Welcome!

Linux Containers Authors: Pat Romanski, AppDynamics Blog, Liz McMillan, PagerDuty Blog, Tim Hinds

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
The IoTs will challenge the status quo of how IT and development organizations operate. Or will it? Certainly the fog layer of IoT requires special insights about data ontology, security and transactional integrity. But the developmental challenges are the same: People, Process and Platform. In his session at @ThingsExpo, Craig Sproule, CEO of Metavine, will demonstrate how to move beyond today's coding paradigm and share the must-have mindsets for removing complexity from the development proc...
Artificial Intelligence has the potential to massively disrupt IoT. In his session at 18th Cloud Expo, AJ Abdallat, CEO of Beyond AI, will discuss what the five main drivers are in Artificial Intelligence that could shape the future of the Internet of Things. AJ Abdallat is CEO of Beyond AI. He has over 20 years of management experience in the fields of artificial intelligence, sensors, instruments, devices and software for telecommunications, life sciences, environmental monitoring, process...
In his session at @ThingsExpo, Chris Klein, CEO and Co-founder of Rachio, will discuss next generation communities that are using IoT to create more sustainable, intelligent communities. One example is Sterling Ranch, a 10,000 home development that – with the help of Siemens – will integrate IoT technology into the community to provide residents with energy and water savings as well as intelligent security. Everything from stop lights to sprinkler systems to building infrastructures will run ef...
We’ve worked with dozens of early adopters across numerous industries and will debunk common misperceptions, which starts with understanding that many of the connected products we’ll use over the next 5 years are already products, they’re just not yet connected. With an IoT product, time-in-market provides much more essential feedback than ever before. Innovation comes from what you do with the data that the connected product provides in order to enhance the customer experience and optimize busi...
Manufacturers are embracing the Industrial Internet the same way consumers are leveraging Fitbits – to improve overall health and wellness. Both can provide consistent measurement, visibility, and suggest performance improvements customized to help reach goals. Fitbit users can view real-time data and make adjustments to increase their activity. In his session at @ThingsExpo, Mark Bernardo Professional Services Leader, Americas, at GE Digital, will discuss how leveraging the Industrial Interne...
The increasing popularity of the Internet of Things necessitates that our physical and cognitive relationship with wearable technology will change rapidly in the near future. This advent means logging has become a thing of the past. Before, it was on us to track our own data, but now that data is automatically available. What does this mean for mHealth and the "connected" body? In her session at @ThingsExpo, Lisa Calkins, CEO and co-founder of Amadeus Consulting, will discuss the impact of wea...
Increasing IoT connectivity is forcing enterprises to find elegant solutions to organize and visualize all incoming data from these connected devices with re-configurable dashboard widgets to effectively allow rapid decision-making for everything from immediate actions in tactical situations to strategic analysis and reporting. In his session at 18th Cloud Expo, Shikhir Singh, Senior Developer Relations Manager at Sencha, will discuss how to create HTML5 dashboards that interact with IoT devic...
Whether your IoT service is connecting cars, homes, appliances, wearable, cameras or other devices, one question hangs in the balance – how do you actually make money from this service? The ability to turn your IoT service into profit requires the ability to create a monetization strategy that is flexible, scalable and working for you in real-time. It must be a transparent, smoothly implemented strategy that all stakeholders – from customers to the board – will be able to understand and comprehe...
A critical component of any IoT project is the back-end systems that capture data from remote IoT devices and structure it in a way to answer useful questions. Traditional data warehouse and analytical systems are mature technologies that can be used to handle large data sets, but they are not well suited to many IoT-scale products and the need for real-time insights. At Fuze, we have developed a backend platform as part of our mobility-oriented cloud service that uses Big Data-based approache...
trust and privacy in their ecosystem. Assurance and protection of device identity, secure data encryption and authentication are the key security challenges organizations are trying to address when integrating IoT devices. This holds true for IoT applications in a wide range of industries, for example, healthcare, consumer devices, and manufacturing. In his session at @ThingsExpo, Lancen LaChance, vice president of product management, IoT solutions at GlobalSign, will teach IoT developers how t...
Digital payments using wearable devices such as smart watches, fitness trackers, and payment wristbands are an increasing area of focus for industry participants, and consumer acceptance from early trials and deployments has encouraged some of the biggest names in technology and banking to continue their push to drive growth in this nascent market. Wearable payment systems may utilize near field communication (NFC), radio frequency identification (RFID), or quick response (QR) codes and barcodes...
SYS-CON Events announced today that Peak 10, Inc., a national IT infrastructure and cloud services provider, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Peak 10 provides reliable, tailored data center and network services, cloud and managed services. Its solutions are designed to scale and adapt to customers’ changing business needs, enabling them to lower costs, improve performance and focus inter...
We're entering the post-smartphone era, where wearable gadgets from watches and fitness bands to glasses and health aids will power the next technological revolution. With mass adoption of wearable devices comes a new data ecosystem that must be protected. Wearables open new pathways that facilitate the tracking, sharing and storing of consumers’ personal health, location and daily activity data. Consumers have some idea of the data these devices capture, but most don’t realize how revealing and...
The demand for organizations to expand their infrastructure to multiple IT environments like the cloud, on-premise, mobile, bring your own device (BYOD) and the Internet of Things (IoT) continues to grow. As this hybrid infrastructure increases, the challenge to monitor the security of these systems increases in volume and complexity. In his session at 18th Cloud Expo, Stephen Coty, Chief Security Evangelist at Alert Logic, will show how properly configured and managed security architecture can...
There is an ever-growing explosion of new devices that are connected to the Internet using “cloud” solutions. This rapid growth is creating a massive new demand for efficient access to data. And it’s not just about connecting to that data anymore. This new demand is bringing new issues and challenges and it is important for companies to scale for the coming growth. And with that scaling comes the need for greater security, gathering and data analysis, storage, connectivity and, of course, the...
The IETF draft standard for M2M certificates is a security solution specifically designed for the demanding needs of IoT/M2M applications. In his session at @ThingsExpo, Brian Romansky, VP of Strategic Technology at TrustPoint Innovation, will explain how M2M certificates can efficiently enable confidentiality, integrity, and authenticity on highly constrained devices.
So, you bought into the current machine learning craze and went on to collect millions/billions of records from this promising new data source. Now, what do you do with them? Too often, the abundance of data quickly turns into an abundance of problems. How do you extract that "magic essence" from your data without falling into the common pitfalls? In her session at @ThingsExpo, Natalia Ponomareva, Software Engineer at Google, will provide tips on how to be successful in large scale machine lear...
You think you know what’s in your data. But do you? Most organizations are now aware of the business intelligence represented by their data. Data science stands to take this to a level you never thought of – literally. The techniques of data science, when used with the capabilities of Big Data technologies, can make connections you had not yet imagined, helping you discover new insights and ask new questions of your data. In his session at @ThingsExpo, Sarbjit Sarkaria, data science team lead ...
SYS-CON Events announced today that Ericsson has been named “Gold Sponsor” of SYS-CON's @ThingsExpo, which will take place on June 7-9, 2016, at the Javits Center in New York, New York. Ericsson is a world leader in the rapidly changing environment of communications technology – providing equipment, software and services to enable transformation through mobility. Some 40 percent of global mobile traffic runs through networks we have supplied. More than 1 billion subscribers around the world re...
You deployed your app with the Bluemix PaaS and it's gaining some serious traction, so it's time to make some tweaks. Did you design your application in a way that it can scale in the cloud? Were you even thinking about the cloud when you built the app? If not, chances are your app is going to break. Check out this webcast to learn various techniques for designing applications that will scale successfully in Bluemix, for the confidence you need to take your apps to the next level and beyond.