Overheard: SaaS and Open Source: Brothers in Arms

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With similar agendas and challenges, there’s more in common with these models than you think

Jeff Kaplan, managing director at strategic management consultancy THINKstrategies

How are the open source and software as a service movements related?
The open source movement has been a pivotal part of the emergence and evolution of the SaaS marketplace in a number of ways. First, open source technologies are key components in the enablement stack of SaaS solutions. They’re especially important because one of the primary appeals of SaaS is its low-cost, pay-as-you-go pricing model. This means that a SaaS provider has to do all it can to economize on infrastructure to support those applications, and open source is a way to do that.

How else?
A second area is the SaaS business model, which suggests a freemium [pay for greater functionality] approach like open source is using. A lot of SaaS companies start with a “try and buy” idea that people can get used to and then upgrade to a premium version, the same thing people are accustomed to with open source. A third area, which may be the most exciting, is around community. Almost every successful SaaS vendor is doing its best to emulate the success of open source providers that have built communities around their base. The idea is that these communities of users will contribute to the ongoing evolution of the service itself through best practices, through dialogue about enhancements, and adding and contributing their own toolsets.

Salesforce.com sounds like an example.
Salesforce is the 800-pound gorilla in this space. It builds the AppExchange around the open marketplace ideas driven by APIs [application programming interfaces] as well as the Forge type of marketplaces we’ve seen in open source. They encourage end users and partners to contribute objects they’ve developed to their reservoir of capabilities for other customers to take advantage of. All of that is really built on the best practices of the open source movement.

Can the same tactic be used by conventional software vendors?
Maybe not directly, but certainly around the concepts open source has fostered. In BI [business intelligence], the most obvious is probably Crystal Reports, which is now part of SAP, the irony being that SAP was one of the most reluctant software vendors to address SaaS. Yet they bought Business Objects in part because of its emerging SaaS unit built around Crystal Reports. That’s really a community service where people can take templates, build things and contribute them to the library in return for other things.

Will big proprietary vendors want to compete on equal terms with SaaS and open source?
On services, certainly, and what’s even more likely is that some of those big-time players are going to end up acquiring open source players. They’ll blot them onto their overall portfolios and use them to accelerate their own transformation into this brave new world.

There now seems to be no barrier to entry for a startup using, say, an open source application, Amazon Web Service hosting and an open database like MySQL.
Exactly. The barriers to entry have gone away entirely and that scares the daylights out of the established players. The Web brings a huge audience, and once you have something to offer, there are various avenues to find a ready-made audience for your solution. You can do it from anywhere. If you appear reputable and people can measure the risks associated with taking advantage of what you’re offering, you can build something. It’s an unbelievable time as far as that’s concerned. The good news is, any entrepreneur can start up with minimal capital and get immediate traction if they’re willing to give something away to start in that freemium model. The bad news is that commoditization is leveling the field for everybody, including the entrepreneur, and there are 100 entrepreneurs coming out every day.

Are we underestimating the importance of service and support when we get excited about SaaS and open source, and won’t that need to improve?
The glass ceiling in all of this is about support, and even Google and Amazon are contending with this when trying to penetrate the enterprise. Nobody doubts whether their technologies work, but there’s a lot of apprehension over whether those vendors are going to be responsive if something breaks. That is the key. No enterprise, not even a small company, will put too much of their business in the hands of any company, Google and Amazon included, unless they’re dead sure that there’s a 1-800 number and a knowledgeable person at the other end.

You’ll open your wallet for that too.
Oh yeah, you’ll pay if you don’t get support, so you know you are going to need it, even if it is just an insurance policy. So the irony in the marketplace is that the IBMs and the HPs of the world are going to be in an interesting position to maybe usurp some of the momentum. They may not have the best price or even the best technology. But they can offer the greatest confidence if someone needs their hand held.

And besides documentation, all those systems integrators and consultants say they’re ready to help. Does that bring us full circle?

(Laughs.) It’s funny, I always talk about how SaaS is exciting because it simplifies the complexities and costs of enterprise applications and continues to grow because it has so often succeeded. The same goes for open source. But cloud computing has also complicated everything and is confusing everybody. As a result, the shovel manufacturers in this new cloud rush who are going to make the most money are going to be the SIs and consultants and VARs that educate themselves.

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