Phil Wainewright posed an interesting question in his blog yesterday. Citing a fresh round of funding for a number of SaaS providers that have recently cashed in, he asks if it’s still possible to secure VC funding for SaaS startups given the downturn the economy has taken in recent months?

I’d say absolutely. In many retrospects, SaaS and open source are on parallel courses. The maturity of the products has resulted in their acceptance in the economic mainstream, and as a result, funding for startups in both industries remains strong.

A recent study by the 451 Group supports this, and showed that open source VC investments totaled $204 million in the first quarter of 2008, more than double the amount for the first quarter of 2007. I’d have to imagine that the numbers for SaaS startups is similar.

Like any rapidly expanding industry, acquisition of these startups remains strong, another sign that SaaS and open source is bucking the economic trend. And while acquisitions might eliminate these startups and seem to discredit the industries long term validity, there will always be new ones to take their place.

Besides, it’s open source’s lower costs that make it more attractive during an economic downturn to begin with, so why not add a little more fuel to the fire curiosity of VC funding?

Just about to hop a plane to Los Angeles area for two CRM Acceleration events…it will be good to get two chances to meet with prospects and learn more about how people come to know SugarCRM and what they expect.

One thing I have seen, which I like to see, is that more and more new customers (even very small organizations) are asking about highly customized processes. This is big. Five years ago, no small business would even know that a) there were robust CRM options for their price range and b) a CRM suite could be customized within an SMB budget range.

But a lot has changed, and the balance of power is shifting towards the customer more and more. CRM systems must change to meet these demands. We are even seeing SAP, Oracle and other CRM vendors talk more about flexibility and customization - more so than ever. I’m not sure how they will back these promises up with low TCO, high ROI products in the real world, but at least they are recognizing that the new world order of software, led by open source and SaaS and other factors - is here to stay.

I’ll be sharing some of my experiences at the Acceleration events over the next few days…

I finally got to meet Matthew Aslett of my old firm the 451 Group two months ago during our Bay cruise at OSBC. Matt is a very, very sharp guy, so I was not surprised to see in his recent blog post how he took some obvious anti-open source FUD and slapped a bit of irreverent truth around it.

Here is how Matt translates some common open source “concerns:”

“Open source lacks true and defined standards, best-of-breed capabilities, fully functional integration and knowledgeable staff to support it cost-effectively.”
Cynical translation: “I love Microsoft software.”

“Having tried to manage open source environments, the degree to which rather eccentric - apologies for the generalisation - open source custodians and Unix engineers customise their environments creates extremely bulky systems and applications that are difficult to manage.”
Cynical translation: “I know where I am with Microsoft software.”

“From an organisational perspective, in its level of customisation and lack of true industry standards, this is cowboy technology.”
Cynical translation: “No one ever got fired for using Microsoft software.”

“I would love to see open source continue to grow from a technology perspective. But would I rely on it in a business perspective? Absolutely not - at least not as the main platform driver in my organisation.”
Cynical translation: “Hey, I’m a pragmatist. But I really, really love Microsoft software.”

Of course, Matt is joking, but you could argue that replacing “Microsoft” with any entrenched proprietary vendor is a valid translation of people’s lingering uncertainty over installing open source in their organization.

Just as later in his post where Matt identifies some open source points brought up by the “Naked CIO” columnist could be made about ANY software…the reluctance to change is there - and its not about changing to open source…I think it’s about changing to ANYTHING. IT staff will tend to go with the evil they know…so even if the CRM or other software deployment is junk - some may be reluctant to change in order to not have to learn a new set of potentially problematic programs.

Ultimately, I think the cultural divide between open source and proprietary software IS breaking down. Some old school holdouts will remain, but as open source continues to become the most modern, robust alternatives in the application software space, the learning curve will disappear even faster.

So it seems Microsoft is considering a purchase of Facebook. Coming off its recently-abandoned Yahoo purchase, I’m skeptical if such an acquisition would give Microsoft the sufficient boost to its online efforts to make the deal worthwhile.

But one reason why I find the merger intriguing is because the purchase would be more than just a consumer networking acquisition for Microsoft. It would be a great way for Microsoft to leverage consumer networking solutions to enhance employee communications and collaboration within their business offerings.

The pendulum has shifted back in favor of the consumer, and Web 2.0 is to thank. For all the developments we’ve seen within the CRM industry, such as the maturation of the Web and software-as-a-service, the customer is still the king. What has been seen as a means of managing customer data in order to understand them is now viewed as a vital two-way link between customers and vendors centered on the overall customer experience. CRM is all about incorporating customer experience management in conjunction with consumers.

The purchase of Facebook would be a big-time validation by Microsoft (which as usual, has been slow to the game) of Web 2.0 and a great opportunity to offer its millions of desktop consumers the opportunity to exploit this emerging trend.

Yet once again, it seems the biggest roadblock for Microsoft is Microsoft itself, as Facebook enthusiasts aren’t exactly jazzed, including If Facebook sells to Microsoft, We’re Leaving and Don’t Sell Facebook to Microsoft.

I would like to call this smart customer relationship building, but it may reek too much of desperation to be a thing of genius. Chrysler is offering new car buyers the choice of the usual “cash-back” at signing, or - get this - cheap gas for the next three years.

On the one hand, Chrysler is definitely reaching out and talking to people about an issue that is certainly a pain point, and that’s just good sense. They are putting a number value to things, rather than the usual car ads that tout “being green” or having great MPG ratings (which we all know are skewed). On the other hand - it continues the stereotype of American cars as gas guzzling, inefficient beasts.

The promotion also got me thinking about larger issues. Has the high price of fuel become so institutionalized and accepted that a three-year cap on prices at $3 per gallon is considered a great deal?

I’m not saying that we can necessarily change gas prices, but in the “2.0″ world, according to observers like my friend Paul Greenberg, the customer is controlling the conversation. If that is the case, why aren’t fuel companies listening?

The now beaten-to-death notion of oil companies seeing massive profits while blaming oil producing nations for high prices has done nothing to spark any major consumer-based resistance to oil company strongholds on price.

I would like to see the “Social Customer” and the whole web 2.0 generation get creative here. Do Something - Anything - if it can make a difference and send a message. We have talked about the shifting of power to the customer, I think forcing even the slightest relief in this area would be impressive and really sell the world on the fact that the world, especially the way we buy and sell, has changed.

I mean, come on, when it costs me more than $10 to fill up my MOTORCYCLE - it’s time for a change.

…the price list at a local Silicon Valley station…

Dana Blankenhorn had an interesting take in her blog today in what she terms Sun Microsystem’s “continuing open source problem.” I think given a little time, Schwartz and company will iron out any wrinkles that company may or may not have in its open source strategy. But one comment in particular I thought spoke to the bigger picture of the value proposition that the open source model offers:

“But open source demands more than a financial commitment of its users. And if you want to earn that trust, you must be committed in turn. Committed to the open source process, and committed to the idea of commitment.”

That speaks volumes when considering open source’s true value. I can’t tell you how many times I’ve heard in the past about open source’s cost value. It’s not about free, in terms of finances, but rather about freedom of choice. Many of our own paying customers here at SugarCRM are companies or organizations that download Community Edition, which my boss refers to as our “biggest competitive threat.” Community Edition isn’t a threat in the sense they’re taking customers away, such as another vendor, but simply a value proposition that offers customers the freedom to stick with SugarCRM, or move on.

That’s a proposition that proprietary vendors can’t offer, and one that speaks to how important commitment is to the open source model.

I spent most of my day giving press briefings and analyst calls on Sugar’s latest release currently in beta - 5.1. I have to say, based on the responses I’m seeing, that there’s a couple REALLY interesting parts to 5.1 that should not be overlooked.

Apart from a great story around the reporting enhancements, the new Module Builder features cannot be overlooked.  I posted a bit about the features last week, but seriously, SugarCRM as a platform is making more and more logical sense for companies of all sizes.

Think about it, with the ability to associate files with customized “opportunities” - users can do almost anything given the basic workflow and other Sugar building blocks. Insurance firms can associate files like Claim Forms with the claims processing workflow “Opportunity” (after all, what is an opportunity in CRM but a phased process where certain steps are given certain values?). Or, a political campaign can assign Files such as voter correspondence along the Opportunity cycle associated with campaign contributions. Anywhere there is even a slight parallel between that business process and CRM, Module Builder can automate that process or at elast have that process housed in a single system of record.

Those capabilities, combined with the deeper reporting functionality, allows SugarCRM to really play a platform role as the standard where all interactions take place within an organization. Think about it - use Module Builder to, for example, extend Sugar into HR and you need not

a) Pay for a new system and minimum user licenses

b) Pay additional professional services costs to customize a new system

c) Train admins (and eventually end users) on an entirely new system

d) Perform tricky (and costly) integration work to get a siloed HR application to talk to your CRM system

I see Module Builder having a definite learning curve. But once people “get it” and see how Module Builder can extend the SugarCRM platform, allowing for totally connected departments on a ubiquitous user experience (that supports full cross-departmental reporting and process flows) - we are really gonna see people take the concept and run with it. Module Builder also allows SugarCRM’s partners to get creative as well, building strong packages to extend the core platform and build out a niche business for themselves reselling these customizations in vertical and other geographic markets.

Seriously, the limit =

I just spoke with a European customer of SugarCRM today about their deployment of Sugar Professional. The customer, a European telecommunications provider, spoke heavily about the importance that data, and data migration between applications and an underlining infrastructure, plays in any CRM initiative.

The company, which used an ad hoc collection of systems for its customer service, relies heavily on a data warehousing solution to transfer records and customer data between its service center and its CRM solution for sales and marketing. As their senior analyst described to me, the selection and implementation boiled down to the ability of the new application to import that data securely and correctly…”giving us piece of mind.” This paying point was critical, as it would determine the success that management and analysts would have in querying and analyzing the proper data.

For them, the choice was easy, SugarCRM. And as my colleague describes below, these necessities also almost entirely eliminated any chances that a SaaS offering would be selected.

The old adage that “data is the lifeblood of any CRM solution” certainly spoke volumes for this customer, but also speaks volumes to the fact that businesses require flexibility when it comes to deployment options, whether it is on-site or on-demand…or a combination of both.

I just read an interesting article on SaaS CRM over at destinationCRM.com. The article notes that while SaaS an have a lot of benefits to a company - low risk, fast deployment, little IT overhead needed, etc., there are some downsides.

One of the major downsides the author claims is the “lost opportunity” value of the CRM system that can happen in SaaS deployments. This point is most interesting:

SaaS may actually impede the ability to realize full entitlement to CRM value. The cost is not a direct cost, but rather an opportunity cost in terms of lost CRM benefits, at least for enterprise-scale organizations that can afford on-premise solutions and might therefore be able to achieve greater CRM benefits from the greater functionality available from those solutions. For these organizations, the choice of SaaS may postpone or even prevent the realization of substantial benefits in terms of internal operations or customer experience.

Now, in a traditional multi-tenant SaaS CRM deployment, this is 100% correct. The customization capabilities are far inferior to on-site deployments. SugarCRM’s On-Demand is multi-instance, and does allow for greater customization capabilities. But, and this is important, there is no substitute for on-site control of the data and application.

But it really comes down to business need, buyer choice, culture, etc. While there are a lot of technology arguments for either side of the SaaS/On-Site debate, it all really comes down to the customer. What does the customer want? What works best for the customer? Now, and in the future.

So, SugarCRM has worked hard to bridge this gap - to offer a next generation SaaS offering, as well as give users total control with our Sugar On-Site software versions as well. (And if the future brings change for a customer - they can always switch, something that can not be taken lightly given that no other CRM vendor offers such a simple migration between SaaS and On-Site, if there’s a choice at all.) It isn’t easy, and in fact requires a lot of work and even more effort in the customer service side of things, but we feel it is worth it.

Like I said, a CRM system can not be all things to all people. And for some companies, they are locked in to being just one thing - be it a SaaS or on-site software offering. Good timing, and some smart forward thinking from our founders, SugarCRM is able to provide two very strong options for the varying needs of businesses seeking CRM.

If there’s ever an industry bedeviled by the inability to standardize for the betterment of the customer, it’s the telecom sector, and today’s news speaks to that. As first reported by the Wall Street Journal, Deutsche Telekom AG, the provider of T-Mobile USA, is considering a possible purchase of Sprint Nextel. Such a purchase would propel the German giant to the No. 1 position within the U.S.

But as is usually the case with mega mergers like these, does the end result really benefit the customer? The answer is rarely ever a “yes,” and certainly doesn’t appear so here.

Sprint Nextel has a well-documented history of providing poor customer service, and when combined with a T-Mobile provider not known for providing the best wireless coverage (but stays creative with the latest devices), it begs the question would the bulked up company keep its appeal?

Both providers operate on disparate wireless networks, which would have to be integrated, as would management and operations, etc. Ala the airline industry, which is ripe with talk of consolidation during a time of economic difficulties, it seems that many consumers have a hate/hate relationship with their telecom providers, and it doesn’t seem like merging big business is necessarily the answer.