Thought Leader Interview -- Open Source
Larry Augustin is a well respected executive in the tech industry. He’s been on both sides of the fence as a venture capitalist and partner at Azure Capital Partners and as a CEO what became SourceForge where he presided over the company’s IPO. He also sits on the board of directors at a fistfull of up and coming software companies including his own — SugarCRM. Larry has been at the helm of SugarCRM since 2009 but don’t think him a latecomer to Open Source. He was a member of a small group that coined the term which is one reason we thought he’d be perfect for this column.
Denis Pombriant: As long as we're talking about Open Source, let me ask you this. And I'm going to just read you my first question. The Open Source model works well for operating systems like Linux and for middleware like the Apache server. Is the application space similar enough to provide the same opportunities to CRM users?
Larry Augustin: I think that Open Source can apply to applications, and does, and I think we're showing that in SugarCRM. At the same time, I do think that it's a bit different applied at the applications tier than at the middleware tier or the operating system tier. So, as you go up the stack, the user of the software tends to be different, and the buyer of the software tends to be different.
In the middleware tiers, we might be appealing to a director of IT, or a CIO who's more focused on a solid infrastructure. At the application tier, in the case of CRM, we might be more concerned with a director of sales or VP of sales, who's much more focused on what the application does, rather than how it does it or how it accomplishes it.
So, the buyer is different and how you apply it, I think, has to be different to that person. But, regardless of those different buyers, there are a set of, I think, common things that Open Source enables. In particular, Open Source gives that buyer more control and, I think, more flexibility than some of the typical proprietary alternatives. And, that is true regardless of the type of buyer. So, you have to apply it in different ways; you have to sell a little bit differently; but I think there are some common benefits that Open Source brings, regardless of whether it's a solution in the data and infrastructure or the applications tier.
DP: You want to name one or two of those benefits?
LA: Well, the benefits I really look for are control and flexibility. And flexibility is about an application that gives you, the user, the ability to work the way you want to work. To really take an application and, rather than changing your business process to fit the application, change the application, to work with your business process. And I think that Open Source helps enable that better than proprietary solutions because, with Open Source, you have the ultimate flexibility of being able to go down to the code level if you need to.
I think control is an aspect of that. Control is giving you that ownership of your business so that you're never in a position where you can't accomplish something because the vendor, for whatever reason, and even perhaps for good business reasons, has decided that they can't accommodate something you need. It may be as obvious as a bug fix, which people often talk about. But, it's typically not a bug fix.
It's more typically something in the range of a feature or capability that you need that maybe only one percent of the vendor's customers need, and they're just not going to prioritize that. And, you feel this frustration because you know it's not that hard to accomplish, but, in terms of vendors' priorities and resources, they're always going to have a limited number of resources. They're always going to have limited bandwidth.
In the Open Source world, you, as a user, have the option to go to other suppliers to help fill out that capability. And, that level of control, I think, empowers so much around what you can do and accomplish with your business when you have it. To me that is a big benefit and a big advantage and it applies completely across the stack, from infrastructure all the way up to apps.
DP: Now I can see how that works for the end customer, but further up the food chain, somebody's got to spend time and effort to either make or modify or change or add to the systems, the applications. And, I can see how it works pretty well for the operating system, for example. The question I have is, is it still possible, for example, to invest in innovation in front office software, given the fact that you've got more competition from for-profit vendors, and is there enough margin in what you're selling to be able to support a development regime?
LA: Well, there's sort of an implication there that the available investment dollars decline. I don't know if you're suggesting it's related to Open Source or it's just a move to free applications. And there's a general question about the ability to support new innovation in front office, right?
DP: It's in the back of my mind. I know you can point to a large army of people who do it because they love it, but it's hard sometimes to get them to do what's needed as opposed to what they like.
LA: If you look at the history of front office applications, and in particular, what I'll call enterprise software apps, over the history of those apps, the cost has gone down. As the cost has gone down, the market has grown, and I think that's some of what I would say is the answer to the conundrum that you're worried about here, which is as the amount of dollars or the cost of these apps goes down, how is there still a good market to support innovation and to support growth? At least from the commercial side.
And my answer to that is the market expands. I believe lowering price is about growing availability and growing the reach of the market. Something interesting that we observe here, and that is, 60 to 70 percent of the customers we talk to don't have a CRM system. And, I find that a fascinating statistic because when I got into this industry, I assumed that everyone had CRM. And I was making that assumption having come from a world where my customer base was more typically Fortune 1000 customer base, where the answer probably is that everyone has CRM, or at least a very high percentage.
But what I realized, part of what we're doing in this generation of CRM is that as we lower the costs we make applications that are much simpler and easier to access. We're vastly, vastly growing the market. We're enabling everyone — be it a single-user business or a two or three-user business on up — to have access to CRM tools that a decade ago were only in the hands of certainly mid-market and enterprise users. So, because we're vastly growing that market, the available dollars, I think, grow, even though the price, per se, comes down. And that's what funds the additional growth and innovation.
DP: Okay. That's a good point.
LA: You know, there's a great analogy with the PC industry and computing. Do you remember the time when people said, "Gee, the world is only going to need one computer or a few computers." And, part of what Microsoft did by lowering the cost of operating systems, and what IBM and others did with the PC and lowering the cost of the PC, was they created this massive market. Even though the prices dropped tremendously, the market became huge. And that's somewhat the analogy I see with CRM today.
DP: And that makes perfect sense. It's ultimately the commoditization of anything. Although, we're not at a commodity point in many respects, the availability of the technology is so great now, it's so ubiquitous, even fools like me can build a website with a content and use system for next to nothing.
LA: Well, I tell you, it’s a great time to be in the market — when there is still great differentiation opportunity. So it's not in commoditization, but yet, the product and market is becoming ubiquitous, so you have a very large opportunity in front of you. And that's in part, what got me excited to get back into a CEO role in a company in the CRM space.
DP: I hear you. So, let me ask you this about Wikinomics, a Don Tapscott and Anthony Williams’ book that mentions SugarCRM as an example of an application that is Open Source and doing good things. One of the things that they point out, and it's pretty obvious I agree with this, is that Open Source delivers technology to more people and opens up product and customer base to innovation through a variety of approaches. And they point out that innovation is good for the product and good at fostering creativity in a business. Have you seen this with SugarCRM and its clients, and if so, could you maybe tell me a quick story about a client?
LA: Sure, and in fact, probably one of the things that is most fun about this business is watching what people can do with your product when you do open up, and you do have an open product that gives people control and, as I touched on earlier, and the flexibility to do what they want. I've always been frustrated to look at great products that were closed and watch, sometimes, as companies will literally attack their customers for trying to build innovation on their product, and I've never understood that. And the thing about Open Source and a product like Sugar is that we foster exactly the opposite.
Just a couple of numbers. We've now got over 400 applications on Sugar Exchange, which is the commercial application exchange, built around Sugar. And our Sugar Forge, which is our Open Source community that's got a thousand-plus extensions written around it, and that's just an example of that innovation. But, you asked about particular customer examples.
I was in London a few weeks ago visiting a customer of ours, Unanimous. And they have a great story. They're in the online web advertising space. They sell ad banners, effectively. And so, they have a network of sites that they work with and they sell different kinds of ad banner inventory on those sites, from banners across the top to skyscrapers.
They also work with an Open Source ad server system that delivers the ads for their network. They were recently acquired into Orange, by the way, as part of their technologies around ad serving. The interesting thing that they have done now is they've effectively built on Sugar the whole front office to their system. And it's fascinating to watch and see the demos and the capabilities they've been able to create. I mean, they directly provision orders that come from customers for different blocks of ads directly out to their ad server from modules within SugarCRM. They've completely built on top of that.
So, when they go to quote a customer, they can see the available ad inventory that's coming reported back from their ad server, back into Sugar. They can align that with pricing. They can align that with customer needs. They send quotes directly out, generated from that, out of their SugarCRM instance, and, again, as purchases come back from a customer, they can view the delivery to the ad. And the way the online ad world works is, you contract for a certain number of impressions, and then you guarantee a minimum set of impressions against that delivery on particular sites and particular click-through rates and they can see all of that coming back into their Sugar system.
So they completely manage the whole front-end experience of their business within Sugar. It's fascinating to see people do that. That's one example from a customer point of view.
DP: Very cool. What else? Other than the flexibility and the openness, and the creativity, when a company goes out to the market to investigate buying a CRM system, why should they shop for front office technology that's Open Source?
LA: Well, I think that there's a couple of things to remember when you're thinking about Open Source technology. And, to some degree, it doesn't matter whether it's front office technology or back office infrastructure, or whatever it is. Open Source can bring you some great capabilities. You just talked about them — flexible and open and control and all the elements that brings. But, I also think that you have to remember that you still need a great application that brings you great business-specific value, front office-specific value, to go with that.
An application can bring you a lot of control, but if it isn't a great CRM application at the same time, it's not going to be of interest to you. And, I think that's something that we have to make sure of when we talk about Open Source, we realize that people need to go out there and — at SugarCRM, for example, we're building a great CRM application first. We happen to use Open Source as a way to do that, and we happen to see Open Source as a way we can deliver differentiated value, in terms of control and openness and flexibility to our customers, and we do that.
But, we're really focused on being a great CRM application first, and bringing the benefits of Open Source along with that. So, it's not just enough to say, "Gee, I have to have Open Source." We want people to say "Gee, I want a great CRM and by going with Open Source, I can get all these benefits with it as well."
DP: Let me change gears on you now, and talk about delivery models, about, especially cloud computing. There's been a lot of discussion, especially over the last couple of years, about cloud computing and single tenant versus multi-tenant. I see that Sugar offers deployment in every one of those areas. You can deploy Sugar as a cloud application, as an on-premise application, from what I understand, and you can deploy it single tenant or multi tenant.
LA: Yes, we have a data center that we run here where we've got thousands of customers and tens of thousands of seats running out of. We have customers who run on Amazon; customers that run on Rackspace. We have customers that run on premise on their own servers. So, we support a wide spectrum of those deployment models, yes.
DP: So, how do you advise a customer? A customer comes to you and says "Gee, I don't know what to do." Is there a decision tree you might help them go down?
LA: You know, there is something pretty close to that. It's our philosophy that there isn’t one particular deployment solution that is the right solution for everyone, and it depends on your business. You have to realize what business you're in and what is important to you. And, it's not typically a very complex decision process. I mean, very few people today want to be in the business of running and owning servers. And, luckily, via cloud computing, you don't have to be in that business.
I often talk personally about myself. I mean, I'm an engineer by training. I grew up as a system administrator. I love the concept of having a machine where I can touch it, because I grew up with that. And I'm getting to the point now where, when I want to bring up an application or something on a server, I go to my account on Amazon. I spin up the server instances. It's so easy. It's to the point where, I still have a few of those boxes that I keep around, and every now and then, something like a disk drive will fail, and I'll kick myself. It's like, why do I still do this? It doesn't matter anymore.
On the other hand, there are people who have data that they know has to be highly secure, or they're in regulated industries, where the industry requirements are that the data has to sit in a particular location, or within a particular geography, within a particular country. We see that a lot in Europe, for example, with customers in the financial services space.
I think it's important that applications support a variety of choices. Certainly, we do talk with customers. If you're a small business with a small number of users, you don't have IT resources, absolutely go on-demand. Just turn it on instantly; let us take care of everything. If you're in a highly regulated industry and you need that control, whether it's legal or compliance or other issues, okay. Go down a different path.
DP: Now, going forward, do you see all of these options remaining in place? Do you see, over time, people, companies, governments getting more comfortable with the idea of cloud computing, for example, as opposed to premise-based applications? Do you see anything down the road sort of converging?
LA: I think that people are getting much more comfortable with cloud computing. But, in part, I think that's because of the flexibility of choice that is developing in cloud computing. By that, I mean as a consumer of cloud computing services, there is typically an SLA [service level agreement] that I will want to achieve, a certain service level, and along with that, are certain requirements along with that service. For example, the ones I just mentioned are data locality within a particular geography or with some particular restrictions.
To me, those are simply parts of a broader SLA. And, I think what we're seeing is the cloud computing world adapt, so that now, you can walk in and say, "Gee, I need two servers. And, by the way, those two servers have to be in Germany." And you have to have certain restrictions about how they're accessed. But that doesn't mean they need to be under my desk in Germany or in my back closet. They can be down the street in a cloud service provider's data center, and they can, in fact, be virtual servers in that data center, as long as I'm meeting that SLA requirement.
I we're seeing two things happening. People are getting more comfortable with the notion that a service provider can deliver to SLA's and we're seeing the service providers now provide a greater flexibility or types of SLA's as cloud computing becomes more common. The result is an increase in the use of cloud computing resources and a decrease in the need for you to run your own server. But it's driven both by this flexibility of cloud computing service providers to provide much more flexible SLA's and a wider variety of SLA's, as much as it is by the consumer's increased level of comfort that the service provider's meet their needs.
DP: Okay. Let's talk for a minute about green and what it means. Is the whole notion of green technology, green data centers, part of your life? Are your customers asking for it? Is that a selling feature for say, cloud-based Open Source technology? For example, I know a lot of cloud-based companies are doing everything they can to reduce their energy use and their carbon footprints to sell their customers on the benefits of their services.
I know Microsoft and others have developed green data centers in places like Ireland, where they use ambient outdoor air to cool the place; they don’t use electricity for air conditioning, and that brings down the costs significantly. Is any of that on your radar screen?
LA: So, I think that the green technologies and green data centers are something that we're all driving for and I think we can make such an impact globally, by adopting those technologies. It's very important to look at them and develop them, and I think they just make good business sense in general, because of the overall impact they can have on us and the planet.
At the same time, the five seat CRM user typically isn't starting with, "Hey, I'm looking for a green CRM solution." But, I think they appreciate the fact that we get economies to scale and potentially reduce the overall impact on energy usage in the environment, through consolidation of resources.
If you think about it, before we went around and labeled this "green technology," we were just trying to reduce data center electricity costs and heating costs. It was just purely economics-driven. And, I think, in some cases here you see what are good economic decisions also happen to be good green decisions.
DP: I think you’re right. I don't think we're going to see much in the way of green, unless it's also good business for the buyers as well. That's just the reality of the world.
LA: And I remember in building our data centers, one of our biggest issues was always, "Can we get enough power to the racks and to the systems?" And I was in a business for a while where we were creating very high-density servers, and cramming a lot of compute power and disc and memory into a very small physical space. And we would go into data centers and the problem would be that we just couldn't get enough power to the servers. We had to physically figure out how to route more power through the data centers. And to the extent that we could make what we call today a "greener" server, it just became an economic requirement to create that. And so, I think there are some good economic drivers for green computing.
DP: Now, maybe the last question here. We were just talking about economics. We take a look around at the economy. It's slow; it's tough. How has “open,” not just Open Source, but how has the whole concept of openness, in your opinion, affected the way companies are able to develop, sell, and support applications today?
LA: Well, I think the whole concept of being open with how you develop and support the applications is something that's going beyond just software. I mean, we're in the software industry. We tend to talk about that a lot.
DP: Do you think people are looking for it more these days or expecting it? Do you think conventional providers might be seen by a new generation of people as less desirable because that generation's grown up with openness?
LA: I think so. And, when you say grown up with openness, the interesting thing is it's not just Open Source, in terms of computer software and source code. It's a whole attitude towards more openness and how you interact with people that is, in part, driven by social networking on the Internet. There's an attitude that companies should be more open in how they approach their customers.
I think customers can be very forgiving as long as you are open and honest and straightforward with them. And, what people don't want to see is the closed (model) — “we don't talk to you, we don't let you know what's happening, and then we try to spin everything” — and it's not about being honest with you as a customer.
That extends to, and I think will continue to extend to, how people are thinking about acquiring applications and acquiring systems. They want a vendor that's going to be open with them; that's going to say, "Look. Here it is. Everything is out there and we put everything out there in terms of source code.” And, any one of our customers can look right down in there and we can't hide things from them. I think that kind of openness leads to a level of trust that you can't have when you have too many secrets.
So, I think you're exactly right. You see a generation developing that is driven not just by that open access to the code, but they put things out there on Facebook. They put things out on LinkedIn and Twitter. From 10 or 20 years ago, you or I could get surprised by this.
DP: Or more.
LA: Or more, yeah. There you go. And, I think you're seeing a new generation that wants to work with a company that has a different attitude towards its customers; that is more trusting with its customers; that is more open with its customers. And I think that does bode well for Open Source and typically any business that supports that kind of open direction and attitude and how they work with their customers.
DP: That's great. Thanks for taking the time to talk with me today.
LA: Okay, no problem.
