CEO Of Open-Source Software Vendor SugarCRM Speaks Out

In just over two years, SugarCRM says it has more than 100 employees and 1,200 paying customers spanning 30 countries, and one million downloads.
In response to a Q&A with CEO Marc Benioff InformationWeek posted last week, SugarCRM offered up its CEO John Roberts for an interview. We agreed. The three-year-old startup is one of the first providers of open-source business applications, and we wanted to hear how business is going.

Here's what Roberts told Editor At Large Mary Hayes Weier about the response to SugarCRM's offerings, how much spends on marketing, and that little tussle between Microsoft and the Linux community over patents.

IW: What's your proof that open-source CRM is proving to be a success?

Roberts: First some background. I came to Silicon Valley in 1995 to write great software. But from an engineering perspective, I felt that the Valley wasn't innovating. Too much of operating budgets was spent on sales and marketing.

I started looking at things like JBoss. Late in 2003, I started looking at how open source could be applied to enterprise applications just like other pieces of software stack. We [SugarCRM co-founders Clint Oram and Jacob Taylor] were working at Epiphany. We started posting ideas and code up on the project.

We were the first open-source CRM and applications company ever to be funded by valley [venture capitalists]. Today our headquarters are in Cupertino. We have over 100 employees and 1,200 paying customers spanning 30 countries in just over two years, and one million downloads. We're very big internationally. It's been really remarkable, the growth, in such a short period of time. It validates the idea that traditional proprietary software, or the mechanism for building proprietary software, is the old world. The new model is writing software in public, and giving customers control of that software.

IW: How do sales and marketing investments hinder innovation?

Roberts: spends about 70% of its operating expenses on sales and marketing. Take a look at its balance sheet and you'll see. [Note: In its first quarter earning report released May 16, reported it spent $83.9 million on sales and marketing, 68% of total operating expenses of $123.1 million. It spent $14.1 million on research and development, about 11% of its operating expenses.]

Our focus was to challenge that notion, and win on better engineering. We're seeing the Web has really evolved from content management and commerce to really a global platform. If you write good software as a medium to communicate and acquire customers globally, you can do so at a fraction of the time of the traditional model. If you're a customer of CRM, what do you want us to focus on: 10 different ways we can take you out to dinner, or 10 different ways to make your customers and sales operation more efficient?

We're focused on adding value, engineering, and writing software in public. We offer multiple deployment options, either onsite or on-demand. We're not inventing new proprietary languages; we don't think that adds value. Really, customers should be in control using open standards and open languages. We open-source license over 75% of our code base, and we've done that since our inception.

IW: How do you get away with spending so little on sales and marketing?

Roberts: Open source projects are based on algorithms and on activity on your site. It's not based on spending. Put CRM in Google's search engine, and you'll see SugarCRM on the first page. We don't spend any marketing dollars on Google Adworks, because we don't need to. The underlying basis of why we're on that first page is because of the momentum of the project and the activity of the Web site. If you do things right you can quickly establish a global brand for almost no marketing dollars.

IW: Who are the biggest champions of SugarCRM within companies? Open-source developers? People in business units looking for something cheap and quick?

Roberts: It's probably an even split. Many think you have to be a developer to take advantage of open source. The first experience many people have with SugarCRM is as an installer, with no training at all. We need to support five different open-source platforms. The experience of deploying software has to be simple, fast, and easy, and assume the user has no training. At that point, wow, if you want to visually customize it, great.

We've got tons of small and midsize businesses as customers, but also large corporations. The State of Oregon, Avid Technology, BDO Seidman, and Superior Industries are customers. We've done over 50 replacements. Sometimes at customer sites it's a combination; both Salesforce and SugarCRM on demand, or Salesforce on-demand and SugarCRM on site. But the way we interact with customers is very different. We believe in putting them in control, and not creating artificial lock-in type scenarios.

IW: What's most misunderstood about open-source business applications?

Roberts: There's a couple generations of open source. The first one started as a group of hobbyists with very strong technical skills that were able to build an OS and challenge a very dominant OS provider. Then you had the distribution players that would harvest that code and build distinct services around that, such as Red Hat. We are probably second generation in that we offered SugarCRM from scratch.

There's a huge amount of talk with indemnity and patents and people trying to scare people that open source is bad. But not all projects are alike. We do manage the complete copyright of the full code base, so there is no misunderstanding of who wrote what code. Linux is battling that right now. I think they'll get through it, but there is a difference between second generation and first generation open source. We've learned having a documented code base is critical. Not only have we been very careful, it's also completely visible.

IW: You were obviously talking about Microsoft. What do you think of the recent disclosure that Microsoft believes Linux and other open-source software violates a few hundred of its patents?

Roberts: [Pause.] We do partner with Microsoft, and a large percent of our customer base likes Windows and SQL server. But in principal -- and this doesn't apply to Microsoft but to patents in general -- we don't believe in patents. We believe they are tools to stop innovation. Our position is patent law should be rewritten as it pertains to software.

At the same time we have filed for patents, but that's 100% from a defensive standpoint. We do live in a world of using patents offensively so we have to protect ourselves. But generally our policy as a company is patents are evil as they relate to software and stop innovation, and are not health for the software industry.