Anish Kapoor, CEO of SaaS web conferencing start-up YuuGuu posted asking whether SAAS has killed open source as a business model. His contention that in fact this is the case was articulated as follows;

Open source is always driven by… a central body that leads community development efforts to support developers and build revenue streams. In essence, that body gives away the base code and knowledge of the community version to encourage development of the service and expand distribution; to make the software go ‘viral’…

SAAS offers ready access to beautifully crafted applications and services through the browser for little or no initial cost. These applications supersede centrally-held open source projects since a. they are finished products (rather than base codes, which must be developed into end-user services) and b. can be easily found, used and shared by the end users of the application/service.

Also, the credit crunch has forced IT departments to look more intensely at costs. Therefore, any software that requires internal hosting, support and development (as open-source does) is less attractive than SAAS, particularly those with a ‘freemium’ model where the basic software is free with revenues accumulating for more advanced features and volumes. A ‘pay-as-you-go’ model works much better when budgets are tight.

So my thinking is that, the SAAS/’freemium’ delivery model is much more likely to gain traction and revenues than an open-source project, for an end-user service where a ‘common’ version of a piece of software is acceptable (for example online meetings). However where tailoring of a basic piece of software is more crucial to suit the needs and systems of a particular company, open source is still a viable route (for example integrated document management systems).

So to paraphrase – for “vanilla” type applications Anish believes that SaaS should be an easier sell than opensource where customers still need to think about non core details.

Anish’s post reminded me of a concept I came up with a couple of years ago that seeks to blend the best of both SaaS and opensource. Rather than seeing the struggle (if it indeed exists) as a zero sum game – how about trying to leverage the positive aspects of both types of software? Krish posted about open source business models awhile ago – here’s my take.

Opensource tends to build passionate users that consider themselves, to a certain extent “owners” and “developers” of the product in question. These communities tend to be rabidly loyal and have a tendency towards evangelisation. This is clearly a hugely powerful aspect of OSS and should be harnessed.

SaaS on the other hand tends to build networks or communities of individuals that share a commonality - be it use, interest whatever. SaaS users tend to be loyal to a point, but not nearly as loyal as opensource-ers.

To a certain extent SaaS enterprises have attempted to create the opensource level of community by embracing the concepts of beta-testing and user feedback and development. This however has been reasonably limited (mainly due to the fact that opensource is free, at some point a free beta-test of a SaaS product will generally swing over to a subscription based service).

Imagine if you will a situation where a revenue generating SaaS product builds a community of such committed users that they become the salesforce, an integral part of the development team and the PR gang. In reply to a challenge I came up with a few ideas around building this sort of community buy-in.

• There is no reason that SaaS users cannot feel the same sense of “ownership” as open sourcies. Many open source organisations are viable businesses, there is no reason why a linux business model could not be utilised for a SaaS offering
• Make your users feel special. If I subscribe to a SaaS CRM service, and obtain extra bang for my buck, some extra service that is complementary to the primary offering but distinct, I will feel inclined to champion that product
• Allow the users to shape the product. Go beyond beta testing and foster a culture of participatory development
• Open the floodgates - go public with the intention to build a free SaaS product with community led development and build in an alternative revenue stream other than subscriptions
• Find a niche that is so under-served by current offerings that just by creating a product (free or subscription) you attract passionate champions
• Adopt a persona of the underdog, appear to be a fighter battling the incumbents
• Find a vertical that is unserved by traditional software offerings - Facebook bought social networking to a bunch of non social networkers. TradeMe introduced internet auctions (and in many cases the internet itself) to a number of traders
• Aggregate the spend so that you per subscription amount can be as low as possible

Thoughts anyone?

Related articles by Zemanta

• The Knives Your Sales People Should Have
• Open Source Value Addition in SaaS
• Open source is dead. Long live open source