Open source gets SaaS-y

When you think of open source software (OSS), Software as a Service (SaaS) might not be the first thing that comes to mind, but OSS plays a role in SaaS just the same. It's there in CRM offerings from Salesforce.com, RightNow Technologies, and SugarCRM.

A new Gartner Group report -- Open Source in SaaS, 2008 – notes that while OSS plays a big role in SaaS infrastructure now, that role will grow even larger over the next few years. In fact, Gartner predicts that a whopping 90 percent of SaaS providers will use some amount of open source software by 2010. This won't guarantee cheaper or even better products, of course, but the trend is certainly a vote of confidence in the power of OSS to fuel the growth of SaaS. The key to open source SaaS in the long term will be having the right mix of platform, community, and developers.

Questioning the Gartner Report

Gartner’s SaaS-versus-OSS TCO finding triggered some of the most interesting responses to a lecture I delivered yesterday at Carleton University in Ottawa, Canada, on the state of Open Source Software. (Ottawa is the home of the Senators NHL hockey team, Renegades CFL football team, Lynx MLB baseball farm team, 67’s OHL hockey team, and the Wizards soccer club – if you didn’t know.)

The students, entrepreneurs, prof's and VC in the audience asked me great questions about the Gartner report:

• Does this mean that enterprises in 2012 simply want applications residing in front of the firewall as opposed to installed on servers or storage systems in the data center?
• Does this mean that virtualization vendors’ central value proposition will fade by 2012?
• Does this hearken the return of the mainframe with its centralization and value per/MIP (old) and green (new) value proposition?
• Does this mean cloud computing is a shoo-in?
• Won’t direct OSS costs diminish as the market matures?
• Or, does this mean that OSVs are expected to hike their prices in 2010 and 2011 and shift the cost curve to make SaaS more attractive?

In truth, it is almost always a combination of these factors that result in cost curve and associated adoption curve shifts. It is my experience that SaaS applications (SalesForce in particular, but also Constant Contact, Adesso Systems, and others) require customization, additional support beyond what is provisioned, and training is almost always needed. SaaS has many direct and hidden cost categories that are similar to OSS, but the IT value proposition is significantly clearer and more favorable. This value proposition is driving the adoption of cloud computing applications such as Google Apps.

OSS consists of an operating system, infrastructure, middleware, applications, utilities, and so on. Many of these are free as in beer or free as in freedom. But OSS has hidden costs, such as training, documentation, consulting, and other costs. Did the Gartner research take these into account?

One question asked by a bright Carleton student is especially interesting and worth putting out there to readers: What about open source SaaS?

Linux and TCO in 2012

Gartner has spawned a debate with its latest Open Source Software (OSS) research. Gartner researchers asked more than fifty analysts to comment on the state of OSS in their respective areas of research, and the result was The State of Open Source 2008 report. Among other findings, this report determined that by:

• 2013 a majority of Linux deployments will have no real software TCO advantage over other operating systems;
• 2012 90% of enterprises will use open source either directly or in an embedded form;
• 2011 open source will dominate software infrastructure for cloud-based providers; and
• 2012 Software as a service (SaaS) will eclipse open source as the preferred enterprise IT cost-cutting method

Radcliffe, Fulkerson, and others have argued that the rate of OSS adoption will be much faster. Still, this is proving to be a seminal report. Already it has impacted the thinking of a lot of people in the worlds of OSS and SaaS the same way that Forrester Research's Linux Tipping Point, IDC’s “Open Source Biggest Trend in 20 Years,” and Saugatuck Technology’s “Booming Support for Mission-Critical Application Workloads on Linux” were seminal when they were published in 2006.

Funambol takes the AGPLv3 plunge

Funambol might be known for what they call their “open source mobile email & PIM sync solution,” but now they're going to be celebrated as being the “first major open source software company” to adopt the AGPLv3 license. Designed to close the so-called ASP loophole, the AGPLv3 requires companies that modify open source software running over a network (as opposed to being delivered on a CD or DVD) to make the source code publicly available.

According to Benjamin Mako Hill of the Free Software Foundation,

The GNU GPL has been the most successful free software license because it makes a program's source available to its users. This enables massive collaboration between developers, since everyone gets the same benefits from this rule. The GNU AGPL will enable the same kind of cooperation around web services and other networked software.

Funambol says the AGPLv3 is consistent with the Honest Public License the company had been developing since late 2006, but it switched to the AGPLv3 to eliminate an unnecessary multiplication of free software licenses.

I think this is a bold decision. This decision reinforces Funambol’s position as a leader in the open source industry. As I wrote in this blog in May 2007: Man up Google! Only time will tell whether other open source companies in the SaaS space will follow suit.

The new way for M+A

There is a global liquidity boom underway. A published report by Thomson Financial indicates that global mergers & acquisitions in 2006 topped $3.8 trillion. This is a record pace.

Transactions are also expanding in purpose and accelerating in time-to-market. Today's transactions encompass everything from mergers of businesses and acquisitions of companies and assets to distribution and OEM agreements, alliances and partnerships, and joint development agreements.

In addition to holding great promise, all these transactions have something else in common: fear of the unknown.

These transactions include variously definitions, representations, delivery schedules, benchmarks, escrows, and other formal business and legal terms and conditions. They are designed to solidify the relationships that are the basis of the transactions and increase the amount of comfort around the unknown.

This is the reason why parties perform due diligence before consummating these transactions.

More specifically, transaction facilitators – in some cases deal makers – have to become attuned to hosted software audit solutions. Many investment bankers, venture capitalists, lawyers, auditors, and others do not realize that software due diligence by independent firms can and should be augmented with due diligence via software and service solutions. While many transaction facilitators use BlackBerries for email, cell phones for calls, and laptops for mobile computing, a hosted code audit is new to them.

Acquirers and investors are actively insisting on Black Duck Software to vet these transactions. The originators or facilitators of these transactions are beginning to understand that a small increase in costs is insignificant compared to the insights they gain from a hosted due diligence service for software assets in play. Like other SaaS offerings, this is an exciting new area filled with early adopters. Since time is the most valuable asset of deal makers and transaction facilitators, using a hosted due diligence service seems like a no-brainer.

I think we are at the beginning of new dawn in financial markets, transactions, and software solutions. It’s really cool and gratifying to be part of the solution.

P.S. Larry Augustin has some interesting data points on his blog about venture funding for open source companies. The preceding comments apply to VC-investing as well.

OnDemand - SaaS Black Duck Style

I admit it: I'm old school. I used a mainframe in high school and college in the ‘70’s, time-sharing system in my first job and minicomputer that was muxed at multiple locations subsequently in the ‘80’s, involved with the “ASP Revolution” during the Internet-bubble, and now selling an OnDemand service offering at Black Duck. I think that the more things change, the most they remain the same.

Black Duck is unique, btw, because we offer both an on-premises and on-demand or hosted version of our software compliance management solution.

Black Duck’s hosted application was called “protexIP/OnDemand” because we liked IBM’s vision of “OnDemand”. Recently, at an IBM event, a senior IBM person used the term “SaaS” to describe IBM’s offerings more often that the OnDemand term. It appears inevitable that Black Duck will adopt the SaaS terminology as well. I think it’s practical: IBM is spending around $1 billion in this area and it’s bound to find and expand the SaaS enterprise market.

We have found some challenges in the adoption of an Internet-based or hosted service offering among corporations and mid-sized businesses. /OnDemand is growing but smaller segment of overall bookings (our customers have told us that they prefer to install protexIP on-premises because of the added functionality in the enterprise version) but it is a "sexy" part of the business because it’s based on venture-backed M&A activity and rarefied public company M&A transactions. We own a major market share of this segment of the software compliance market. Still, we think that corporations remain hung-up about using services outside their firewall because of security and IP-protection concerns. This is especially true in Asia and South America and to a large extent in Europe.

Black Duck’s offering uses both a browser interface and a rich client. The client enables us to “code print” the company’s source code and transmit, via the browser, through the Internet cloud to our server in the sky. The experience is also better for the user and offers performance because the original source code is kept on the desktop or server and we transmit only the code print. It’s like sending the architectural diagrams rather than shipping the building, in a manner of speaking.

The SaaS world is a little doctrinaire on this subject. Purists require that these applications be Web 2.0 compliant which means that everything happens within a browser. As a consequence, our next release of protexIP/OnDemand will have lots of AJAX as well and further enable to justifiably call is SaaS. (Our latest behind-the-firewall release has rich AJAX interface.)

I’m told that the OnDemand or SaaS market is particularly fickle in emerging markets where there are no rules and no consistency in service offerings. One would think that emerging markets would be the first place where SaaS would gain traction because the benefits are so appealing. This might be an instance of the industry not knowing how to engage with potential customers in the world outside the US and developed countries.