Open-source CRM Software Carves a Niche

The operating system continues its march out of the data center and onto the desktop
Esther SheinJuly 24, 2006

The Oregon Department of Human Services was in a bind. Charged with administering the state’s Medicaid assistance program, the department needed a way to more efficiently manage information coming in from tens of thousands of providers. It needed something it could deploy quickly. And cheaply.

So it turned to the world of “open source” software, in this case a CRM (customer relationship management) system from SugarCRM Inc. While many companies have explored—or at least dabbled with—open source software for operating systems (Linux is the best-known example) fewer are aware that the basic concept behind open source—complete access to the underlying source code so that the program can be modified by virtually anyone and distributed at relatively low cost—also extends to software applications.

Much open-source software is free and widely available on the Internet. Other forms are sold by software companies that essentially charge a convenience fee (as opposed to a license fee) for providing the software and supporting utilities and documentation in a packaged, ready-to-use form. Depending on your point of view, customers are free to modify the source code or obligated to, depending on their needs.

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In the case of the Oregon DHS, the goal was to move beyond a spreadsheet-based system that was “isolated to a user’s desktop with no common form or function, and done ad hoc,” says Dennis Wells, policy and planning manager for the department’s Office of Information Services.

Following a thorough review that examined everything from security and privacy to technological compatibility with existing systems to how its capabilities stacked up to those of other products, the department decided that SugarCRM looked like a contender. Once it made its decision, it was able to download the application and supporting documentation within an hour. The tab? About $20,000 for a dedicated hardware/software system, plus $239 per user per year.

One knock against open-source software has been that the freedom to customize and tinker is a nice way of saying that you’re on your own and vulnerable to everything from hard-to-repair crashes to flagrant hackerism. But Martin Schneider, senior analyst of enterprise software at 451 Group in New York, says that open-source companies provide support that rivals that of traditional software firms. What’s more, he says, companies don’t necessarily need ace programmers to leverage the software because “90 percent of the people who use [open-source applications] don’t look at the code because the product is good enough to use as it is.”

John Roberts, chief executive officer of Cupertino, Calif.-based SugarCRM, says there is an “incredible amount of waste in the propriety business model,” with a huge percentage of revenue being spent on sales and marketing. “CFOs look at that and say, ‘I’m ordering a steak that’s 70 percent fat Â… what am I really getting for my dollar? Is it going towards engineering an incredible product?’’’ says Roberts. SugarCRM has about 700 customers.

An open-source development model, Roberts says, takes advantage of “the combined ideas of really, really smart people from around the world, and that tends to generate really innovative software.” He says it also improves quality because a broad community of users and engineers will find more bugs more quickly than the typical quality-assurance programs practices by traditional software vendors.

Nonetheless, experts say that traditional vendors do have the upper hand in several respects. For one, says Forrester Research analyst Liz Hebert, enterprise CRM providers like Oracle/Siebel and SAP offer much richer functionality and scalability than current open-source products. A company opting for the open-source alternative may need to buy or develop a range of add-ons to address functions such as document merge, E-mail tracking, or to meet the needs of mobile users. And the need to integrate with other systems can also pose an obstacle to open-source applications.

Today, open source deployments are typically in the 30-user to 50-user range, and a large company contemplating a broader roll-out would do well, Hebert says, to begin with controlled tests at the departmental or division level.” That’s how the Oregon Department of Human Services started out. Having received positive feedback on the initial usage, Wells’s group is pushing the Department of Human Services to consider SugarCRM for needs beyond the current Medicaid project.

Schneider predicts that companies will soon have an open-source option for nearly every form of IT system they use, and despite certain hurdles “open source is stable and just as good as any proprietary application, and there’s no reason not to look at it and bring it into your business.” SugarCRM competes with Compiere and vTiger, among others.