Open Source software and Software-as-a-Service (SaaS) represent the two real disruptions in the arena of enterprise software. In the last decade both have experienced real success and challenged the inertia that persisted in the enterprise software controlled by proprietary vendors. New business models, Product offerings have provided consumers with choices on both the price-performance as well as agility. Now with the overwhelming success of SaaS should Open Source vendors feel a little overshadowed? Can one cannibalize the future of the other?

Let us start with examining the raison d’etre of Open Source. Open Source made its entry with a bang with the introduction of Linux operating system. These were the days when Unix vendors and Microsoft were doing very little innovation besides suing each other and banking large license deals. Linux represented the rebellion against the proprietary operating system vendors and put the power in the hands of the masses to innovate and contribute towards a larger goal that each of them by themselves would not have been able to accomplish. The appeal of a free operating system with inexpensive support (or no support if you were brave enough to lean on the community) was just what the doctor had ordered. It was the equivalent of generics in the world of pharmaceuticals – just-as-good but at one-third the cost. The fact that Linux would work on commodity hardware amounted to double dipping for companies. Cost Reduction++.

Despite starting off as a low-end pretender to the incumbents, thanks to the rate of innovation Linux has caught up with all the high end operating systems – some would even say it is better. The success of linux opened the floodgates of open source offerings in all area like databases (MySQL, PostgreSQL), System Management Tools (Nagios, Zenoss), Content Management (Alfresco, Drupal) and even to mission critical business applications (Compiere, SugarCRM, Apache OFBiz). Not limiting itself to end products, Open Source has since moved into platforms (Apache, JBoss, LAMP, Zend) upon which ISVs or IT shops have built their products.

So far so good. Open Source was on cruise-control seemingly crossing more frontiers.

Then came the SaaS wave. SaaS posited that it was absurd for companies in the non-technology business to each spend large amounts of resources and manage their own IT infrastructure. Companies were better off focusing on their core business and leave IT Management to the experts. They also proposed hosting and managing software and letting companies use them in a subscription-based model, thereby helping companies manage their ballooning IT spend. After the initial spurn, the world seems to have come around and accepted the notion of SaaS. Armed with economies of scale through multi-tenancy, virtualization (the coincidental wide adoption of broadband), SaaS is now providing solutions ranging from edge apps like Email (Google Apps), Sales Management (Salesforce.com) to business critical applications like Financial Management (Intacct), ERP(Netsuite), Human Capital Management(SuccessFactors,Workday, Taleo), Product Lifecycle Management (Arena Solutions), Security(Symantec), Identity Management (Symplified).

With SaaS, companies/customers need to concern themselves only with the service availability and forgo the IT nightmare. No more software license, upgrades, maintenance, army of IT people, backups. All that is packaged into a single subscription fee paid on a as-used basis.

Riding on the coattails of SaaS, its brethren – Infrastructure-as-a-Service and Platform-as-a-Service are now wooing outlier custom projects onto pay-as-you-go, focus-on-your-core-business platforms. They take away the complexity in the infrastructure and technology platform giving you the similar benefits as SaaS.

What does all this mean to Open Source? Does this mean the target customer base for open source companies would soon be dwindle down to the SaaS ISVs, PaaS vendors?

The biggest challenge dealt to Open Source by SaaS would be that with Open Source, while the costs of licensing and maintenance are reduced, companies will still bear the responsibilities of building their own solutions and maintenance. This would mean that companies need to continue to spend on maintaining large IT resource pool and deal with the vagarities of complex technology integration. The entire premise of SaaS hits at this very pain.

That said, if you are a CEO of a Open Source company, you should not be immediately concerned about customer base seemingly dwindling with every gain of market share by SaaS/PaaS vendors. At the same time here are three things to think about

1. Open Source represents the single biggest large collaboration, crowd-sourcing based successful innovation models of our times. There are many other industries trying to borrow what-has-worked in Open Source and apply it to their industries. So while many open source companies are looking to cash out selling themselves to proprietary vendors (MySQL, Xen, SpringSource.. the list goes on), it serves you well to keep expanding the engagement with community and serving their interests. There will be a open source shakeout – lot of “gimmicky” open source vendors who just have a useless community edition product will wither away. The longer you can keep your innovation going, the more longer you will be viable.
2. Consider having a SaaS (or atleast a hosted subscription service) for your Open Source application. Software technologies will only be delivered through subscription in 5-10 years from now. Use this time to establish that presence while you still have a license business.
3. Join hands with other Open Source vendors and create platforms/applications that are integrated and easy to consume and maintain. This should not just be limited to technology integration but also in the areas of upgrades, support and documentation. RedHat has done a great job in integrating all their offerings into the JBoss Suite and reducing the complexity for their customers. Doing this will address both the value delivered by PaaS and the overhead requirements that customers have today in stitching together multiple open source offerings. I see a future where co-operative platforms where multiple vendors contribute to make up the platform and its ongoing success.

The idea of this is to create discussion from both the Open Source and SaaS/PaaS die-hards. Like it or not, if you look further ahead, this is head-to-head is going to happen, no way around it.

About Subraya Mallya

Subraya Mallya is a technology executive, entrepreneur involved in conceiving, building software businesses. In this blog, he focusses on business and technology strategies around Business Model, Product Development and Marketing. Connect with me on Twitter - @subrayamallya