SugarCRM vs. Salesforce.com

I'll say one thing for SugarCRM, they certainly have generated a lot of buzz. I don't know anyone actually using their system, but there are a lot of people talking about them. Now the question is whether they can turn buzz into commercial success.

One thing the company has going for it is its choice of markets. Since Low Price x Low Quantity is not a recipe for success, the key for Sugar, and all Open Source companies, is volume, volume, volume. Like Open Source success stories RedHat and JBoss, Sugar is playing in a market with enormous opportunity. At an average of $350 per user per year and 20 users per customer (Salesforce.com's average), the company will reach the IPO escape velocity as it closes in on 10,000 customers. Since the number of potential businesses that can use CRM is measured in the millions, that certainly seems possible.

However, one key difference for Sugar vs. other Open Source successes is its competition. From our interviews with Open Source users, the vast majority are attracted to Open Source because of price. Linux/RedHat was able to offer Unix functionality at lower than Microsoft prices - something Sun, IBM, and HP couldn't match. JBoss could comfortably undercut BEA and IBM without fear that those companies would respond with price cuts of their own. Their cost structures couldn't support it.

To be sure, Sugar is underpricing Salesforce.com - $40 per year list price for an OnDemand user vs. $65 for Salesforce.com. However, even if that relatively small price differential is enough to sway people to choose a company other than the market leader, it isn't clear that it is sustainable. A quick look at Salesforce.com's income statement shows a company with 10% net profits. For Sugar to be break even at a price 39% lower than Salesforce.com's, the company would need to have much lower cost structure. Given that Salesforce.com is already lean and mean, I'm not sure how that is possible.

That leaves Sugar with precious little to differentiate their business.

• Alternative Delivery Methods: Sugar offers an installed version and an appliance. The success of Salesforce.com has already shown that the market has voted against installed. As for appliance, if it really takes off, expect Salesforce.com to follow suit.
• Code Customization: This is a relatively small segment of the market. Few Open Source users ever touch the code.

Ultimately, the biggest argument for their success is that they can be the AMD to Salesforce.com's Intel, the Sybase to their Oracle - a distant number two who does reasonably well simply because the market is so big. In the meantime, don't sell your Salesforce.com stock.

Comments

[David Gearhart]

Excellent article, and I think you did a good job outlining an interesting discussion. However, there are couple points that I think are somewhat different than how you described them. First, Salesforce.com is not lean and mean. They spend between 50% - 80% of their revenues on marketing. By removing this expense, SugarCRM can easily charge less than Salesforce.com while still running a profitable business. So, yes, SugarCRM can and does have a much, much lower cost structure than Salesforce.com. Second, SugarCRM has many large clients. You can review a sample at http://www.sugarcrm.com/crm/customer-snapshot.html .
- David Gearhart

[Jim Love]

A good "top level" look but there is a little more to it than that. First, the cost differential is more than you think. The $65.00 per month is pretty much a fiction for most Salesforce users. From our experience, you easily hit the $120 per month mark before you get a product that has as much as Sugar. David Gearhart from Sugar already pointed out the different expenditure models -- Salesforce has an incredible cost of sales as they are, fundamentally, a sales engine for their own product.

Our experience has been that the flexibility of being able to move from hosted to in-house has mattered to many clients. And unlike Salesforce, Sugar is not the only game in town for the hosting of their software. We host it here in Canada. The fact that the client has options cannot be bad - they can change hosting partners without having to change systems. I like to think that we are kept "on our toes" in service because we are committed to it - but competition is a healthy way to ensure that.

That's why, even though there is a much greater cost advantage than you think, we still wince when all anyone talks about is cost. We are distinguishing our offering on service and our ability to do that "little extra" for the client. We're building relationships.

And once again, we're doing it at an overall lower cost because we're more efficient, not as a loss leader.

Thanks for raising this discussion.

[biodun]

Sugar is a power and robust CRM with alot of flexibility. With its lower cost ISV can deploy it for customers and easily extend its features for customers. hosted appliance will move the market in africa where cost of bandwidth is high and cost of acquiring the CRM is less. I've been using Sugar for over a year and its indeed a wonder CRM that will take over the market soon. Only hope cost will continue to be low.

[Johanne M.A. Lim]

Skeptical and mostly paranoid, I'd usually default to having accountability and responsibility as close as possible at arm's length.

This is moreso with my company's data. Not that Salesforce hasn't already invested a lot on security, but I'd sleep better at night knowing my data's on my center with only me or my team held accountable and not me having to depend on someone else.

Don't get me wrong though.... Salesforce.com's business model does sound very solid and "profitable". It's all about perspectives though. :-)

[EastGhost]

It's not price, since we all know the "cost" of open source (counting time and learning curves) is much higher... The real reason people choose SugarCRM (or any open source software) is access to all the code, that paradigm-shifting reality that keeps them in total control of their reality and destiny. All other "solutions" wholly or partly yield control and maximize exposure, exposure to price gouging, exposure to bankrupt, sold or otherwise failed providers. When you have the source, you have the all. Nothing, I repeat nothing, can touch that. Had salesforce, microsoft or any of the countless other clown companies honestly intended and done right by the people (over themselves), things like SugarCRM wouldn't need to exist. That's my strong opinion, and I'd bet widely shared.

[Chris]

Salesforce.com is a good deal more expensive these days (2009) than mentioned in this article. A quote I received from them yesterday at £540GBP per user per year makes it very dear, in my opinion.

[John]

£540GB = $897.67 (on 9/14/09)

[David F. Skoll]

We moved from Salesforce to the open-source version of SugarCRM a while back. We save a lot of money. SugarCRM isn't quite as good as Salesforce, but it certainly meets our needs, and you can't argue with savings of around $12,000 per year.

[Roger Horn]

Here is a good comparison between the two:

http://www.intelestream.net/en/intelestream-u/whitepapers/222-intelecrm-vs-salesforce-sugarcrm.html

[Invertir Dinero]

Great post but I need to know more about SugarCRM because I never heard about this