Can open source CRM deliver on its promise?

With many CRM components becoming commoditized, open source vendors have their work cut out for them in providing a viable alternative, analysts suggest.

Open source CRM, while starting to capture some headlines and industry attention, still has a tough road ahead

in capturing market share, according to analysts.

"Open source CRM has the same challenge as any other CRM entrant, which is you're going into a mature market," said Erin Kinikin, an analyst with Cambridge, Mass.-based Forrester Research Inc. "We just saw a bunch of small CRM specialists get acquired. Why start with another small CRM vendor? The open source vendors have to justify why they're a better solution, not just a cheaper solution."

Yet it is on the issue of price where open source vendors are winning their deals.

"Government is probably the one with the most interest in open source CRM," said Esteban Kolsky, an analyst with Stamford, Conn.-based Gartner Inc.

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Thanks to its low cost and the vendor independence, government agencies as well as education organizations, are turning to open source. Small and midsized businesses are also among the early adopters. Larger businesses, however, are leery.

"The enterprise-level people, they don't want to touch it," Kolsky said. "They're scared by the lack of support. There is a trend to go more into build-your-own components, but most of those guys are far from being open source."

The maturity of the CRM market may actually end up boosting open source on the lower end of the market in one case. As CRM functionality becomes increasingly commoditized, pricing comes down. This is where license-free software can become attractive for companies looking for applications like basic sales force automation or a help desk tool.

"The challenge is, in an improving economy, whether commodity CRM is good enough," Kinikin said. "The value of CRM is in analytics, cross-sell optimization and customer data integration. The open source CRM vendors don't really play in that."

Buyers should also be aware that while one of the attractions of open source CRM is the promise of customization, that can be a double-edged sword, Kinikin said. That could increase maintenance costs and require a more highly involved IT staff, contrary to the current trend in CRM implementations toward fast deployments and business users configuring the software.

There is greater potential for an open source application that can be both hosted and brought on site, Kinikin suggests, a weakness for many of the hosted CRM vendors.

The open source movement has followed a classic technology progression from operating systems to foundational components like Web servers, application servers and e-mail. The question, Kinikin said, is whether it can move up the technology stack to provide more compelling applications. Organizations don't buy applications by the dozens or the hundreds like they do with servers. Open source needs to find a CRM problem that's distributed enough where it's worth it to save 50% on a hundred different deployments, Kinikin said.

"The reality is software costs are only 10% to 15% of an implementation, while the cost of doing it wrong is 100%," Kinikin said. "I'd like to see a better mousetrap, not just a less expensive one."

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