Open Sources | Rodrigues & Urlocker » SaaS vs. Open Source: Open Source will win

September 18, 2007 | Comments: (0)

SaaS vs. Open Source: Open Source will win

TAGS: Open Source

One of the things that struck me as I roamed the floor of the Dreamforce event (besides the fact that I find events like this to be incredibly depressing) is that there is a clear difference between companies that form a "community" and those that are part of an "ecosystem."

Since we launched MuleOnDemand this week I have been spending a great deal of time thinking through the advantages/disadvantages of SaaS and OSS. Despite the fact that I do believe in SaaS, I am finding that the current crop of SaaS companies are middling at best, with only a few standouts whereas there are many great open source companies--at witnessed by the acquisitions in the space (see Matt's post on The Gold Rush.)

Those SaaS companies that standout are the ones that have mutually beneficial non-competitive relationships with Salesforce.com whereas the non-standouts are just hangers-on. They also tend to not blend into a bigger strategy. For example Eloqua makes sense as does Omniture as it rounds out your needs. Similarly, most SaaS apps don't play well with others, largely ignoring the IT worlds move to SOA.

In open source we talk about "the community" and how it creates a larger development society. This is doesn't seem to be the case with SaaS. With Salesforce (or SaaS in general) the efforts that pop up around the product have little to do with a bigger picture and more to do with lateral routes to making money from said product (ie. Offering a function that Salesforce doesn't have). There is certainly nothing wrong with that but it sets a very different tone for how the companies interact with each other as well as with their potential customers.

With the ecosystem approach there are two possibilities: you make enough money to support the business or you get acquired by the mothership. The issue for the companies at Dreamforce is that Salesforce doesn't acquire many companies, and if you look at the way these SaaS applications are built they might use the same underlying technologies but don't share a common architecture (schemas, multi-tenancy for example) that can be merged into a bigger app like Salesforce.

Contrast this with the community approach where a company can sustain the business, or be acquired by a much broader range of companies. Witness how Citrix acquired XenSource and Yahoo acquired Zimbra, proving that open source and the community approach have far more options for success.

One other key aspect of community is that open source has both "developers" and "users" where SaaS tends to only have "users" which we should probably term "consumers" since there haven't been many well known contributions from SaaS companies back to OSS projects.

Ask any-and I mean any of the new school SaaS companies what they built their sites on and 99% will tell you it's all open source--primarily LAMP (BTW if you built on Windows just stop now. The costs will sink you as you scale.) Ask them if they pay for support and the response is less than 20% by my informal research.

I do think that SaaS is a great delivery model and I am glad these guys are consuming open source to build their businesses. The SaaS guys that provide actual value like Omniture, OpSource and a few others have a retainable space in the ecosystem. But, it's hard to see how majority of the companies on display at Dreamforce will build sustainable revenue outside of the Salesforce.com

This post was not meant as flame-bait. I personally have been trying to figure this all out. Any thoughts are welcome.

Posted by Dave Rosenberg on September 18, 2007 02:38 PM

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