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SaaS vs. Open Source for SMB’s – Part 2.

Yet another “Pros and cons of Open source vis a vis SaaS for an SMB” post today.  I feel this one barely scratches the surface, missing basic points like the availability or (mostly) lack of IT skills at a lot of SMB’s. 

For reference on the subject I recommend Shop Talk: SaaS vs. open source – what SMBs should know by Paul Gillin and my own SaaS vs. Open Source for SMB’s? A No-Brainer. 

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Software 2006: “Tacit Interaction” is the New Buzzword

I’m sitting (actually standing in front of a workstation typing this away…) at the Software 2006 Conference, which started off with a really good keynote. Before walking up to the workstation, I already knew I “lost the race”- having seen Ross sit close to a power outlet with his Mac in his lap, I knew everything that could be said is already said Jeff also covered the Welcome Address in detail.

Real-time update: these guys are posting faster then I can read: full coverage of Ray Lane’s keynote by Jeff and Ross. Again, I can’t really add anything (other than congrat’s to Ross, Ray did a good plug for the wiki). Ray’s session was followed by Vanessa Colella from McKinsey, and I *swear* I heard the term Tacit Interactions more often then Web 2.0, SaaS, Ajax, Collaborative and Social all lumped together at a TechCrunch party. Too bad Tacit is a private company, I’d run to buy the stock before it gets hyped up. OK, I am not being fair, the fact is, it’s pretty hard to deliver a speech immediately after Ray Lane spoke.

Back with a cup of coffee now … oh, well, considering my poor typing skills, I’m actually glad these guys posted all the facts, so all that’s left to me are a few observations.

For all the “Web 2.0” talk I feel we’re sitting in a “1.0” type conference. Sitting, rather than participating. None of the speakers took any questions, and while it’s OK for the keynote, one would expect the Pundit Panel to end with a Q&A.

Never mind, off we go to the Software Showcase. Well, not much of a showcase, we’re getting Powerpoint-supported presentations of CollabNet, Compiere, Digium and Ingres. Again, no Q&A in the end. Finally, Zimbra saves the day, we’re actually getting an impressive live presentation, the audience wakes up, and in the end, we’re offered free beer. Free, as in Open Source. Opening the bottle is $1, as in support for Open Source.  Beer or not, I can’t wait to get out of Microsoft-prison and start using Zimbra.

All in all, it’s a good conference, interesting topics, good networking, but it’s a bit “old-fashioned”:  “They” present, “we” listen passively, missing all the “Tacit Interaction” we’ve just talked about. Perhaps I’ve attended too many “unconferences” recently, I can’t expect a regular corporate-type conference to be TechCrunch or Techdirt-style 🙂

Related posts:

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Software 2006

I’ll be attending “The must-attend software event of the year”, Software 2006, organized by the Sand Hill Group.

The 2,500 participants meet industry leaders on April 4-5th in Santa Clara, CA.

I hope to blog from there, although it’s more likely that I only get to do it after the event.  I also hope to meet many of my readers.  If you’ll be there and would like to meet, drop me a note.  

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Open Source kills innovation (?)

Does Open Source really kill innovation? – debates Michael at SQLFusion, quoting from the Economist, Harvard, Infoworld and others.   It’s worth reading – and considering that they are the company soon launching Open Source Fusion, you can guess what Michael’s answer is.
Full post here.

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MyOraclr

This is cute: The Oracle FAQ site OraFAQ runs on… MySQL! (via Zack Urlocker).  Oh, the “r” in the title?  That’s just for 2.0 compatibility.

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SaaS vs. Open Source for SMB’s? A No-Brainer.

(Update)
I have to take issue with Paul Gillin’s approach as he discusses whether SMB’s are better off with SaaS or Open Source Applications. If we equate Open Source to downloadable, on-premise installed software, I have no doubt, and have stated it before that the only good answer is SaaS. But, hold on, a few minutes later we’ll see these two options may not be mutually exclusive for long.

Paul analyzes several criteria:

  • cost
  • speed of deployment
  • customization
  • reliability
  • data ownership
  • vendor viability

These are all issues well-discussed on the web, and although Paul does not explicitly say, my reading is that he also leans towards the SaaS conclusion. The problem is that this criteria-by-criteria approach works well with a typical (mid-size) company where some level of IT expertise is present. Small Business America is very different from the web-savy geeky software startups; the majority are more traditional businesses with no CIO, IT department, in fact often without any IT support whatsoever. While the two main obstacles SMB’s face with any on-premise implementation are cost and (lack of) IT expertise, you can’t just translate the latter into cost – i.e. the cost of hiring full-time IT support. The opportunity cost of Management venturing into IT hiring and project decisions instead of focusing on their primary business makes this an impractical approach, leaving us with only one choice: SaaS.

Another issue not discussed in the article is integration. Open Source or SaaS, getting several packages work together requires IT and business process expertise, which typically means hiring expensive consultants. Therefore, I would go one step further: not only SaaS is the best choice for most SMB’s but they should seek to minimize the number of providers, i.e. the best choice is to use integrated All-In-One solutions.

The current undisputed leader in this field is NetSuite, but as they follow Salesforce.com’s footsteps and move upstream chasing midsize businesses, they leave an opening for up-and-coming challenger 24SevenOffice, which focuses solely on SMB’s, and covers a wider range of business functionality than the incumbent.

This is the situation today. Now, let’s revisit the original question: SaaS or Open Source? A tiny startup named SQLFusion is working on making that question obsolete. The dilemma with Open Source: a lot of good applications are available, but they are written by geeks for geeks… you really have to be quite knowledgeable to download and implement them. Example: at one of the startups I am advising I use SugarCRM over the internet. Starting to use it was a no-brainer, but when I looked at the prerequisites and the process of installing it myself, my head started spinning. No way, this is not for me! Open Source Fusion, which I hear is within days of opening for a limited beta will bridge the gap between availability and usability of Open Source Programs, by offering such apps to be used over the Internet. In true On-Demand fashion, maintenance, upgrades all happen in the background, one can start using the programs without implementing them. So it will no longer be SaaS or Open Source, but SaaS and Open Source.

The first incarnation of Open Source Fusion will provide access to individual applications, still leaving the integration dilemma for SMB’s, but the technology under the hood enables the company to later offer an integration layer between the key applications it serves up.

So the future is Open Source Software as a Service. Hm, here’s an ugly acronym: OSSaaS (?)

Update (3/6). Releated posts:

Update (5/23): Stefan over at The Small Business Blog discusses the issue; his company, WinWeb is expected to offer Open Source apps as a service soon.


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Wikis are the Instant Intranet

(Updated)

Since I received a few questions after my post: 43 Wiki Prank and the Whiteboard Test, I though I should add a bit of clarification. The underlying thought in that article was to pick the right tool for the right situation, and the whiteboard-test is just one trick to differentiate when Wiki’s are helpful vs. Forum, Blog ..etc software. It’s by far not the only situation when a wiki is invaluable.

Another example is setting up a living, breathing Intranet, one that people can actually use. Anybody who works in large corporations probably thinks of the IntraNet as a one-way communication channel for Management to talk (down) to employees. Getting your own content in? Forget it! Even when I was VP in a mid-sized organization and did not have wait for approval, I still had to talk to the IT Director, wait for him to fit it in his team’s schedule, then tell him what was wrong when my content finally showed up.

It does not have to be this way! Companies “own” (well, at least part of the day) the intellectual capacity of their employees, so why not put it to work? Even in the large corporate environment a wiki can be a lively collaborative addition to the Intranet (see the wiki effect by Ross), but for smaller, nimble, less hierarchical business a wiki is The Intranet.

At a much smaller organization I wanted to introduce a wiki for collaboration, for all the reasons explained in the video below. The company was a bit more old-fashioned, not exactly the early-adopter type. I expected some resistance against something with a geeky-funny name like wiki… so I simply announced we’ll be creating an editable Intranet. People started to use it from day 1, and few cared that the thingie behind is called a wiki.

David Terrar describes a somewhat similar story here.

Finally, the excellent video by JotSpot Founder Joe Kraus.

Other related posts:

Update (4/9): A really good guide to wikis by David Terrar.

Update (10/22): Here’s a case study of Confluence, the leading enterprise wiki being used as the ExtraNet.

Update (4/9/07): Read/WriteWeb on The Age of Instant Intranets.

Update (9/20/08)A Funny Thing Happened on the Way to the Intranet

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Web 2.0 in the Enterprise – Round 2

Stephen Bryant lists Five Reasons Web 2.0 and Enterprises Don’t Mix (hat tip: Espen Antonsen).  He cites his personal experience of having worked in an innovative small software company that could not close deals with the slow enterprise behemoths. “What we needed was a shorter sales cycle, a very, very big salesforce, or some combination of the two”

One of the key changes we’re experiencing today is that the traditional big salesforce becomes obsolete. 

  • At the recent Web2.0 In the Enterprise event (references here, here, and hereRoss Mayfield, CEO of Socialtext described his bottom-up grassroots approach: first a small team, typically a department, or an ad-hoc project team starts using the hosted wiki … then some other teams within the same organization … eventually Ross walks in to close a corporate level deal, but by the time it’s a fait accompli.  (more in the Wiki Effect).
  • Jeff Nolan of SAP related his experience after making an investment in Socialtext, and bringing the wiki “officially” in-house: he received dozens of emails from SAP-employees who had long been using the hosted version for their own project, just had not told anyone ,since it was “unofficial”.
  • One of Ross’s competitors, Joe Kraus of JotSpot said: “for the bottom-up effect to work, the price has to be expensable, not approvable
  • Of course you could argue the above approach will only be feasible with communication / team collaboration tools, not with Enterprise packages that require the whole company to be on the same platform.  Well, it depends.. as Sales VP in a smaller (30 employee, $5M) company I found myself in a situation where not only my team needed a CRM solution, but the whole company needed some IT modernization. For budgetary and resistance reasons we decided the sales team will march ahead on its own, but we implemented NetSuite, laying the foundation for the rest of the company to join us on one integrated system.
  • Finally, a quote from SugarCRM’s John Roberts: “Software is bought, not sold.”  Nice punchline, not a 100% true, just like the “No Software” tagline from the other guy… but delivers the message: sales is replaced by demand generation, becomes a pull– vs. a push-process.

Next I will talk about how Enterprise Software “comes down” to the SMB sector – but for the sake of readability, it  is in the next post.

P.S. Stephen, perhaps one day we’ll hear about the pig-killing job in Tuscany

Update (2/23):  The Doctrine of Slow and Old: Big Business and New Applications 
Update (2/25)Giving enterprise software practices an ‘angioplasty’   

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Open Source – Socialism? “Döm inte hunden efter håren”

(updated)
No, I don’t speak Swedish … but it’s cute:-) More on it later… The recent controversy around Shai Agassi’s remarks about Open Source prompted Marten Mickos, CEO of MySQL to come forward with his own prospective.

But first things first, what was the controversy? “SAP Slams Open Source” – quoted CIO Today. SAP’s very own Jeff Nolan found himself in a rather invonvenient situation (at least initially) of having to distance himself from Shai’s perceived message: “I wasn’t at the Churchill Club event so I can’t comment on the context of Shai’s comments, but I do not agree with them if they are as represented in this article.”

In his speech at the Churchill Club Shai supposedly strongly came out against Open Source and equated it to “IP Socialism”. Hm…having grown up in a communist country I certainly don’t like the way it sounds… although if we look at what he actually said in the second half of this very statement, it actually makes sense: “IP socialism is worst thing that can happen to any IP-based society…If there is no way to defend IP, then there is no reason to invest in IP. Remember, this comes from the guy that invests over $1B in R&D. Jeff later listened to the full podcast of the session and realized the quotes were taken out of context. See more details and a link to Shai’s own blog at ZDNet.

My two cents: the traditional Enterprise Software model (mega $ licence fees, complex and costly implementations, expensive maintainence, questionable ROI) is not sustainable. Enterprise Software companies and their whole ecosystem (Implementation partners, 3–rd party plug-ins, etc) are experiencing Pricing and Innovation pressure not just from Open Source, but the increasingly adopted On-Demand model. One can’t really expect a SAP / Oracle ..etc Executive to be truly, entirely happy about the changes being forced upon them. That said, they can try to be obstructionists, or realize the world is changing with or without them – might as well go for the ride, take the challenge / opportunity to invent new business models and survive/thrive in the New World.

Marten makes the point that SAP is the latter group: SAP is the first and most significant ERP vendor to publicly, officially and in actuality embrace open source. SAP was the first enterprise ERP vendor to ship on Linux. SAP has an investment in Zend, the PHP company, and a strategic partnership with MySQL. By its actions, SAP is one of the great supporters of open source.”
On legacy software companies in general: “ At the end of the day, deeds count more than words. If you support open source, you will be supported by the millions in the open source community who are working hard to shape the future of the software industry. “

I fully agree with Marten’s views … but there’s one area where I’d take a step further: Perhaps open source can commoditize the infrastructure components and make applications more affordable.” Not just infrastructure, IMHO. Applications are next.
SugarCRM is a pioneer in commoditizing the application (CRM) market … yet they got outwitted themselves by their own ecosystem. The trend is unstoppable, even outside Open Source. A closed-source, on-demand company, 24SevenOffice offers its innnovative, fully integrated Web-based SMB suite for about a third of NetSuite’s prices, in fact they undercut Open-Source SugarCRM themselves, when comparing the On-demand version of their product.

As for the incoming tidal wave of Open Source Applications: CRM is just the beginning, the low-hanging fruit… there are literally hundreds of business-grade Open Source applications, ranging from accounting, manufacturing, purchasing, all the way to complete ERP-like solutions, or industry-specific point solutions, like patient management for health care, restaurant management .. etc. One of the reasons why they are not used widely is that they are “trapped in the land of the Nerds” (out-of-context quote by Joe Kraus of JotSpot at the recent SDForum Collaboration SIG event, but I just could not resist using it). Really. Most Open Source apps are difficult to implement, one has to be a real techie to navigate through the maze.

This is where companies like SQLFusion can help small businesses: by providing an easy way to create their web-presence, then offering a pipeline of pre-packaged Open Source applications that can be installed, used, kept up-to-date by a single click of the mouse they bring open source apps within reach of millions who otherwise would not have the expertise to use them. (disclaimer: I am affiliated with SQLFusion)

Update (11/16) Other points of view:

IP Socialism

SAP talks smack about open source

Bigamous contrition and open source faux pas

And now SAP looooves open source?

Big Brother

Update 2 (11/19) I’ve received inquiries about the title – it is explained in Marten’s article I linked to. Btw, it looks like Scandinavian style is in fashion.

Update 3 (11/29) Water into Wine: Monetizing Open Source via On Demand – great article by Rightnow CEO Greg Gianforte, obviously describing his company, but also a perfect fit to SQLFusion’s business model described in the last paragraph about. I love it, thanks, Greg! 🙂

Update 4 (5/10) The Stalwart woke up, blew the dust off of a half-a-year-old speech by Shai Agassi, and starts the Open Source as IP Socialism debate again. (hat tip: Jeff Nolan) Nothing new, why today? Anyway, perfect timing, anyone interested in the subject should come to the Who Pays For Software? New and Old Business Models event tomorrow, where Open Source will definitely be in the focus of a star-panel.

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Not-So-Open-Source Applications

(Updates at bottom)

“Enterprise software vendors who leverage open source, subscriptions and grid computing to meet customer needs will emerge as next-generation industry leaders. “ – says John Loiacono, EVP, Sun Microsystems.

Jeff Nolan recommends caution: “… open source and subscription licensing, two completely separate trends that often get lumped together, are not silver bullets for emerging companies.” His post is well worth reading, and I agree with most of his logic, which refers to the traditional Open Source “business model”, if there is such a thing (we’ll come back to this later):

  • Open Code
  • Broad Support Community
  • Paid Sales & Marketing staff
  • Paid core Engineering
  • Product Available free
  • Revenue from support / training / consulting… i.e. services

He then rightly concludes that this model is basically a service business, so investors should beware, when we peel the hype layer away, they don’t find the hypergrowth software business there.

Yes … but … this may just have been the “beta version” of an Open Source business model – if we can even say that. In fact we really shouldn’t: Open Source is not a business model, it’s a software production model (and philosophy), says Marten Mickos, CEO of MySQL (via Jeff Clavier). Absolutely.

The two examples Jeff uses, SugarCRM and Compiere could not be further away from each other – not only in terms of their product offering, but mostly their business model.

Compiere, for all I know is closer to that “beta model” of “trying-to-make-a-buck” on Open Source, or, if I may say, the idealistic, altruistic (?) Open Source company that makes ALL it’s products ( full ERP & CRM for the SMB sector) available for free, source code included. They even let Consulting/ Implementation Partners rebrand the product under their own name. They are the “nice guys” barely making a buck on support. (Sorry, Jorg, if I am mistaken.)

SugarCRM, on the other hand is not even a purely Open Source company, it’s a hybrid. (Hey, hybrids are popular nowadays ). “ It didn’t take me long to realize that there is a HUGE part missing in the open source version “ says Simon Romanski, director of information systems at Fulfillment America, quoted by ZDNet. The title says a lot: Commercial open source, a misnomer? Well, not a misnomer, but definitely commercial software: SugarCRM sells the Pro and Enterprise versions of their product, and also charges for the On-Demand version. Even the Open Source version can be “upgraded” by paying for extensions, e.g. the $39.99/user Outlook Plugin. Hm, I would not put my Sales Organization, no matter how small, on a CRM system without Contact synchronization. By the time we configure the basic needs of a small Sales Team, chances are pricing is on par with a truly commercial software company, e.g. 24SevenOffice .
So is SugarCRM using Open Source as a marketing gimmick, riding the fashion wave? I don’t think so. Nor do I think there is anything wrong with the business model… perhaps a little heavy on the hype, like the other guy selling software using the “No Software” slogan. SugarCRM is a successful hybrid that’s partly Open Source (development, support community, viral marketing) yet generates it’s revenue from selling software like any other company.

Only to prove Marten right.

Update (9/01): ZDNet’s SaaS blog has a good follow-on article on SugarCRM: Outwitted by its own ecosystem

Update 2 (9/01) The “Commercial Open Source” story reverberates; ZDNet’s Dan Farber follows on quoting Marc Fleury, CEO of JBOSS.

Update 3 (9/28): The Next Little Thing Isn’t Free by Sam Ramji

Update 4 (11/16) But is it really free? CIO Magazine

Hybrid Open Source Business Models by Zack Urlocker