Open Core: The worst of both worlds

by Sander Marechal

A lot has been written recently about so called “Open Core” software ever since Andrew Lampitt coined the term back in August of 2008. Many analysts have been critical about it, such as Richard Hillesley from The H Open in his recent article “Open core, closed heart?”. Many are also very positive about it such as Matt Aslett from The 451 Group. However, I think that most them are missing the elephant in the room: Open core is not sustainable in the long term because it represents the worst of both worlds. Open core tries to find a middle ground between proprietary software and free software, but it reaps the benefits of neither and inherits the problems of both.

Let me show you by example. SugarCRM is one of the more popular open core software products available. The company offers the Community Edition for free under a GPLv3 license but also offers a Professional and Enterprise edition under a proprietary license. SugarCRM has been around since 2004 but it is already showing many signs of not being sustainable.

Proprietary versus Free Software

Proprietary and Free Software are developed and commercialised in totally different ways, each with distinct advantages and disadvantages. Feel free to skip this part of you are thoroughly familiar with it.

In the proprietary world you develop your software in-house and sell licenses and support contracts to your customers. You bear 100% of the development cost yourself but usually the license sales alone generate much more revenue than the service contracts. The real trick is getting people to buy or update. Usually that means adding features to the product so it becomes more attractive. This way new customers will choose your product over the competition and your existing customers will part with their cash for new licenses to get the updated version. This also means that proprietary software has feature creep. Over time, more and more features get added to the product to stay ahead of the other proprietary vendors. This happens at the cost of quality. Developer resources are limited and with the pressure to add features, bugs go unfixed and corners are cut.

Over in Free Software land it is very different. The source code and the entire development process are completely open and aside from the in-house developers there is a community of external developers working on the product. This is why much free software is of such high quality. There are plenty of resources to fix bugs and to get it right. But making money from it is much harder. It’s mainly about support contracts which generates less revenue than closed source license sales. Also, customers don’t need so much support thanks to the high quality of the software itself. There is also the risk that someone can fork the project. This is great for the software itself but not so great if you are a business that is trying to keep its customers.

The “middle road”

Let’s see how his works for open core and specifically SugarCRM. If you go to their website you can download the latest SugarCRM Community Edition for free under a GPLv3 license. You can also see that it lacks many features that the Professional and Enterprise version do have, such as team management, advanced reporting and an Oracle back-end. What you will not see however is a source code repository or developers mailinglist or forum. SugarCRM is developed completely in-house with no community involvement. They have a patch submission form but when that went down it took weeks before SugarCRM noticed it. That not only tells you how much SugarCRM cares about patches but also how many people use that form to submit a patch.

What simply happens is that SugarCRM develops a new version of their system and they throw the code “out there” as a teaser so that people will hopefully shell out for the Professional or Enterprise edition. SugarCRM generates revenue in the same way as a proprietary vendor: by selling licenses. That means it is on the same feature treadmill as proprietary software. It needs to keep adding features to stay ahead of the competition and to make people upgrade.

So far this “Open Core” vendor looks suspiciously like a proprietary vendor. But the problem only starts here. SugarCRM does have quite a developer community around it, but it is not working on the open core part. It’s busy building add-on modules, plugins and offering customisation and support. One of the things this community does very well is creating add-on functionality that provides the features normally found in the Professional and Enterprise editions, such as team management and advanced reporting.

SugarCRM has to compete feature-wise not only with the competition but with their own developer community as well. They have to add new features to the Professional and Enterprise editions faster than their own developer community can re-implement them as add-ons to the GPLv3 edition. If they don’t then their customers will switch to the free Community Edition, which is very likely since the Professional and Enterprise licenses need to be renewed every year and they are not cheap. It’s like the feature treadmill of proprietary products but in overdrive. And it takes a far larger toll on quality… and it shows.

Buggy, buggier, buggiest

A quick look through the SugarCRM forums and bug tracker can confirm that this is exactly what is happening. New Sugar versions are appearing at a rapid pace with ever more features while the bugs pile up and never get fixed. users keep asking for more quality control and an opportunity to fix bugs themselves by opening up the development process but this is not happening. And it’s not small bugs that go unfixed. There are bugs in the currency formatting that have existed since version 4.2 from 2006 that have still not been fixed in the latest version. This bug causes the financial forecast to be off by several orders of magnitude. That is a critical part of sales force automation.

As a PHP developer I can testify that the quality of the SugarCRM source code is low. I am reasonably familiar with the source code, having deployed it on several locations and having developed custom modules for it. The source code is as bad as old PHP-Nuke versions, full of spaghetti code, hard-coded special cases, inconsistent design and lots of bugs.

SugarCRM is not just an exception here. Even open core projects that do have a more open development model, like Alfresco suffer from quality problems.

The bottom line

In the end open core software is driven by the same incentives as proprietary software is. Therefore it suffers from the same problems: too much focus on features and too little on quality. That’s the downside of proprietary software. But it also inherits the problems of open source software. Because of the open source community editions you have to worry about forks taking your customers (e.g. vtiger). To top it off they also need to compete against their own developer community who will reimplement the closed enterprise features as add-ons for the open source edition. This magnifies the problems caused by the feature treadmill and leads to a rapid decline in quality.

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#1 Matt Casters (

I'm as big an open source fan and advocate as it gets, but taking one or two companies in a very specific overcrowded market (CRM SaaS) as an example and then drawing very wide conclusions from that is a bit over the top.

The thing is, if you look at the situation in open source business intelligence, it's completely different. Over there, we have many pieces of the complete "solution" puzzle where the community has not stepped up to the plate yet. Commercial open source makes sense in that situation as a way of providing complete solutions at a very attractive and competitive price point.

I also think what matters is that not all open core concepts are the same. Many open core companies (like Pentaho) build on top of an open source company and actually improve and promote the open source project. Others put in restrictions to make sure that the open source project doesn't compete with any closed source additions. I guess this is where I agree with you that you inherit the worst of both worlds.

What is also a differentiator is the way company resources are spent in the development of open source software. Is open core helping the project in case or not? In the end, look at the amount of software that is being released as open source. Would it be the same, more or less compared to when the company wouldn't be there?

All valid questions and relevant parameters. Business models, markets, viability, etc are all way to subjective to draw any conclusions. The only thing I can say is that Pentaho as an open core company doesn't have any complaints whatsoever in that department.

As such, I think the title of the post "worst of both world" is highly over the top and wildly incorrect. In fact, in the case of my employer the exact opposite is the case as I'm sure for many other open core companies.
Don't get me wrong, it might very well be that in 10 years time the dominant force on the software market is open source, but until then it makes sense (in a lot of cases) to create formats like open core that combine the best of both worlds.


Chief Data Integration at Pentaho
Kettle founder

#2 Anonymous Coward

Open core can work just fine.

It just doesn't work with copyleft. You use GPL licenses in your example.

Read this:-

It basically described the open core scenario, and did so almost a year ago.

The FSF must, and eventually will, die.

#3 KeithCu

Interesting analysis, Sander.

I agree that it can be the worst of both worlds if the code is expensive and buggy.

Another example of open core might be Red Hat, which is getting its ass kicked by upstart Ubuntu. Deciding what is a part of the open core and what should be proprietary is a very difficult thing to do.

#4 Sander Marechal (

@Matt: I am not really familiar with Pentaho. By the looks of it, it's not really "standard" open core. With Pentaho it seems that you don't pay for enterprise licenses but for enterprise level integration services and support. More like Red Hat than like SugarCRM I'd say.

@KeithCu: Red Hat isn't open core, it's fully open source. You can download all the Red Hat code, recompile it and get the exact same thing for free. That is exactly what CentOS is doing with Red Hat code. Now, perhaps Red Hat is getting it's ass handed to them by Canonical (I don't see it, but suppose) then it has nothing to do with what I descibe in my article :-)

#5 Anonymous Coward

Change the name already.

Googling "open core", the first two hits were for "". This is a site that deals with open sourced hardware, typically written in verilog or VHDL. Think "core" as in "CPU core".

#6 Johnny Hughes (

In what alternate universe is Red Hat getting their ass handed to them by Canonical?

Red Hat started 2009 with a stock price of $7.50 USD per share ... it is now at $28.05 USD per share. In the latest Red Hat quarter:

Total revenue for the quarter was $183.6 million, an increase of 12% from the year ago quarter. Subscription revenue for the quarter was $156.3 million, up 15% year-over-year.

Canonical has yet to "make money". Someone put money in a pot, designed a distribution and put it out. The founder of Canonical thinks that in 2-4 years Ubuntu MIGHT become profitable.:

If you are only looking at installs of Free Software ... and if you add CentOS and Fedora ... then compare to Ubuntu, then it might be a close number.

If you look at enterprise adoption or Hosting providers though ... CentOS + RHEL + Fedora compared to Ubuntu, it is not close.

#7 Wayfinder Wishbringer (

While I appreciate the candidness and heartfelt viewpoints of the author, I do find the general tone to be overly pessimistic. It takes the worst concepts of retail software and ignores the successes of such.

I agree that often "feature creep" (good term) tends to creep in... and sometimes the updates aren't as good as the prior versions (one primary example is the jump from Adobe Elements 5.0 to 6.0-- with 6.0 being a vastly inferior and less-user-friendly product). Another example is Micro$oft, which often "upgrades" their products with total disregard to the needs of the customer. I can think of no better example than Windows ME and Vista, upgrade monstrosities if there ever were.

However, many updated products are good quality, and actually benefit the end user. They are not always laden with bugs-- many companies out here actually know what they're doing. In fact, most commercial companies seem to know what they're doing-- so much so that Linden Lab (Second Life) stands out like a sore thumb in the realm of botched upgrades and badly-performing software. Most software I use works just fine.

The article also over-stresses the value of open-source software (something I see repeatedly). Bottom line, open source is a wonderful community resource. But it is prone to over-working and tinkering and is often fractured into "sects" of user opinion (the prime example being Linux... which has its greatest weakness in the numerous differing versions out there, all vying for position as "the" Linux of choice).

Open Source is also impractical for business. Once the source is out there, customers have no real need to upgrade and piracy becomes rampant. Companies that have tried to integrate Open Source into a profitable structure have largely failed. Once the product is out there, people stop buying and instead start trading compiled open source code. This is not always the case, but is enough of a problem that professional software companies realize it just doesn't work.

Financially, it is proved that the best way for a company to release software is via standard retail market. The greatest boon to that in past years has been the web. But the web has become just-another-flooded advertising medium. The real key is producing a piece of software that is good enough to gain an excellent reputation... which is of ultimate benefit to both customer and company.

#8 Richard Chapman

@#2 Anonymous Coward

"The FSF must, and eventually will, die."

What kind of nonsense are you talking about? The FSF is the trunk of the tree you on your open core branch are sitting on, along with Open Source. If the FSF dies, you die.

#9 Matt Casters (

Pentaho is "open core" by any definition.

Foe example, there is currently no top notch open source OLAP viewer so we just bought one in and provide it to our enterprise edition customers ONLY. At the same time we do promote open source projects that aim to write a tool to do just that. But until that time, open core makes sense a lot of sense.


#10 zman58

You said,
"Companies that have tried to integrate Open Source into a profitable structure have largely failed."
This is not any more true for open source than it is for proprietary. So we can say that companies that have tried to integrate proprietary software into a profitable business have failed in large numbers. There has been many along the road to ruin.

Now moving back to open source now; What about RedHat, IBM, Yahoo, Amazon, E-bay, AutoZone, Mozilla, and many other profitable business that have leveraged and used open source very successfully to their profitable advantage. What about me? I use it to my advantage and it saves me big money on a much smaller scale. So enough said about how open source is not profitable because if you look at it.

We might also include Microsoft in that mix, in it's own very special way, because they do not pay license fees for the software technology they use either--so it's open and free to them. They get others to pay for it while they use it for free. Talk about finding foolish customers who are willing to pay, and for what? So they can keep changing it for nothing more than the revenue and to keep stringing along paying customers. A very sad situation indeed.

#11 DriverDevel

Definitely seconding #5 - name change required!
When encountering this news item, I fully expected the content to be some bitching about the opencores project.

#12 Jonas B.

I came to see why open hardware was an unsustainable business idea, but apparently you made up the term and mean something completely different?

Sugar, Zimbra etc. use FOSS just like a freeware entry level offering. And that's ok. It's even better than than because the freeloaders gets to keep the source if the company folds. It's just not a _free software_ business idea.

Of course, I and many others would prefer a free software model, but that's not the case here. If the respective products are bad or good has not much to do with the business model, a lot of the non-free software out there has quality problems.

As none of this has anything remotely to do with open cores please stop pretending that it does.

#13 Sander Marechal (

I didn't muddy the waters by coining the term Open Core for this kind of software licensing. Talk to Andrew Lampitt about that (first link in the article).

FWIW, I think that is a great project.

#14 Anonymous Coward

@Wayfinder Wishbringer:
"Once the source is out there, customers have no real need to upgrade and piracy becomes rampant."

Do you even know what that word means? It's not piracy if the code is legally copyable by anyone.

#15 James Dixon (

I agree with Matt that making sweeping statements about a whole business model based on the actions of only one company is ridiculous.

But I like the fact that you name the company you are talking about. Many bloggers talking about the open core model make judgmental comments without naming who they are objecting to.

SugarCRM has a new CEO, Larry Augustin. Larry was part of the group that came up with the term 'open source' and he started Maybe he'll open things up a little.

James Dixon, CTO, Pentaho

#16 James Dixon (

A post about recent changes at SugarCRM:

With Larry Augustin at the helm at SugarCRM I would not be surprised to see other changes around community engagement and interaction.

#17 Sander Marechal (

I hope the both of you are right about Larry Augustin. It will be a lot of work though. The most important thing they need to do is open up the development tree and repositories to the community. That means splitting off all the Pro and Enterprise functionality away from the main development tree and into separate add-on packages.

Only when that has happened can the community really help fix the bugs in the core.

#18 Loek van Gool (

I somewhat agree with Sander on #17, although I do notice that there are *no* pure FSF-style projects known to me who can be classified as just suitable for business usage. Please read this carefully when anyone intends to respond.

I've always focused on the technical side of Sugar, because that's where the community magic tends to happen on open source projects. The idea of making all Pro/Ent functionality installable with a few (non core-hacking!) packages would be a tremendously big and useful exercise by Sugar and would require a lot of very much needed trashing of crap in the core.

#19 Sander Marechal (

@Loek: Define "pure FSF-style project". Do you mean projects that are fully open source? No closed source "enterprise" components? A few come to mind. Red Hat is fully open source and makes a ton of money. Digium/Asterisk are doing well too. The open source version of Asterisk is the same as the pay-for enterprise version. Only the license is different. The same goes for MySQL.

Business software is the perfect place for pure open source projects because businesses always want support and customisations and they are willing to pay for it. Making money off Joe Average end-user software is much harder with open source.

As for the community magic in SugarCRM, currently it's all focused on add-ons and client-specific customisations. There are no core improvements coming from the community and I think that's a missed opportunity. I really hope Larry Augustin fixes that.

#20 Loek van Gool (

@Sander: You are right about your examples. I shall try to explain myself a bit more. There is no FSF-compliant project that I know of, that:

1. Is only suitable for business use
2. To make (1) clear: Projects that have no use for individuals, like a CRM system (RH, Asterisk, MySQL are all usable for end-users as well, a place where I think most of their free resources reside)
3. Have no closed source nephew ran by the same or an adjacent company
4. Are successful (vTiger's, although it passes (1), (2) and (3), is not what I consider as having a lot of contributions from the community

#21 Sander Marechal (

OrangeHRM. There is no closed pro/enterprise version. Instead, the company sells support contracts and hosted versions of it's software.

#22 Loek van Gool (

Didn't know that one :), will check it out!

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