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CRM With No Money Down
Open source CRM vendors are trying to transform the industry.
For the rest of the January 2005 issue of CRM magazine please click here
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Open source may finally be arriving on the CRM scene. While still a minority in the market, a growing number of companies are choosing to provide CRM software free of up-front expense. As companies like Red Hat have demonstrated, free software can work for customers and make money. "The idea is that enough of CRM capabilities are becoming commoditized, so why not give those functions away for free and make money off services, such as customization, support, documentation, and upgrades," says Wendy Close, a Gartner research director. To date, open source CRM developers have yet to make major breakthroughs in the market, opting instead to quietly improve their products and cheerily serve up free downloads. "It's hard to be an open source company," says John Roberts, CEO of SugarCRM. "When we started building our application we had no money. Our hope was based purely on the quality of the product, not our marketing." Other names in the open source CRM space include Anteil, Compiere, and OhioEdge. The decision to develop an open source application can have as much to do with building a market as it does a belief in the free software ideology. Many of the executives involved in open source CRM systems come from traditional enterprise software companies. "They're trying to build an ecosystem, so enough providers of add-on capabilities and services [will participate]," Close says. By opening the programming base and, in some cases, allowing any add-on or modification to be sold free of tribute to the parent company, the open source companies build the buzz around the product, ultimately attracting more services and support dollars. The lure of open source, even for companies that have no interest in modifying the code for their own purposes, is the obligation-free trial. "There will be those companies that use it [for free] as a five-to-ten seat system, and we hope when they want fifty, one hundred, or two hundred seats, they are going to want a maintained version," says David Richards, president of open source developer Centric CRM. Most of the open source systems do not even require so much as a registration email address to start using them, making the free trial truly free of obligation.
Close sees the open source CRM providers winning less than 1 percent of CRM opportunities over the next year, but believes that the services-heavy business model positions Sugar and its competitors well to capitalize on strong growth in hosted and on-demand CRM services, which she believes will reach 33 percent penetration among SMBs by 2008. But in focusing on smaller companies, Close says, the open source vendors may be missing their largest opportunity. "The strange thing is that most of the open source players are targeting SMBs, but it's the larger enterprises that want to build their own applications." Because they have greater IT resources, the concept of a proven, production-ready stack of software is more useful to larger or more technologically oriented companies, which under normal circumstances either have to face longer internal development cycles or pay high prices to get source code from traditional software vendors. All things come in time, Roberts says. "We're going to destroy a $6 billion [CRM software] market and turn into a $1 billion market."
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