘try before you buy’ SaaS offerings. But does that matter? I’m not so sure. Despite the tiny numbers, it says much more about how well the OpenBravo community of 12,356 registered members and their 522 projects are getting along.

Viewed another way, how many vendors catering to the SME ERP market would give their eye teeth to have 1,200 developers let alone 12,000+ in their community? So how does OpenBravo gain revenue traction beyond the few hundred customers it already has?

It’s something of a chicken and egg problem in the sense that marketing works when you’ve got the marketing funds. But for that you need a combination of deep investor pockets and/or a strong pipeline of paying customers. There is a precedent.

SugarCRM seemed to take forever in becoming accepted as a viable CRM solution. Today it claims seven million downloads of Sugar apps with 7,000 customers. 2010 was a record year for the company which it attributes to fast growth in its channel.

OpenBravo is a different animal. Rather than being a point functional solution, it is trying to go toe to toe with the likes of Microsoft Dynamics as the first ERP once a company has outgrown QuickBooks or as a replacement for an overly expensive solution. Commercial competitors can sow seeds of FUD: (to the sounds of a sharp intake of breath) “Open source…I dunno…who supports it?’ It’s a problem that all too easily blinds customers from digging into open source solutions without undertaking a thorough test or understanding what OpenBravo offers.

Beyond the base solution, OpenBravo offers a catalog of 275 extensions of which 75% are open source. OpenBravo was developed from the get go as a web based solution with a modular approach that is easily extended. Unlike other web based solutions, OpenBravo offers a multi-tabbed interface. Users are not stuck in single functions that have to be completed but can flip between tabs while completing a transaction. Why would you care? An example might be incomplete customer information that has to be amended at the master record level. Flip over to the appropriate tab, update and your done. With the latest release, OpenBravo introduced the notion of ‘agile ERP’ where time to value is collapsed and where end users can quickly become productive. Integration to services like GoogleDocs and Twitter is available. It is possible to establish roles that allow organisations to extend access to suppliers and customers. These are top line features that distinguish OpenBravo and should encourage a deeper look.

In talking to the company I got the sense that Spain remains both its spiritual and operational home. Open source solutions generally have done well in Spain and France the last few years, largely because of the cost/benefit compared to commercial software. The French Gendarmerie’s foray into open source for example has been well documented. OpenBravo has snagged customers in Spain that are familiar locally like Eroski and Weblogs SL. When you look more closely at the customer lists the references are far from shabby. One reading suggests OpenBravo is attractive in retail at exactly the time that market segment is under severe pressure.

Having made a move into the US, will 2011 be the year it starts to break through and ramp up customer numbers? If extension additions are a leading indicator then the answer is ‘maybe.’ According to the company, extensions are being added at a rate of around 10% per month.

Open source ERP is a relatively new concept. It is not without risk given the size of the OpenBravo customer base or the modest number of partners but it should not be dismissed. All vendors have to start somewhere. The relatively small number of paying customers should be set against the ability to rapidly deploy, take advantage of an active developer community along with an ROI and TCO that compares very favourably to proprietary offerings.

UPDATE: Colleague Frank Scavo reminded me that open source ERP is not just about cost but about buyer organisations being in control. It’s a an excellent point. For more in this, see Frank’s research from 2005.