Related link: http://www.sugarcrm.com/home/SugarCRM_Series_B/234/
As I mentioned in “Follow the Money!” these venture capital deals involving open source companies are important. I believe this deal is of particular importance. First, this deal is exactly the kind that should worry Oracle/Peoplesoft and its shareholders, as I mentioned here. Although each venture capital firm has their own metrics and guidelines, most stick close to the industry standard. They look for ventures that are poised for rapid growth. VCs are typically looking for companies that expect at least 20% growth for the next five consecutive years. Remember, they expect AT LEAST 20% growth, it is usually much more.
Proprietary CRM software is not cheap. A typical Siebel installation will easily cost above $3 Million if you include license fees, installation services, and technical support. salesforce.com has done well because it provides a low entry alternative, however the application services model is not for everyone. Therefore, SugarCRM is poised to bring CRM functionality to millions of small and medium sized enterprises (SME) that previously could not afford the entry price and were not interested in the ASP approach. So in the short term, salesforce.com is SugarCRM’s biggest competition. I’m sure their strategy is to dominate the SME market and stay out of reach of bigger competition. This will allow SugarCRM to grow quickly. Once they are big enough, they will set their sights on the markets and customers were Oracle/Peoplesoft is under-performing. Maybe then Oracle/Peoplesoft will regret their support of open source software as a marketing strategy.
The second reason this deal is important is by marking a change in the open source industry. Up until now open source has thrived in the server room. With this deal it emerges onto the desktop. Web servers, database servers, and file and print servers are transparent to most workers — as they should be. SugarCRM, however, is an application and it runs on client computers. A whole new set of users will now interact with open source generated applications on a daily basis. Accounts Receivable, Accounting, Customer Service, and Sales personnel will now begin to hear about open source software. This is a clear example of what Geoffery Moore will discuss in his keynote speech “Open Source Has Crossed the Chasm — Now What?” at this years Open Source Business Conference (OSBC). Once SugarCRM and other open source software becomes accepted in the these user communities, it will much easier for others to follow. None other than Larry Augustin, CEO of MedSphere will offer his own vision of what I’m predicting here in his session from this year OSBC, The Next Wave of Open Source: Applications.
Who will be the next Open Source Application to get financing?