We all know that gas prices suck…and we know energy costs are going to affect everyone in foreseen and some unforeseen ways.

But I have been thinking a lot about open source, SaaS providers, and the older sales models of many proprietary software vendors. A lot of these companies are still depending on the older enterprise sales model: lots of on-site visits with customers, time on airplanes, rounds of golf, etc. And as airlines continue to jack up pricies (and maybe even go under en mass in 2009 and beyond) this model will get increasingly expensive and start to hit bottom lines of public companies in a major way.

I expect major year-over-year comp losses for a ton of software vendors in 2009. And there is no simple solution in sight for a lot of these players. Their cost of business is going to be prohibitive to profit - plain and simple.

Some SaaS providers may weather the storm a bit better - it’s an easier model, less risk, etc. BUT…the SaaS players that still sell via a the older sales models will wind up dropping their pants on subscription prices to land deals. And SaaS subscriptions are not like a packaged CD of software - there are continuing operating costs associated with the model. Setting up what amounts to a recurring discount hurts the vendor in the end…operating at a loss can be disastrous. I have already seen a few open source aggregator firms try to sell very cheap CRM and related apps - only to go under when the tiny subscription fee did not equal enough to keep the lights on.

It will be interesting to see what happens to enterprise sales forces in the coming year. Costs will skyrocket, making it harder and harder to generate strong margins for public companies.

I like SugarCRM’s chances here. We have built up a strong working model based on a pull methodology - and customers are given great service and a strong product - without a lot of salespeople flying to their office to shake and hold hands through the process.

And who knows, soon the only way we may head to an on site sales call is if our CEO John Roberts takes us there on his sailboat…

Sugar Sales reps on their way to closing a deal in 2012…

I just completed work on a small bylined article that I’ve written for a European publication about SugarCRM and how our product offerings are well suited for the small- and medium-sized business (SMB) market. Whenever I read about CRM for SMBs two paying points usually jump forward: price and Microsoft integration, both of which are obviously important; limited IT budget for the former and that fact that most SMBs are usually operating Windows on their computers (if not personnel computers) for the latter. But what about deep functionality and customization capabilities?

Typically, industry pundits and experts state that the functionality sets inherent to an enterprise CRM application aren’t found, or really needed, by SMBs, and that the customization/integration capabilities aren’t required because they don’t have the IT department to build or support such links. I disagree, as it flies in the face of everything I’ve seen here since joining SugarCRM (and for that matter the industry four years ago), has I’ve spoken to literally dozens of SugarCRM SMB customers who are doing exactly that.

Part of the problem is simply superficial. Too many industry pundits judge SMBs on employee count alone; the industry or nature of one’s business can mean that the IT department is forced to support enterprise-type software deployments and rollouts.

Thankfully, now more than ever, such requirements can be meet at a fraction of the cost, thus making such capabilities open to SMBs. The limitations of the old-school SaaS model and proprietary-based software of a decade ago has resulted in new development models, such as Web-based platforms, multi-instance architectures, and open source…and that means enterprise-like capabilities at SMB prices and expertise.

I have had my head in the Sugar Wireless 2.0 upgrades for the past week or so, doing some demos and other work around the enhanced capabilities. So, when I saw this primer for Mobile CRM at My Customer.com I was glad to see that people are getting it more and more when it comes to extending applications into the mobile realm in their organizations.

This point rings the most true:

How quickly can the software be installed and fully functional? Can it be ready in hours, days, weeks or months? Does the mobile system need specialised consultants for implementation and ongoing support or does it utilise commonly available IT skills? What will the day to day administrative impact be on the supporting IT department? How easy is it to add users after first implementation? How easy is it to replace a lost device for an existing user? Be sure you know what you are buying before you make the commitment.

A lot of good questions there…and Sugar Wireless is built to answer these questions with resoundingly positive answers. The fact that our wireless capabilities are bundled and automatically set up when accessed by a mobile device makes implementation time a big fat zero hours…and the fact that most customizations are supported down the line into mobile access make additional IT expertise unnecessary. Cool.

Intelligent Enterprise poised an interesting question in this article it ran last week: How can you integrate SaaS solutions with on-premise?

Companies such as Cast Iron and Boomi (mentioned in the article) are both great at accomplishing what they set out to do: integrating solutions with other solutions of preexisting partners. Yet in the end, the CIO is stuck with another proprietary-based application or piece of hardware at the middleware level, and no option of flexibility if the solution they have isn’t already partnered with the system integrator.

Sugar has already had customers accomplishing these integrations since Sugar On-Demand went live; leveraging open source partners such as SnapLogic only makes the integration that much less work.

If IT departments are going to truly customize and build the mashups, modules, and Web applications the article refers, the only true answer is open source. The first generation of SaaS solutions failed thanks primarily to their inability to scale, customize, and integrate with other back-end applications, either on-demand or on-premise. As a result, it lead to new development models, such as the mashups the article mentions, but also cloud computing and PaaS (or platform-as-a-service). But it will be open source that will be in the vehicle by which the next generation of SaaS platforms will deliver their results.

After all, it’s no coincidence that many of the other CRM SaaS providers mentioned in this article already leverage open source at the infrastructure level to provide the very services that companies like Cast Iron and Boomi are trying to integrate.

Do you really want to add yet another box to an infrastructure that looks something like this:

Sharon Mertz, a long-time industry analyst at Gartner, released her firm’s yearly market forecast report for CRM. All-in-all, it spelled good news across the board. As was to be expected, SaaS was the big market driver, with sales increasing 23 percent in 2007.

You can get all the details here; but I took particular note of the fact that Gartner found social networking and related technologies as a trend driving the CRM market. While a somewhat obvious conclusion given the media attention given to this emerging technology, it’s nice to see Gartner recognize this trend as customers look towards vendors to provide them with solutions that assist in proactively channeling the power of social nets into successful CRM strategies.

In addition, I was surprised to read that the increase of CRM in the Middle East/Africa and Eastern Europe regions saw growth rates in 2007 of more than 40 percent. With the increasing rate of former Eastern Bloc countries now joining the European Union, I’m not surprised to see that region beginning to experience such growth, but the Middle East/Africa came something of a surprise. Then again, we have members of our open source community working on various additions/customizations to SugarCRM on every continent…therein the power of the Internet.

I was disappointed that open source applications weren’t listed as an emerging trend, but then again, with social networking, Web 2.0, cloud computing, and whatever other next generation CRM term you’d like to throw out there, all being powered by open source, it doesn’t really have to be.

I believe that market sizing surveys and reports have a value. In a competitive world, it is good to make benchmarks in terms of what your rivals are up to - how well they’re performing, etc.

But some market estimates make no sense to me. Merrill Lynch recently put together a market report stating that it believes the Cloud Computing market (whatever that is) could be a $100 billion market in the next few years.

Awesome.

But, what exactly constitutes this market? Merrill put together a chart, which makes very little business sense to me in terms of a competitive market analysis (or any type of analysis):

So, how does anyone involved in this chart get ranked, learn about competitors - or for that matter even learn who is a competitor or potential partner?

The Cloud Computing, for lack of a better term, market is still very nascent, and I don’t think anyone has a true grasp on what it really means to be a player in this space. And by simply adding up revenues of existing players who have had their CEO rant about “the Cloud” does not make up a market segment.

Working for a company that competes with at least two vendors mentioned on this slide, I’ve learned nothing about my market segment. Does SugarCRM have aspects that make it a cloud computing player?  Of course. But, SugarCRM is still dedicated to providing great applications - regardless of deployment model - to our core customers. We are not treating anyone like second-class citizens as we chase the nest buzzword in order to stay a Street favorite.

I have been reading the blogs by the editorial staff at 1:1 magazine a lot lately.  Some good stuff.  A nice post this week on what’s new in terms of contact center managers’ priorities. These two items jumped out at me:

Managers want to use e-learning modules for training, but are torn about taking agents off the phones to train.

and…

Daycare workers (college educated moms) and retirees are becoming the hot new workforce in contact centers.

To the first point…there are a few learning tools that are designed to integrate learning int the daily tasks of a sales agent. Knowlagent and other vendors have been pushing these for some time. BUT…without a truly flexible and accommodating CRM front end, these tools are hard to embed into an agent’s desktop environment without a lot of tabbing around, etc. There are some CRM tools, however (cough cough SugarCRM cough cough) that can embed these easily, as a home page dashlet for example.

As to the second point - I like that we are moving away from offshore outsourcing and thinking about call center staffing in more inventive ways. Having “on shore” staff that have total language control and more call presence will surely up satisfaction levels. And with the new SaaS and other web-based telephony and CRM software (cough cough Sugar On-Demand) - home-based agents are not limited in any way.

I think it is a good time for call center managers to really shine in any organization - in this economy, retaining customers is paramount, and we all know it only takes one bad call center experience to sour a once-loyal customer…

Bill Synder of CIO magazine had an article he recently wrote on open source CRM published today. In it, he highlights a point that my colleague spoke about yesterday: the lingering resistance that many C-level executives have towards allowing open source into the enterprise at the application level.

There’s still plenty of CIOs unsure of the licensing, publication, and ownership rights surrounding the open source model, and in their defense, rightfully so. In the past, the open source market has suffered from a lack of consolidation and standardization of these practices, but fortunately, things have changed.

As Evan Wroten of Interact Public Safety says in the article, the key lies with gaining a firm understanding of the licensing model the vendor operates under, and making sure you understand the value proposition and flexibility that comes along with owning the source code…because while open source might seem like a radical alternative to the proprietary model, it really isn’t. In reality, it’s actually more straight-forward and far easier to work with.

I just came across a nice “top 10″ list for companies to follow for successfull CRM rollouts at Inside CRM (gotta give credit where it’s due - thanks Chris).

A lot of this is no-brainer stuff for those seasoned in CRM, but I think this is a good standard.

The points are solid and good reminders, or points to follow, for anyone.

The most important is:

Just because you’ve successfully implemented your CRM program doesn’t mean you’re done with the effort. Relating to your customers is an ongoing process, and so is working with and adapting the CRM application that supports it.

While Salesforce.com and other companies (SugarCRM included) were busy growing at triple digit growth rates via a subscription model, a lot of established vendors kept their distance.

And even when companies got into a subscription model, it was closely tied to their SaaS offerings. Some people, sad to say, still feel SaaS and subscription revenue models are inextricably linked. Large companies toyed with both SaaS and subscription models mainly in the SMB space - continuing to rely on big ticket license sales in the enterprise.

So it is a bit of fresh air, and at the same time no surprise to me, that Microsoft has extended its subscription services for even its largest clients. The company has had some sub models, but it seems to be building out a model where - gasp - users can increase or decrease their software scenario over time.

Mind boggling.

I am a firm believer that the tables have turned, and that the software provider MUST prove its value in order to continue receiving a check from those using its software or services. That is where open source will continue to be a winner - even in SaaS scenarios - since companies will be able to clearly identify value and make investments as such. Risk is mitigated - since the company can always try to go it alone without a commercial version or commercial support, etc.

Oracle, Salesforce.com, SAP and Microsoft are not anywhere near this level of a value-based model. But things are moving in that direction. The next 24 months will be an interesting time - as SaaS and open source continue to converge and become a highly disruptive force to any player who is not involved in both sides of that equation.