Linux Containers Authors: Carmen Gonzalez, Jim Kaskade, Elizabeth White, Derek Weeks, Liz McMillan

Related Topics: CRM, Linux Containers, Open Source Cloud

CRM: Article

SugarCRM - A Sweet Mix of Commercial and Open Source

I've always wondered where the word 'oxymoron' came from

I've always wondered where the word "oxymoron" came from. What does "oxy" have to do with "moron"? What about the words "commercial" and "open source"; do these words form an oxymoron when combined in one phrase?

The open source-based CRM software maker, SugarCRM, has successfully combined these polar opposites and implemented such a "commercial open source" business model. SugarCRM has taken its business model to a new level in that they have combined an enterprise server software sales model with that of a software-as-a-service model. Of course, SugarCRM offers its software for free as an open source server and then converts some users to paying customers by charging for add-ons, installation services, training, technical support, and software patches (see Figure 1).

The Start of Sugar
The Cupertino-based SugarCRM started in April 2004 with 10 employees, charging $149 per user per year for a set of support services to accompany the free software. They raised their first $2 million in first-round financing in August 2004 and $6 million in second-round funding in February 2005. Draper Fisher Jurvetson, a Silicon Valley venture capital firm, led the first round of financing, and Walden International, a global venture capital firm based in San Francisco, led the second round of financing.

The startup continued to attract investors throughout 2005 when New Enterprise Associates (NEA) led the series C funding, with help from DFJ and Walden International, of $19 million. NEA is a well-known venture capital firm that has funded over 500 companies since 1978 with a focus on early-stage investments.

Less than 18 months after its inception, SugarCRM had attracted a large enough community of software developers to make it available in 21 different languages. Currently, the company has approximately 3,000 developers around the world contributing to the ongoing product development (http://www.redherring.com/Article.aspx?a=13811 &hed=Six+Software+Startups+to+Watch&sector=Profiles&subsector=Companies).

SugarCRM says that its open source product is downloaded 1,500 times a day, totaling to more than 350,000 downloads since it became available in July 2004. SugarCRM maintains that it is the most popular customer-relationship-management tool of all time. Maybe? Assuming that 50% of the SugarCRM downloads are active (a very generous assumption) and that each one has five users (a reasonable assumption), then SugarCRM can be proud of its accomplishment of gaining 875,000 users, but the most popular tool of all time may be a bridge too far. To put this in perspective, the market leader, Siebel, claims they have only 4,000 customers totaling approximately 3.7 million users (www.siebel.com/customer-case-studies/software-solutions.shtm).

What Is Sugar?
SugarCRM has a three-tiered strategy: they give away the basic open source software application; they sell the professional version with some proprietary code and more advanced features such as a connector to the dark side (referring to MS Outlook, of course); and, last, they sell the enterprise version with integration capabilities if you're a large company looking to access Sugar's full potential. This product offering framework coincides with the approach of other application vendors selling commercial open source software (see Figure 2).

SugarCRM is offered as a free download under the Mozilla Public License; Sugar Professional Edition costs $239 per year; and Sugar Enterprise Edition costs $449 per user per year. The open source version of the software contains 85% of the code found in Sugar Professional. The annual fee includes premium forums, updates and patches, day-time technical support by e-mail or phone, and commercially licensed Sugar extensions and templates. The software is also available as a hosted solution starting at $39.95 per user per month.

How Do They Sell?
The company is said to have between 300 and 350 customers who have purchased the Enterprise or Professional Editions, with up to 400 seats. CEO John Roberts said that approximately 65% of customers purchase the software (referred to as "On-Premises applications" by Sugar's nomenclature) while the others purchase the hosted version (referred to as "On-Demand" by Sugar's nomenclature) (www.eweek.com/article2/0,1895,1844169,00.asp). The revenue potential is huge; if 300 customers with 400 users paid for the Enterprise Edition ($449 per user per year), that would make $54 million in annual revenue!

SugarCRM also sells an appliance called "Sugar Cube," which is for companies who won't entrust their customer information to a third-party vendor. Instead, these companies can store the sensitive information on an in-house piece of hardware. One of these "Cubes" goes for $4,495 excluding licenses (www.sugarcrm.com/crm/products/sugar-cubes.html). Roberts failed to mention the percentage of customers who purchase the Sugar Cube appliance. This begs the question: What's going on?

Sugar's licensing strategy is based on the named user concept, where each user theoretically rents the software yearly and must pay the fee to continue benefiting from the software each year. A downside is that if you forget to cancel your license, you're stuck paying for another year whether you like it or not; the so-called "negative option" renewal strategy. Sugar does not sell a perpetual license at this time.

The Strategy
"Software is bought, not sold," says John Roberts, co-founder and CEO of SugarCRM, using a weird adaptation of the M&A adage, "Small companies are bought, not sold." This implies that customers will be inclined to buy the software after they've used the open source version because of the usefulness and functionality of the product. Roberts believes that SugarCRM has a "disruptive business model because our focus is on building a great product, not on marketing." It is clear that a substantial percentage of spending is on R&D. Internal development efforts combined with the huge external community of developers has provided an excellent framework for the continued growth of SugarCRM.

Is this true or is this just marketing? If they are just an honest bunch of programmers, why did they raise $27 million in venture capital?

"They have developed an outstanding product and they have a world-class management team that has resulted in very rapid adoption of their product, which is apparent from the number of developers who are using the product and posting extensions to it in the sourceforge.net community," says Scott Sandell, a general partner of NEA who recently joined Sugar's board of directors. Sandell believes that NEA was attracted to SugarCRM because of its successful business model that effectively develops and sells commercial open source software. It's clear that customers will pay a premium to access the features of Sugar Enterprise Edition after trying the open source version.

Clearly the guys at SugarCRM are doing something right. They are successfully selling "commercial open source software" without becoming completely commercial or staying totally open source. Thus, the oxymoron is no longer valid; such "commercial open source" software seems to exist in full form.

More Stories By Paul Sterne

Paul L. Sterne is general manager, Americas, Open-Xchange Inc. (www.open-xchange.com), and managing partner, Sterne & Co. LLC, an M&A boutique specializing in technology deals. His most recent transaction: the acquisition of Protocom Development Ltd. by ActivCard Inc. He is a sponsor of openResource, a wiki about the Open Source industry (http://sterneco.editme.com/home).

More Stories By Nicholas Herring

Nicholas Herring is an associate, Sterne & Co. LLC, and a contributor to the openResource wiki. He has a Bachelors in Business Administration from The George Washington University.

Comments (7) View Comments

Share your thoughts on this story.

Add your comment
You must be signed in to add a comment. Sign-in | Register

In accordance with our Comment Policy, we encourage comments that are on topic, relevant and to-the-point. We will remove comments that include profanity, personal attacks, racial slurs, threats of violence, or other inappropriate material that violates our Terms and Conditions, and will block users who make repeated violations. We ask all readers to expect diversity of opinion and to treat one another with dignity and respect.

Most Recent Comments
news desk 06/04/06 05:18:07 PM EDT

I've always wondered where the word 'oxymoron' came from. What does 'oxy' have to do with 'moron'? What about the words 'commercial' and 'open source'; do these words form an oxymoron when combined in one phrase?

news desk 06/03/06 06:46:21 PM EDT

I've always wondered where the word 'oxymoron' came from. What does 'oxy' have to do with 'moron'? What about the words 'commercial' and 'open source'; do these words form an oxymoron when combined in one phrase?

News Desk 06/03/06 05:46:16 PM EDT

I've always wondered where the word 'oxymoron' came from. What does 'oxy' have to do with 'moron'? What about the words 'commercial' and 'open source'; do these words form an oxymoron when combined in one phrase?

Enterprise Open Source News Desk 06/03/06 04:07:48 PM EDT

I've always wondered where the word 'oxymoron' came from. What does 'oxy' have to do with 'moron'? What about the words 'commercial' and 'open source'; do these words form an oxymoron when combined in one phrase?

SYS-CON Italy News Desk 02/12/06 04:56:28 PM EST

SugarCRM - A Sweet Mix of Commercial and Open Source
I've always wondered where the word 'oxymoron' came from. What does 'oxy' have to do with 'moron'? What about the words 'commercial' and 'open source'; do these words form an oxymoron when combined in one phrase?

SYS-CON India News Desk 02/11/06 04:05:52 PM EST

I've always wondered where the word 'oxymoron' came from. What does 'oxy' have to do with 'moron'? What about the words 'commercial' and 'open source'; do these words form an oxymoron when combined in one phrase?

SYS-CON Italy News Desk 02/11/06 03:32:39 PM EST

I've always wondered where the word 'oxymoron' came from. What does 'oxy' have to do with 'moron'? What about the words 'commercial' and 'open source'; do these words form an oxymoron when combined in one phrase?

@ThingsExpo Stories
Major trends and emerging technologies – from virtual reality and IoT, to Big Data and algorithms – are helping organizations innovate in the digital era. However, to create real business value, IT must think beyond the ‘what’ of digital transformation to the ‘how’ to harness emerging trends, innovation and disruption. Architecture is the key that underpins and ties all these efforts together. In the digital age, it’s important to invest in architecture, extend the enterprise footprint to the cl...
SYS-CON Events announced today that MathFreeOn will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. MathFreeOn is Software as a Service (SaaS) used in Engineering and Math education. Write scripts and solve math problems online. MathFreeOn provides online courses for beginners or amateurs who have difficulties in writing scripts. In accordance with various mathematical topics, there are more tha...
The best way to leverage your Cloud Expo presence as a sponsor and exhibitor is to plan your news announcements around our events. The press covering Cloud Expo and @ThingsExpo will have access to these releases and will amplify your news announcements. More than two dozen Cloud companies either set deals at our shows or have announced their mergers and acquisitions at Cloud Expo. Product announcements during our show provide your company with the most reach through our targeted audiences.
@ThingsExpo has been named the Top 5 Most Influential Internet of Things Brand by Onalytica in the ‘The Internet of Things Landscape 2015: Top 100 Individuals and Brands.' Onalytica analyzed Twitter conversations around the #IoT debate to uncover the most influential brands and individuals driving the conversation. Onalytica captured data from 56,224 users. The PageRank based methodology they use to extract influencers on a particular topic (tweets mentioning #InternetofThings or #IoT in this ...
@ThingsExpo has been named the Top 5 Most Influential M2M Brand by Onalytica in the ‘Machine to Machine: Top 100 Influencers and Brands.' Onalytica analyzed the online debate on M2M by looking at over 85,000 tweets to provide the most influential individuals and brands that drive the discussion. According to Onalytica the "analysis showed a very engaged community with a lot of interactive tweets. The M2M discussion seems to be more fragmented and driven by some of the major brands present in the...
In the next forty months – just over three years – businesses will undergo extraordinary changes. The exponential growth of digitization and machine learning will see a step function change in how businesses create value, satisfy customers, and outperform their competition. In the next forty months companies will take the actions that will see them get to the next level of the game called Capitalism. Or they won’t – game over. The winners of today and tomorrow think differently, follow different...
In an era of historic innovation fueled by unprecedented access to data and technology, the low cost and risk of entering new markets has leveled the playing field for business. Today, any ambitious innovator can easily introduce a new application or product that can reinvent business models and transform the client experience. In their Day 2 Keynote at 19th Cloud Expo, Mercer Rowe, IBM Vice President of Strategic Alliances, and Raejeanne Skillern, Intel Vice President of Data Center Group and ...
The Internet of Things (IoT), in all its myriad manifestations, has great potential. Much of that potential comes from the evolving data management and analytic (DMA) technologies and processes that allow us to gain insight from all of the IoT data that can be generated and gathered. This potential may never be met as those data sets are tied to specific industry verticals and single markets, with no clear way to use IoT data and sensor analytics to fulfill the hype being given the IoT today.
More and more brands have jumped on the IoT bandwagon. We have an excess of wearables – activity trackers, smartwatches, smart glasses and sneakers, and more that track seemingly endless datapoints. However, most consumers have no idea what “IoT” means. Creating more wearables that track data shouldn't be the aim of brands; delivering meaningful, tangible relevance to their users should be. We're in a period in which the IoT pendulum is still swinging. Initially, it swung toward "smart for smar...
Virgil consists of an open-source encryption library, which implements Cryptographic Message Syntax (CMS) and Elliptic Curve Integrated Encryption Scheme (ECIES) (including RSA schema), a Key Management API, and a cloud-based Key Management Service (Virgil Keys). The Virgil Keys Service consists of a public key service and a private key escrow service. 

Data is the fuel that drives the machine learning algorithmic engines and ultimately provides the business value. In his session at Cloud Expo, Ed Featherston, a director and senior enterprise architect at Collaborative Consulting, will discuss the key considerations around quality, volume, timeliness, and pedigree that must be dealt with in order to properly fuel that engine.
What happens when the different parts of a vehicle become smarter than the vehicle itself? As we move toward the era of smart everything, hundreds of entities in a vehicle that communicate with each other, the vehicle and external systems create a need for identity orchestration so that all entities work as a conglomerate. Much like an orchestra without a conductor, without the ability to secure, control, and connect the link between a vehicle’s head unit, devices, and systems and to manage the ...
Machine Learning helps make complex systems more efficient. By applying advanced Machine Learning techniques such as Cognitive Fingerprinting, wind project operators can utilize these tools to learn from collected data, detect regular patterns, and optimize their own operations. In his session at 18th Cloud Expo, Stuart Gillen, Director of Business Development at SparkCognition, discussed how research has demonstrated the value of Machine Learning in delivering next generation analytics to impr...
For basic one-to-one voice or video calling solutions, WebRTC has proven to be a very powerful technology. Although WebRTC’s core functionality is to provide secure, real-time p2p media streaming, leveraging native platform features and server-side components brings up new communication capabilities for web and native mobile applications, allowing for advanced multi-user use cases such as video broadcasting, conferencing, and media recording.
Amazon has gradually rolled out parts of its IoT offerings, but these are just the tip of the iceberg. In addition to optimizing their backend AWS offerings, Amazon is laying the ground work to be a major force in IoT - especially in the connected home and office. In his session at @ThingsExpo, Chris Kocher, founder and managing director of Grey Heron, explained how Amazon is extending its reach to become a major force in IoT by building on its dominant cloud IoT platform, its Dash Button strat...
SYS-CON Events announced today that SoftNet Solutions will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. SoftNet Solutions specializes in Enterprise Solutions for Hadoop and Big Data. It offers customers the most open, robust, and value-conscious portfolio of solutions, services, and tools for the shortest route to success with Big Data. The unique differentiator is the ability to architect and ...
A critical component of any IoT project is what to do with all the data being generated. This data needs to be captured, processed, structured, and stored in a way to facilitate different kinds of queries. Traditional data warehouse and analytical systems are mature technologies that can be used to handle certain kinds of queries, but they are not always well suited to many problems, particularly when there is a need for real-time insights.
DevOps is being widely accepted (if not fully adopted) as essential in enterprise IT. But as Enterprise DevOps gains maturity, expands scope, and increases velocity, the need for data-driven decisions across teams becomes more acute. DevOps teams in any modern business must wrangle the ‘digital exhaust’ from the delivery toolchain, "pervasive" and "cognitive" computing, APIs and services, mobile devices and applications, the Internet of Things, and now even blockchain. In this power panel at @...
One of biggest questions about Big Data is “How do we harness all that information for business use quickly and effectively?” Geographic Information Systems (GIS) or spatial technology is about more than making maps, but adding critical context and meaning to data of all types, coming from all different channels – even sensors. In his session at @ThingsExpo, William (Bill) Meehan, director of utility solutions for Esri, will take a closer look at the current state of spatial technology and ar...
Everyone knows that truly innovative companies learn as they go along, pushing boundaries in response to market changes and demands. What's more of a mystery is how to balance innovation on a fresh platform built from scratch with the legacy tech stack, product suite and customers that continue to serve as the business' foundation. In his General Session at 19th Cloud Expo, Michael Chambliss, Head of Engineering at ReadyTalk, will discuss why and how ReadyTalk diverted from healthy revenue an...