While many industry observers were speculating last month about what drove Steve Ballmer to announce his resignation as CEO at Microsoft, SugarCRM was busy pulling in another round of funding to help fuel its continued growth into new segments of the market. The latest equity investment is not only an indicator of the growing demand for CRM alternatives in general but is also another example of the growing acceptance of open source-based enterprise applications in particular.
The source of the new round of SugarCRM funding is almost as important as the amount of the investment. Goldman Sachs & Co.’s $40 million bet on SugarCRM is significant because it comes at the same time that one of its chief rivals, Salesforce.com, continues to dominate the CRM marketplace. The Software-as-a-Service (SaaS), cloud-based CRM leader boasted fiscal 2014 second quarter revenue of $957 million, up 31 percent year over year; deferred revenue of $1.8 billion, up 34 percent year over year; unbilled deferred revenue of approximately $3.8 billion, up 36 percent year over year; and operating cash flow of $183 million, up 34 percent year over year.
These results clearly show that corporate decision makers are increasingly seeking SaaS/cloud alternatives to traditional, on-premises perpetual license-based CRM systems.
- But, Salesforce.com hasn’t been alone in capitalizing on shifting business preferences. SugarCRM also announced impressive Q2 results at the same time it revealed the Goldman Sachs & Co. equity investment in the company. As a privately held company, SugarCRM refrains from reporting its financials but was willing to divulge that it had added over 600 new customers in Q2 2013 including: Sennheiser Electronic GmbH & Co. KG, a leading manufacturer of microphones, headphones and wireless transmission systems
- Egton Medical Information Systems Ltd (EMIS), the United Kingdom’s leading primary care software provider
- Despegar.com, Latin America’s largest travel agency
These wins show that SugarCRM’s open source-based solution is gaining acceptance among major enterprises across a widening array of industries worldwide.
What sets SugarCRM apart from Salesforce.com is the more flexible deployment options it can support because of its open source platform. SugarCRM can be acquired and installed on-premises or delivered as a service. SugarCRM also recently unveiled a new private cloud option that offers data isolation, dedicated resources and support for automatic or scheduled updates. SugarCRM customers also can move their installation between the different delivery models based to meet their evolving requirements.
This flexibility appeals to corporate decision makers with varying buying preferences, especially those that are still apprehensive about relying on a cloud-based service such as Salesforce.com and would prefer to operate their own CRM solution behind their firewall.
It also appeals to a growing number of strategic partners such as IBM, which is selling SugarCRM to its customers. IBM has been promoting the virtues of open source solutions to its customers for years at the infrastructure level with its Linux systems and is now “moving up the stack” into the application layer with its SugarCRM alliance.
SugarCRM also has expanded its OEM Partner Program into additional vertical markets and geographies with new alliances with companies such as Blue Book, Open Collect, the Access Group, IBS and ProTracker.
There always has been a symbiotic relationship between the SaaS/cloud industry and open source movement. Every SaaS/cloud vendor relies heavily on open source technology and emulates the open source methods of encouraging customer feedback and continuous innovation. And now the open source movement is becoming more mainstream as companies like IBM incorporate it into their product portfolios and open source cloud alternatives such as OpenStack gain support.
Open source companies such as Red Hat also are becoming the darlings of Wall Street. So, Goldman Sacks & Co. is making its investment in SugarCRM as talk of a potential IPO escalates. It also comes as SugarCRM becomes an attractive acquisition target. But, most importantly it is at a time when SugarCRM and open source alternatives are gaining corporate acceptance worldwide.
Jeff Kaplan is the managing director of THINKstrategies, founder of the Cloud Computing Showplace and host of the Cloud Innovators Summit conference series, including the Cloud Channel Summit, November 4 at the Computer History Museum in Mountain View, CA. He can be reached at firstname.lastname@example.org.