In 2004, when information-technology leaders at Indiana University and the University of Hawaii announced plans to develop a financial-management system for higher education and distribute it free, they met plenty of skepticism.
Their open-source-software project—or community-source, as they refer to it—was a complex undertaking, requiring technical and financial collaboration among multiple institutions. And it openly challenged the for-profit vendors, like Oracle’s PeopleSoft, that dominate the multibillion-dollar market for administrative systems. Known as enterprise resource planning, or ERP, systems, they help college officials carry out crucial business functions. Commercial versions can cost tens of millions of dollars to license and maintain.
A decade later, that single project at Indiana has grown into the Kuali Foundation, comprising 74 dues-paying member institutions and offering a suite of open-source software products—in various stages of development—for higher education.
College officials and industry representatives largely agree that the foundation and its partners have proved that open-source ERP systems can be built and used. What is less clear as Kuali enters its second decade is whether it can grow from a niche software collaborative to a major industry player that captures significant market share from multinational corporations.
Those colleges that have adopted Kuali software are generally enthusiastic. But in the 2013 Campus Computing Survey, fewer than 15 percent of respondents said their institutions would switch to open-source ERP systems by 2018 for any of the "big three" business functions—student information, human resources, and financial management.
"Open-source is not a free beer, it’s a free puppy," says Kenneth C. Green, who conducted the survey. "If I give you a free puppy, well, you have got some significant costs for that puppy in terms of attention, care, maintenance, and support."
There has been no stampede to adopt the project’s offerings, Kuali officials acknowledge. The Kuali financial system, the foundation’s most mature software product, is in use at 21 colleges, says Jennifer Foutty, the foundation’s executive director. The research-administration system has been adopted by 10 colleges, while more than two dozen institutions are using a middleware product that supports business applications. Two colleges plan to switch to Kuali’s library-management system this summer.
The Kuali student-information-management system is in development, with about 90 full-time staff members across multiple colleges making contributing institutions. Two of its modules—academic planning and curriculum management—have been adopted a total of four times, Ms. Foutty says. A human-resources/payroll system is also in development, with no users to date.
Ms. Foutty and Brad C. Wheeler, Kuali’s chairman, who is chief information officer at Indiana, say barriers like perceived risk prevent many institutions from considering Kuali software. They also note that decision makers at some institutions struggle to move their thinking beyond the RFP process; no requests for bids are involved in adopting Kuali software, because it is built and controlled by the institutions themselves.
"If you already own it, you decide to use it or decide not to, but you don’t have to compete," Mr. Wheeler says. "That has been a big step for lots of people to get their head around."
Susan Menditto, director of accounting policy at the National Association of College and University Business Officers, says that Kuali’s offerings remain incomplete, and that it can’t match the marketing and sales machinery of profitable software companies. But it could gain momentum after it completes its student-information and human-resources systems, rounding out the three core ERP systems used on college campuses.
Once the first college had completed its switch to the Kuali financial system, "quite a few significant schools migrated to Kuali," Ms. Menditto says. "I have no reason to believe that won’t continue, especially as they get HR and payroll and student up and running. I see there being much more of a migration and an interest."
Kuali converts can be described as numbered but motivated. Some have courted professional risk, turning away from longstanding relationships with major vendors to try to sell the unfamiliar open-software model to campus leaders.
‘It’s Your Neck’
In July 2009, Patrick J. Burns, vice president for information technology at Colorado State University, led the first-ever adaptation of the Kuali financial system.
"We had an interim chief financial officer, and when I made the recommendation to him, his comment was, ‘OK, but it’s your neck if it goes south,’" Mr. Burns recalls.
The switch cost $1.3-million to $1.7-million, depending on how the calculations are done, he says, estimating that the university saved at least a couple of million dollars.
Now a Kuali member, Colorado State contributes its annual commitment of $125,000 in the form of a full-time staff member dedicated to the Kuali financial system.
"I think Kuali is at a tipping point," says Mr. Burns. "It will be interesting to look over the next decade to see where it goes. It is such a wonderful model for us."
Starting in the late 1990s, the University of Utah spent about $50-million to convert its three core business functions to PeopleSoft, says Eric Denna, chief information officer. It spent another $50-million on customizations and other things.
"No one is happy with it," he says. "No one is jumping up and down and saying, ‘Gee, we’re sure glad we spent that $100-million that way.’ "
In 2012, when he and colleagues at Utah began discussing upgrades, the option of raising millions of dollars to continue with PeopleSoft was "out of the question," he says.
Utah signed on as a founding partner with Kuali’s development project for a student-information system, committing 10 full-time employees for three years, at a cost of about $1-million annually.
Executives at Oracle Corporation, which bought PeopleSoft in 2005, contest some of Kuali’s founding tenets, including that the ERP marketplace lacks competition and that for-profit vendors mercilessly bilk colleges. But Oracle executives say that Kuali has produced some interesting, creative work, and that Oracle company remains a big supporter of community-sourced projects.
"The challenge they have is these are ERP enterprise-grade systems, and you need an ERP enterprise-grade development-and-support organization to build and maintain those," says Mark Armstrong, vice president for higher-education product development at Oracle. "I frankly can’t find any consortium out there that has been successful in building an ERP-scale product via open-source. For best of intents, it is really difficult to sustain long term."
David Metnick, managing director of the education practice at Accenture Management Consulting, which advises colleges on enterprise-resource management, says the needs of institutions and the technology available to them are "wildly different" than they were a decade ago. The focus now, he says, is on return on investment from ERP systems, with officials looking for increased functionality and integration across business operations.
"The trends are telling us that more than 50 percent of institutions that have invested in on-premise ERP systems need to upgrade or replace them in the next four years," Mr. Metnick says.
Open-source software is an increasingly important part of the information-technology mix in higher education, but he adds that it is hard to predict how the ERP marketplace will play out, he says.
Kuali officials say that as they look to a new decade, the foundation’s vision remains largely unchanged.
The Argument Remains
"The argument from the beginning was, the path that many institutions are on is unnecessarily expensive," Mr. Wheeler, the foundation’s chairman, says of enterprise-software investments.
The foundation is in the best financial shape it has ever been, its officials say. Membership dues for small colleges start at a few thousand dollars; some big institutions contribute up to seven figures for specific software projects.
"We are about a $30-million net-asset organization," says Ms. Foutty, the executive director. "There is not a concern that we are going to lack cash flow or net assets to do what we want to do."
Kuali officials say they do not set goals in terms of new members or adoptions of administrative systems. They remained focused on their software-development projects, including the student-information system.
"The mission is not for the Kuali Foundation to succeed—the mission is for colleges and universities to succeed," Mr. Wheeler says. "Kuali is just a coordinating mechanism for money we would have all been spending anyway, to help us try and spend it wisely and protect our interests over time."
Correction (5/6/2014, 1:30 p.m.): An earlier version of this article reported incorrectly that the University of Utah is already using a curriculum-management module of Kuali's student-information system. That module is still in development. The article has been updated to reflect this correction.