Are Open Source CRM & ERP Companies Viable?

PostedOn: 2016-09-12 12:52:39

Open Source Business Models Are Not Well Understood by IT Buyers 

Open source Customer Relationship Management (CRM) software and Enterprise Resource Planning (ERP) systems are failing to keep up with their commercial competitors and have not gained the market share traction of new technology concepts such as cloud computing, software as a service or social CRM.

It seems a constant question posed by CRM and ERP software buyers or adopters centers around company viability and is something like - how do you make money selling this stuff? At the end of the day, it's self-evident that companies that cannot make money will fail to survive.

So, to figure this out, I began asking open source ERP and CRM makers that question. The business reality of open source business software systems is much different from what most people believe about open source companies. There is a common myth that open source products are give-away, and that the revenue comes from customizing less-than-fully-baked software products. It's the residue of the early open source era of a decade ago, where vendors like Red Hat prospered off their consulting businesses. SugarCRM seems to be one of the few that have crawled out from under this myth, but a lot of other technology vendors selling open source business systems seem to be burdened with it to this day.

Here's the new realism: just like commercial software vendors who write their own code and keep it proprietary, open source companies have a variety of business models. Opening up your source code does not come with a requirement to achieve sales or run your business in a prescribed way.

Take open-source Customer Relationship Management software maker, SugarCRM. At their start, the company's messaging was all about open source benefits: low cost, flexibility, and a vast and growing community that surrounds it. That was great in reaching people already predisposed to adopting open-source solutions, and it led to millions of free downloads. But the technology maker soon realized that selling its enterprise version meant reaching IT buyers whose main objective had little to do with open-source and much more to do with getting a CRM system that achieved their business goals. When those goals are the primary buying factors, the sale of the business software system no longer hinges on open source – it's simply a bonus if it happens to be chosen, This realization that the open source software technology is a distant second or later to the sales and marketing requirements that drove IT purchases helped SugarCRM refine its messaging and go head-to-head with commercial CRM heavy-hitters, such as and Oracle, while continuing to grow its developer community in a combined effort to become more of a hybrid enterprise software vendor.

Then there's SplendidCRM, which serves a niche target market, according to founder Paul Rony. The company uses Microsoft's .NET development environment to create a Microsoft-based CRM system that goes head to head with Microsoft's own CRM Dynamics solution. Although the product began somewhat as an experiment to see if it was possible to port an application from the LAMP bundle to the Microsoft stack, it soon became a powerful commercial product in its own right. "This is not shareware," says Rony. "We're here to make a business profit, just like any responsible software company should."

When it comes to ERP systems, open source takes a seat even further back than CRM, said Pablo Guevara, the CTO of OpenBravo. "Using the traditional open source model makes software very easy to disseminate, but very difficult to sell," he acknowledges. "It can make it hard to get across that there is a commercial aspect to it. But with ERP systems, you truly need to solve the customers' business problems first. They're running their business with it, and they don't particularly care if it's open source or not."

Juvara says his software company tries to stay nimble and responsive to its customers; "the result is that our business model changes very frequently," he comments. The company frequently shifts emphasis from nurturing users of its free version to supporting customers of its enterprise edition, always aiming at helping users mature into paying customers.

While business models vary, open source companies are just as focused on sustainable revenue models as proprietary software vendors. If you think open source is the realm of the free and the weak, step back and ask yourself why so many smart people are contributing to these projects. Those smart people are not limited to programmers - there are some smart business people working to make open source viable enterprises.