In 2006 all new software seemed to “open source” their code. To me it looked as if every new, and struggling, vendor was running after the hype. Many of these commercial software vendors were not born out of open source projects but rather converted or established themselves as open source companies by licensing some set of code under the public domain. In many cases they did so without first embracing community development. But, it was most interesting that these new open source vendors did not embrace open source because of the hype or community development, but rather because of the disruptive distribution model

The success of the open source distribution model will depend partially on which commercial approach a vendor chooses, but many vendors are primarily interested in getting their software more quickly adopted by achieving greater distribution. Developing software in stealth, signing up a hand full of beta customers in the first year, then releasing 1.0 and growing by sales one at a time is no longer a viable model. For one thing, the open source distribution model decreases the need for an expensive commercial sales force, decreases the need for extensive marketing costs and speeds product time to market. In addition, by lowering the cost-of-sale, open source vendors pass the savings to the end user in lower or no license fees and spend more effort on quality engineering. Over time this will be a difficult model for closed source software vendors to compete with, especially for software vendors whose software is based on older technology architectures.

Although, some may contend that open source software shrinks the typical sales cycle, it does not. It merely contracts the sales cycle awareness period. As the diagram above depicts, open source commercial vendors become aware of opportunities much later in the sales cycle allowing them to take less unsuccessful “turns” with suspects and prospects. With open source software, customers typically do a lot of self-evaluation. The open source software distribution model, therefore, reduces time spent at the beginning of the sales cycle and allows for more efficient time to be spent on higher quality opportunities. At CorraTech – as an open source professional services firm -- we experience this first hand. By the time a customer contacts us, various people in the organization have already downloaded and evaluated the technology and now require deeper analysis to ensure the product can meet all high priority business needs. Frankly, customers using demos to make million dollar software decisions, locking their organizations into a particular vendor was never a good way to buy software. So, not only does open source introduce a new sales process it introduces a new and better way to buy software for the customer. By lowering the total-cost-of-sale, open source provides a platform for better customer intimacy, which results with a greater number of positive customer experiences and more customer wins.

SugarCRM is a prime example of how to use the open source distribution model to achieve fast growth in an already crowded market. CRM has been around since the early 90’s. There are now tens of vendors. Yet, in the past four years SugarCRM has amassed 4000 plus customers. John Roberts, SugarCRM’s CEO, has built an excellent team and a fantastic product, and has made some incredibly intuitive and bold decisions about their business model (I do not want to discount this) but open source has afforded SugarCRM the ability to invest much of the $46 million raised in product development and engineering. This, of course, further translates into more customers as quality engineering produces functionally rich enhancements, among other things, at a much faster time to market. Here is a proof point --- about one quarter of SugarCRM’s total staff is engineers. Imagine that in a commercial software company!