Peak Oil Prices and Proprietary CRM Vendors

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…