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Could Community Source be a Better Approach for Supply Chain Applications?

In my last post I described the relatively small number of B2B integration vendors which have embraced open source.  I this post, I will discuss a type of open sourced called “community source” which I think has high applicability for the supply chain and B2B integration.

In community source a group of companies (versus individual users) unite to develop software that solves a common business problem.   Typically the application being developed either is not available from a commercial software vendor or is available, but only via a cost-prohibitive licensing model.

There are several different models of community source, but the most popular is called a “gated community,” in which only selected member organizations contribute to the development.  The gated community concept differs from traditional open source to which the general public can contribute.   The focus of community source is not to build commercial applications for resale, but rather to create useful software that the developer community can leverage for business benefit.

There are numerous examples of successful community source models in the public sector and higher education.  Examples of local government uses of community source are widespread in Europe:

Another successful case study can be found in higher education with the Sakai Project.  MIT, Stanford University, Indiana University and the University of Michigan started Sakai in January 2004 to develop a community source platform for e-learning.  The universities contributed 27 developers and millions of dollars to seed the project.  Shortly thereafter 20 other higher education institutions joined in accelerating the development of the many new releases introduced in the past five years.

Lessons Learned from B2B e-Marketplaces

In the past 10 years, hundreds of millions of dollars have been invested to build collaborative, community oriented applications for the supply chain.  During the Dot Com era there were 2500 electronic marketplaces formed, each with ambitions of leveraging newfound e-commerce technologies to rid the supply chain of inefficiencies and waste.  See my post on B2B e-Marketplaces – A Look Back 10 Years Later for more details.

Of course, all the e-marketplaces were closed-source models with applications owned by the exchanges themselves.  However, the closed nature of the software development was not popularly viewed as a reason why the e-marketplaces failed to achieve their ambitions.  See my post on the 10 Reasons the B2B e-Marketplaces failed.

In hindsight, the most successful of the e-marketplaces were the private exchanges.  Major buying organizations not affiliated with any exchange (as well as many consortia investors) began to develop private marketplaces starting in 2000.  The goals of private marketplaces were simply to improve supply chain efficiency, rather than to generate transaction fees or grow towards an IPO.  Funding was provided as part of the traditional IT budget rather than through external capital markets or equity investments.

Commercial factors are among the primary reasons why most joint ventures, consortia and technology alliances in the supply chain fail to achieve their original promise.  Whenever a separate legal entity is created to support the B2B e-Commerce platform there becomes a shift in focus from just solving business problems towards generating sufficient revenues to sustain operations.  The “revenue distraction” occurs whether the entity is a for-profit or not.  Unfortunately, many of the B2B e-marketplaces suffered from irrational exuberance becoming principally focused on the goal of an IPO rather than satisfying the community’s technology and business needs.

 

Community Source for the Supply Chain

Any application which is designed for the use of multiple different companies in a supply chain, some of which are competitors, is fraught with challenges.  There will always be governance issues, neutrality concerns and conflicting views on the product roadmap.  However, commercial issues such as pricing are not a necessary evil.  The community source models, which have proven success in higher education and local government, could be an alternative approach for supply chain applications.

With community source, buyers and suppliers could join together to develop collaborative supply chain applications, but without the distractions of revenue generation and pricing.  Unlike a pure open source model, the developer community would be limited to those entities approved for participation.  Each participating company could choose to allocate business analysts, software developers and testing experts to the community projects.

Unlike a multi-million dollar equity investment in an exchange, the use of internal resources for a project does not require incremental budget.  In fact, it is likely that the resources assigned to the community project would be otherwise deployed to solve the same problem independently by customizing ERP applications.  Community source offers less risk of financial exposure as well.

If a major buyer or supplier became frustrated with the direction of the community source application, the participant could simply scale back the resource commitment.  There would be no “sunk costs” such as subscription fees or equity investments to salvage.  Alternatively, a frustrated participant could choose to fork development efforts with a derivative of the source code they manage independently.

There are numerous advantages to a community source model.  By allowing a group of companies to enhance the source code and use it for their own applications, the software gains access to a community of “free” developers.   Much as with Firefox, Apache or MySQL the open source development model could accelerate the innovation process for B2B e-Commerce by creating faster time-to-market for new features.   While community source will not eliminate all of the challenges experienced by multi-enterprise supply chain applications, it could significantly reduce the commercial complexity and therefore boost adoption rates.

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