About that Second “S” in SaaS – Awesome Service

pressharbor ”There is an app for that” – say the Apple commercials.  “There is a plugin for that” – was my conclusion, while lookin for the rigth tools to move the Enterprise Irregulars blog to WordPress a few months ago.  Seriously.  The WordPress ecosystem is simply amazing, things that a few years ago required messing with code are now a click away: – modern themes are no longer just pretty layouts, but perform quite a bit of processing, and whatever they don’t have – well, there is a plugin for that.:-)

Such is the power of Open Source and a thriving ecosystem. But all this openness and richness of choice comes with a price: it takes a lot of digging, testing, and even more luck to find the right ones that actually deliver what they claim without messing up your theme and other plugins.  And even if you find the right ones, they all come out with new releases from time to time, and every single update, be it WordPress itself, the theme, the plugins is a hidden trap. Things can stop mysteriously overnight – as they did over @ Enterprise Irregulars a week ago, when I was alerted that our feed was all blank. The EI blog is based on the powerful but rather complex Hybrid News Theme with 21 active plugins which work in concert to aggregate the writing of 40+ authors.  And sometimes one little wheel gets stuck – what happens next is what separates good hosts from poor ones.  Or should I say, separates simple hosts from service providers. Service, as the second S in SaaS. 🙂

Normally the choice is simple: you either use – free, powerful, great platform, with preset choices for themes, widgets..etc – or opt for self-hosting in the Open World – with all the power to install whatever you want, but also out in the wild alone in a complex world.  (Geez, where did I hear that last… ahh, the great  iPhone vs. Android debate, perhaps? 🙂 )   Now, back to hosts: I’ve been blessed with a smaller, but amazingly good host providing extraordinary, personalized service for five years now. Owner and jack-of-all-trades John Keegan helped my with the old (dying) Blogware platform, then through the migration of my personal blog to WordPress, and ever since – so moving EI to Pressharbor was a no-brainer.

So last Sunday (yes, a SUNDAY) I turned to John again… he dug into the problem, and soon found that a rogue plugin attached custom enclosure fields to some posts, with garbled content that Feedburner choked on, wiping out our RSS feed. John then got on Skype and held my hand step by step removing the erroneous fields, until the feed got cleared up.  Sounds easy enough… in hindsight.   It would have taken me hours / days of research and frustration to restore the lost functionality.   It’s not the first time and likely not the last I received support way beyond what can be expected of a regular web hosting company.  Help with security, performance, database tuning should be standard (is it?)  but detailed plugin-level help?  No way.  How about WordPress upgrades?  I don’t even  know what they are.  In fact I got upgraded to WP 3.0 while writing this post. Not amongst the first .. only after thorough testing did  Pressharbor upgrade all of us, centrally.  I’m lucky enough to have the best of both world – the power of Open Source and great, personalized support.  A big, capital S – the second S in Software as a Service.

(Cross-posted @ CloudAve)


Goodbye, OpenOffice, Back to MS Office? For All the Wrong Reasons.

No, the World has not come to an end, it’s not me who switched back to The Borg Microsoft.  ZDNet author Dan Kusnetzky did, after 3 years of using OpenOffice:

The open source software had Office 2003 compatibility down pat. The interchange of documents (.doc formatted files) and presentation decks (.ppt formatted files) was easy and I faced only a few complaints. I found that I could address those with little or no effort.

Office 2007 compatibility, however, was spotty at best.  Office 2007 formatted documents (.docx formatted files) demonstrated occasional problems with font and paragraph formatted. Presentation decks were a growing problem – fonts were formatted incorrectly, builds went all over the screen and other formatting issues were constant companions. (See File format blues for more details)

Finally, the tipping point was a presentation where just about everything went wrong:

I created a deck, sent it off for review and learned that OpenOffice had substituted some strange (from an Office user’s point of view) font. Twelve point text came out as 39 point text. Graphic images were not sized correctly either. Builds were strange and exciting in ways that I never had time to analyze or fix.

Dan’s solution was to switch back to MS Office – but then what?

Microsoft’s Office seems to work with just about everyone’s system (if I stick to Office 2003 formatted documents). So, I’m going to install it on my systems albeit reluctantly.

Let me get this straight: he switched back to Microsoft, AND is sticking to Office 2003 formats – but that’s the format he just stated OpenOffice handled perfectly!  No need to change then.  But the formatting problems are not only between OpenOffice and MS Office – they exist between different releases of Microsoft’s product, too, as I experienced earlier, trying to review a startup  CEO friend’s VC presentation. The process involved multiple conversions back and forth between different releases of the same Microsoft product, PowerPoint:

I reviewed and commented on it, and as an aside noted that the fonts and the text alignment were way off on a page.  He did not see the text problem on the version I sent back.  Then came a second round of conversions and emails.  It became apparent that no matter what we do we always end up seeing different layouts – so much for the MS to MS conversion – so we just focused on content, and I sent back the revised version.  It took a while… hm, no wonder, the PPT deck that started it’s life as a 2MB file first became 5, then 7, finally 9 Megabytes.  Wow!

Me and my friend were doing it all wrong, and apparently so did Dan: emailing multiple bloated copies of the same file, never seeing the identical version, when we could have started with an online presentation, collaboratively work on the one and only copy online, see the same and not clutter several computers with the garbage files.  Collaboration is just simpler online.

And let’s not forget the storage footprint issue. On my count, just between my friend and myself, we generated and stored nine copies of this presentation, the last one being 9MB, up from 2.  It’s probably fair to assume a similar rate of multiplication in the process the original deck was created, between the CEO and his team.  Next he sends it to the VC, who will likely share it with several Associates in the firm, and in case there’s more interest, with other partners.  Of course my friend will send the same presentation to a few other VC firms as well, so it’s not beyond reasonable to think that there are at least a hundred copies floating around, occupying a Gigabyte of storage or more.  Oh, and I did not even consider the footprint of this presentation at ISP’s and all hops it goes through.  Not that I ever bought into IDC’s Storage Paradox, but this is clearly a very wasteful process.

All of that could be replaced with one central copy on the Web, represented by a URL.  That’s the real solution, not switching Office packages.

(Cross-posted @ CloudAve )


Cloud Computing and Open Source are Not Enemies

Richard Stallman at DTU in Denmark 2007/03/31

Image via Wikipedia

Are Open Source and Cloud Computing anachronistic enemies? You’d think so, if you read GNU creator Richard Stallman’s interview in The Guardian:

Cloud computing was simply a trap aimed at forcing more people to buy into locked, proprietary systems that would cost them more and more over time.

"It’s stupidity. It’s worse than stupidity: it’s a marketing hype campaign," 

Sure, there’s a lot of marketing hype as it is typical with any major technological advancement, especially as it reaches the peak of its hype cycle.    But I think Stallman loses sight of who the “enemy” is.

Read more here

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Before I say anything, I want to prefix this post by stating that I am an Advisor to Zoho, which can be perceived as a competitor to Ulteo, the company that just announced providing OpenOffice On-Demand. That said, I often I’ve repeatedly stated my belief that we’re at a state of early expansion for Software as a Service, and for now, the more players the better. It’s not about slicing the pie yet, it’s about making sure the pie will be huge:

Summing it all up, I believe the winner of the “on-demand race” will not be Google, Zoho, or any of their competitors – the winners will be the customers who will have a lot more choice in picking the right business solutions later this year.

So I am happy to see new On-Demand offerings that work – and am royally p***ed when they don’t. I tried to use Ulteo, repeatedly. At the first attempt in the morning, I got stuck with a blank screen:

Next I tried in the evening: I spent a minute or so at the above blank screen, but finally I got some signs of life:

Oops… I don’t know of another instance, I don’t have Openoffice installed on this machine, and a Vista glitch forced me to reboot since my early morning attempt with Ulteo. And I certainly have no clue who the *** user u7670 is or how I should close Openoffice for this user on the Ulteo servers. But let’s click Yes to continue anyway:

Why am I in document recovery mode and just what is it I am about to recover? Finally, I got into this somewhat broken screen:

Not a very positive experience, if you ask me. On the other hand, it’s still more than the previous web-office “announcement”: Live Documents, which is still to materialize…some time next year.

Like I said, I am happy to see more On-Demand services. Those that actually exist, and perhaps even work.smile_eyeroll

Update: Jason Brooks at eWeek had similar experience.


Would You Like Your Spreadsheet in French? German? Chinese? Japanese? Any Language?

Zoho Sheet is currently translated to 13 languages, although I hesitate to write thirteen, by the time you read this post, the number may jump:

If it jumps, it won’t be because Zoho has an army of translators busy typing away… nothing beats the wisdom of the crowds. Yes, Zoho outsourced crowdsourced the translation to their users: you and me. Would you like a to use an online spreadsheet in your language? Take a stab at it.

Anyone can pick the language of their choice and contribute translation in one of two modes. Power mode is nothing to write home about: a table where all all English messages are listed and you can write the translation right in the next field. Simple and efficient. Yet if I were to start translating, not being a power spreadsheet user, I would probably prefer to see the messages in context.
That’s where the WYSIWYG mode helps: you can use the live Zoho Sheet UI, and be guided by colored highlights as you translate different parts of the spreadsheet. (Note: if you’re reading this in a feed reader that does not display embedded graphics, please click through to the blog post, or you’re miss most of it).

The translation tool is not a mock-up, it’s the actual, fully functional spreadsheet (but don’t save your private data there). The wisdom of the crowd does not lack QA though: once a language’s translation progress reaches 80%, the Zoho team verifies it and makes it available to all spreadsheet users.

You can keep track of progress here: currently the Japanese version is most complete with 97.77%, followed by Simplified Chinese (92.15%), then Russian and Spanish at 91.20%. The lowest one is Hungarian, at 0.11% – it looks like someone just started it. I have no idea who it was… smile_wink

Update: See the Zoho Blog post and a demonstration video here.

Update (9/14): Wow, never underestimate the power of users! smile_wink A day later, my measly contribution of one single word to the Hungarian version grew to 13.62%. Even more impressive is what some Romanian users achieved: they requested Romanian added to the list in a comment yesterday; next thing I read today was this blog post – I don’t understand a single word, but the table shows 33.94% readiness, and finally, by the time I clicked through to check it myself, Romanian is up to 84.04%. Congratulations, you’re very close to having your own version!


Open Source Hotel Rooms

I’ve just checked out of my hotel at SAPPHIRE 06 and am shocked looking at the bill:

You can click to view the original Zoho Sheet.

Since I am still in a “software state of mind” (and btw, will return to SAPPHIRE posts soon), I can’t help but draw the analogy to the software industry:  Support and Maintenance charges in the Enterprise Software business are in the 20-25% range.  There is an ongoing debate about the viability of Open Source as a business model but several companies are experimenting with giving away the product and focus on additional revenue sources, i.e. support, maintenance, training ..etc.

Since the hotel industry is up to 18% in surcharges, why not make a dramatic move, “opensource” the rooms and make their numbers on all these other (bogus) fees?    (OK, before I get ripped apart, yes, I do realize running hotel rooms has actual material costs vs. downloading software, and that the Open Source model is a bit more complex … in other word, my analogy is far from perfect, but hey, it’s Friday afternoon, I am waiting for my plane and can have a little fun, can’t I?)

I see a lot more potential surcharges (on top of  the free rooms), like: clean hotel fee, airconditioning surcharge, towel fees at the pool, hot water fee in the bathroom, warm water fee at the pool,  low-noise airconditioning surcharge, no-cigarette-smell fee in the nonsmoking rooms, Broadband fee (yes, I know they already have it, but this would be extra for connection that actually works vs. trickles), private room fee (that is when you don’t get the keys to a room already occupied like it happened to me), fast or medium service surcharges at the restaurant..etc.  Of course when you can’t sleep at night because the damn airconditioning is so noisy, or when your nonsmoking room smells.. .etc, you don’t have to pay.  This could become the feedback / QA mechanism for the hotel industry, a’la the Open Source community support / QA in software.

The opportunities are tremendous, and we should not stop at the hotel industry.  Open Source the World!


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

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’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.


Web 2.0 & Enterprise, Round 3: Enterprise Software for Small Businesses


This post is a continuation of Web 2.0 in the Enterprise – Round 2 in which I reflected on some thoughts brought up by Stephen Bryant in Five Reasons Web 2.0 and Enterprises Don’t Mix.

The Web 2.0 in the Enterprise TIE event I previously referred to was hectic, trying to cover way too many subjects in 90 minutes, with one common underlying assumption: Enterprise means large corporations. The theme of the night was how these Web 2.0 technologies and business/communication approaches will “seep in” to the large enterprise from the bottom up.
What is then Enterprise Software? Typically SAP, Oracle et al come to mind, and I can hear the roar “Enterprise Software is Dead” – well, is it?
If we define Enterprise Software as the traditional heavyweight, expensive, pay-huge-license-fees-upfront, then try-to-implement-forever model it is certainly challenged from two ends, by Open Source and the SaaS model. But there is another definition that is largely being overlooked:
Software that allows a company to conduct it’s everyday business, supporting most of the core, fairly standard business processes any company performs repeatedly.

With this definition, Enterprise Software has a whole new, largely unpenetrated market to enter: that of small businesses, referred to as the SMB or SME segment. Such enterprise functionality has traditionally been beyond reach for a typical small business, for two major reasons:

  • Cost (license, hardware, implementation, maintenance ..etc)
  • Lack of IT resources (integrating applications, designing processes, dealing with multiple vendors ..etc)

SaaS is the right answer for both, since it allows the SMB user to start using the functionality without an upfront investment, does not require implementation, upgrades, maintenance, worrying about backups and security ..etc.

Of course several Open Source packages are available completely free, which is a perfect solution for the cost problem, but I think most of these packages are by geeks for geeks; i.e. you really have to be quite IT-savy to implement, integrate, upgrade them, and as we stated most small businesses simply do not have that type of resource. Yes, that means the Silicon Valley tech-startups are not a true representation of the SMB world
Likewise, I don’t believe SOA, best-of-breed packages working together are an option for the SMB market, for the same reason. They will play an increasingly critical role in larger enterprises with a professional IT organization, but for a few more years SMB’s are far better off with integrated, All-In-One type On-Demand solutions.

Of the Web 2.0 companies Stephen mentions in Five Reasons Web 2.0 and Enterprises Don’t Mix two are offering Integrated On-Demand solutions:

  • NetSuite
    Stephen lists NetSuite along with, and while they are in the same club, the significant difference is that is only CRM, while NetSuite offers an integrated CRM+ERP package. They both are trying to become a “platform” via NetFlex and AppExchange, respectively. Both companies are definitely pushing upstream, going after the Enterprise market as in the first definition, i.e. large (or midsize) corporate customers.
  • 24SevenOffice
    Coming from Europe this company is lesser known. They focus on the SMB market and offer a modular but integrated system with a breath of functionality I simply haven’t seen elsewhere: Accounting, CRM (Contacts, Lead Mgt, SFA), ERP (Supply Chain, Orders, Products), Communication, Group Scheduling, HR, Project Management, Publishing, Intranet. Essentially a NetSuite+Communication, Collaboration. I’ve taken their test-drive (currently IE only) and liked it. I would debate how they structure their menu-system, as functions like Product, Inventory, SCM are all hidden under Financials.

Back to the economics: if SMB’s could not in the past afford Enterprise Software, the same held true for the Software Industry: they could not afford SMB’s, since there was just no way to make the numbers work. The cost of customer acquisition vs. the very low license fees made it an uneconomical model, whether via direct or channel sales.
Once again, technology comes to the rescue: the Internet, and largely Search Engine Marketing changes everything. Joe Kraus, Founder of JotSpot and previously Excite sums it up:
“ Ten years ago to reach the market, we had to do expensive distribution deals. We advertised on television and radio and print. We spent a crap-load of money. There’s an old adage in television advertising “I know half my money is wasted. Trouble is, I don’t know what half”. That was us. It’s an obvious statement to say that search engine marketing changes everything. But the real revolution is the ability to affordably reach small markets. You can know what works and what doesn’t. And, search not only allows niche marketing, it’s global popularity allows mass marketing as well (if you can buy enough keywords). “

Another benefit of SEM is that while traditional advertising can pick the right demographic groups, it cannot pick the right time, only a fraction of the target audience is in “change mode”, looking for a solution. That’s the beauty of Search Engine Marketing: obviously if you are searching, you have a problem and are looking for a solution, which is half a win from the vendor’s point of view.
Small Business Trends recently published a survey on “Selling to Small Businesses”, which supports the increasing importance of SEM: “A full 73% of vendors attract small business customers through search engine results”

Finally a quote from Ziff Davis again: “Products for the long tail and SMB market, where 72 million businesses spend $5k or less each year, are a much easier play” Wow, I don’t know where those numbers come from, but if I were a SMB-focused software vendor, I’d certainly like them … there’s a goldmine out there.

Update (2/22): Perfect timing for this report to come out just now: U.S. SMBs to Spend $2.2 Billion on Software in 2006, Says AMI-Partners

Update (4/17): Interprise Suite (recently debuted at Demo 2006) claims to be “The FIRST Accounting / ERP / CRM Solution to Bring the Power of the Internet to Small and Mid-sized Business“. While I take issue withe the claim to be “first”, considering the breadth of functionality it’s definitely an option to consider for SMB’s .

Related posts:


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

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.


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