Outwitted by its own ecosystem

Outwitted by its own ecosystem

Summary: iRadeon offers hosted CRM based on the SugarCRM code for nine users at the same price SugarCRM charges for a single user.

TOPICS: Open Source
Dana Blankenhorn has highlighted a great way to sidestep the cost of SugarCRM's 'hybrid source' model without the hassle of having to implement and customize the open-source version yourself — get it on-demand from iRadeon instead.

When I was looking at SugarCRM as a rival to Salesforce.com the other day, one thing that didn't make sense to me was how expensive its hosted option was. Considering that SugarCRM's CEO John Roberts boasted to BusinessWeek back in June that, "We're turning a $10 billion market space into a $1 billion market space," I was a bit taken aback to discover that his company is undercutting Salesforce.com's avowedly premium pricing model by just 50%. At $75 per user per month for the enterprise version and $40 for the professional version, SugarCRM is either hosting very inefficiently, or it's retaining a fat margin for itself. (My benchmark for how low hosting costs can go in this market is FreeCRM, whose costs per user per month are low enough to return a profit from showing banner ads on the pages of its free-of-charge product — evidently, it measures its per-user hosting cost in pennies rather than dollars).

Thanks to Dan Farber's detailed analysis of SugarCRM's licensing and business model, I now understand that the company is really just a conventional software vendor that maintains a cut-down open-source version as a marketing gimmick — what one commenter on Dan's post very neatly categorized as 'teaseware'.

It's somewhat satisfying, therefore, to discover that SugarCRM has been outwitted by its own open-source ecosystem, where iRadeon offers hosted CRM based on the SugarCRM code for a monthly fee of $75 for nine users — the same price SugarCRM charges for equivalent functionality delivered to a single user. To paraphrase John Roberts, that's turning $75/user/mo into $8.50/user/mo, which is much more the sort of economics I would expect from applying the on-demand model to open-source applications.

Topic: Open Source

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

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  • I have to agree with you

    I?ve been following these threads for the past few days, and I have to say that I agree with the dialog. I think these folks have really painted themselves into a corner with a very poor marketing message. They have basically confused the marketplace. This discussion has just managed to highlight the confusion which can be caused when a company focuses on technology, licensing, and pricing rather than what is really important to their target customers. I really hope other ?open source? companies can learn from this.

    Seems to me they have put themselves in a place where they?ll have a very difficult time differentiating themselves from Salesforce.com on the one side and iRadeon on the other. Customers will be confused at best.

    In my view, they have to act very quickly to repair their image and credibility in the marketplace. They need to get real crisp with their message and targets.

    I do believe that the product itself is the least of their worries.
  • iRadeon and Sugar

    Hello Phil,

    Enjoyed reading your 'Outwitted by its own ecosystem' entry. It's reflective of the potential for open source software like Sugar to drive a wave of commoditization in the software industry. Open source might best be viewed as the 'generic drug' of software, providing the same 'effect' for users at far lower cost than the branded versions. We've already seen this in the marketplace with browswers, now with Sugar Open Source you're seeing it make inroads in traditionally profit-rich segments like CRM.

    Sugar has done a great job with its product, ultimately the market will decide what price point and service levels are appropriate given the new open source dynamic. iRadeon is making every effort to bring the benefits of open source projects like Sugar to as many people as possible, while still maintaining a high level of service and reliability. Our pricing reflects a convergence of falling prices for technology inputs (bandwidth, hardware, virtualization) and the emergence of open source alternatives to enterprise software. It's an exciting time, because soon CRM and other 'enterprise' apps will be available to everyone at a price anyone can afford.

    Best Regards,
    Jeff Minich
    VP, Strategy