SM: The situation you described is not a pretty one. Why did you do it? Did you have any idea how you were going to make money?
JR: We just believed. It was pretty early on. We did not know how we would make money. We hoped to be able to create a commercial version, which we did. We only wanted to do a company if people felt the same way about the code that we did. We wanted them to like the direction of the software and our approach as much as we did.
SM: What was unique about your approach?
JR: We chose to write really good code because we knew people would be reading it. The next piece was us going out and telling people about our CRM and how it would allow us to take on Oracle and SAP. When people found out we were OpenSource there was hesitancy.
SM: What was your VC pitch?
JR: Sugar is a human interaction platform. It helps people manage their interactions with each other. Most people use it for managing sales, support and marketing. I believe there are 5 million companies in the United States, 6 million in Europe and another 30 million in China. This market is just beginning. Today it is dominated by the wealthiest of companies, although it has gotten somewhat broader by Salesforce.com and others. Our software is valuable for all of humankind and can be used by nonprofits and others. The population of users is huge.
The idea was to OpenSource license everything we put out there, and if we were able to build some common interest the bottom line would take care of itself. That is what we focused on. We told the VCs that the market was changing and the web was leading the way. Our stance is that the way people buy software is radically changing and will continue to do so over the next 10 years. Companies are asking more questions about the development process and restrictions regarding proprietary software. Writing software in a collaborative manner and being open in the way it is done can be successful. Wikipedia started the same way.
SM: Yet Wikipedia is not a venture-funded startup. If I were a VC investing in Sugar, how would I monetize my investment?
JR: The customer relationship market over the past 20 years has generated 15–20 public companies. It will continue to do so. The lifespan of those companies is about 10 years.
SM: True, but my question is what is your business model?
JR: We have one common source code tree, and we tag the source code by addition. During the build process it splits out three different editions. We provide the source code to everyone. The three editions are Sugar OpenSource, otherwise known as the Community Edition, which is totally free. The second edition is Sugar Professional, which is sold under a subscription similar to RedHat Enterprise Linux. The difference is we own the copyright. We provide a one-page commercial license that says not to redistribute it. We also have our Enterprise Edition, which has about 25% more functionality. It also comes with support and training, both on-site and on-demand.
SM: What percentage of the business today is on-demand?
JR: Twenty-five percent.
SM: How does it split among your three versions?
JR: We do not host our free version.
SM: How about in terms of the licensed piece; what does that split look like?
JR: We have over 50,000 users running Sugar every day and over 500,000 users in just four years.