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.


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.