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The Rise of Open Source

The Rise of Open Source

Given time and the efforts of some very bright and altruistic people, an open source solution can be highly competitive. The good news for Sugar and its customers is that they have been down the curve with their open source solution. As open source rises in prominence, established players face painful changes, but for new entrants like Sugar, there is little or no transition.

SugarCon, the SugarCRM user meeting held in San Francisco a couple of weeks ago, did some important things for Sugar. It was a coming out party of sorts for a company with a distinct business model and strategy, namely open source. It was also validation of that strategy and, for many, a new realization of what open source means.

In my discussions with CEO Larry Augustin and CTO and cofounder Clint Oram, I got a new sense of how pervasive open source really is in the software marketplace. Many of us might have gotten a glimpse of open source as an industry force reading Don Tapscott's book Wikinomics, in which he discussed the Linux operating system and the Apache Web server products. Each product is referenced as an open source project in which hundreds of professional developers contribute ideas and code to build and improve product features at no cost.

But our attention might have drifted after Wikinomics, leaving us with an outdated idea that open source is fine for things way down in the stack but not so important for higher-tier products that drive today's technologies. That would be a mistake.

It's All Relative

Oram patiently explained in a recent blog post that open source products are at the core of today's hottest technology ideas, including social, mobile, big data, cloud and analytics. In fact, in market after market, he identifies a proprietary leader and an open source equivalent. For instance, in small device operating systems, Apple has iOS, which Oram calls a walled garden, and Google offers Android, an open source-ish OS that we're all familiar with.

But Oram goes a step further by showing that even though Apple may be proprietary, it is a distinction of degree and not an absolute. He goes to great lengths to show open source certificates even for the products that we think of as walled gardens. So in my analysis, the difference is more a distinction between a pure open source approach and one that leverages it more directly for profits (i.e. a walled garden). I would also add that the latter category has delivered more robust products in many categories to date.

That's not surprising to me. An open source project has the same quality control issues as a private project. And what the open source project gains in low or no cost is often made up for by slower time to market with bulletproof solutions. This may not be an iron law, but a casual examination of the Android vs. iPhone/iPad (iOS) competition shows the open source solution on the bleeding edge with a sometimes buggy and crash-prone but 4G offering vs. a 3G solution that is close to bulletproof. You may differ, and this is only an analogy, which can be disagreed with. Oram offers many other examples in social media and database technology, for instance, and I think the analogy holds.

My point is that, given time and the efforts of some very bright and altruistic people, the open source solution will be highly competitive. When Tapscott wrote Wikinomics, Apache had already captured half of the Web server market and an important commitment from none other than IBM. So there's definitely a future in open source.

No Transition Necessary

The good news for Sugar and its customers is that they have been down the curve with their open source solution. Today they sit atop a growing empire of open source CRM that can go toe to toe with other CRM solutions. Moreover, their business model has expanded to provide multiple ways for them to earn a profit. Sure, they offer open source CRM, and for many small companies or those with in-house development capacity, it's fine out of the box (or off the wire, as the case may be). But there's also a thriving community of partners offering services and an ecosystem of others delivering enhancements and modules at low cost.

With this approach you could say that the company has made itself both an open source powerhouse and a walled garden. You could also say that Sugar is a good example of how to bring open source directly to the end user.

This looks much like the evolving business model of the music industry, which I watch closely because my sons are trying to enter it. Music, like software, is transitioning from a product model in which you buy digitized product on a disk, to one where the product is just about free, but the service -- customization, a performance, a T-shirt -- become the focus of fees and profits.

This is a model that companies adopt only with great difficulty. The music industry, as you know, is in the midst of wrenching change mainly because its route to profits is disintegrating and almost no one save the musicians and customers has the appetite for the creative destruction needed to reach a new set point. The software industry faces a similar predicament for established players, though they are transitioning more easily. But for new entrants like Sugar, there is little or no transition.

The hot topics in technology today are social, mobile, cloud and big data, and justifiably so. But the hot topic in the technology business is, or ought to be, the delivery model. In this, Sugar appears to be ahead of the pack.


Denis Pombriant is the managing principal of the Beagle Research Group, a CRM market research firm and consultancy. Pombriant's research concentrates on evolving product ideas and emerging companies in the sales, marketing and call center disciplines. His research is freely distributed through a blog and website. He is the author of Hello, Ladies! Dispatches from the Social CRM Frontier and can be reached at denis.pombriant@beagleresearch.com.


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