September 1st, 2005
Outwitted by its own ecosystem
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.
Phil Wainewright is a commentator and strategist on emerging software industry trends. See his full profile and disclosure of his industry affiliations.
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