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Stuart Cohen, writing on Business Week, declares that Open Source business model is broken (See Techmeme discussion).

For anyone who hasn't been paying attention to the software industry lately, I have some bad news. The open-source business model is broken.

He argues that Open Source companies are struggling because they could not add proprietary kind of value on top of the open source software. He, then, debunks open source as a pure play business model and goes on to argue that Open Source, instead, adds value to businesses through collaboration.

In fact, I agree with him about the latter part but I think he is wrong to consider Open Source as a business model. I wrote about it almost two years back in my personal blog. I have argued that pundits are wrong in considering Open Source as a business model and, then, went on to argue that Open Source is a philosophical platform which adds value much like how Science plays a role in this world. I had argued that various business models can dance on top of the Open Source platform. Any talk of Open Source as a failed business model is meaningless and it is better to argue that entrepreneurs failed to come up with viable or innovative business models on top of the Open Source platform.

Mr. Cohen was right on target when he pointed out how Open Source adds value to businesses in the form of collaboration. He argues that businesses needs software with the same “ingredients” as other businesses and they can share the costs and work together in the development of open source software. The importance of this statement can be seen in today’s SaaS world. Cloud Computing, in general, and SaaS, in particular, could bring down costs mainly due to the widespread use of Open Source software in their platform stack. Vendors could transfer the cost savings they achieve with the use of Open Source software to customers. In turn, vendors could offer their resources to the development of Open Source software. Google is a perfect example of this. Google leverages Open Source to its fullest potential and, in turn, recruits Open Source developers as employees and allows them to spend considerable amount of time to work on Open Source projects. This kind of collaboration is a win-win situation which can only be possible in the world of Open Source.

Another area where Open Source can add value in the SaaS world is in building the confidence of the customers. There is definitely a huge risk in the SaaS world when customers put their data on the hands of third party vendors. There is always a possibility that a SaaS vendor can go out of business putting your data at risk. Not only the customers have to get the data out of the outgoing vendor, they also need to find a compatible SaaS application to keep going. Unless the old vendor is offering an option to export the data in an open format, the customers are in for a big trouble. Plus, many customers may want to stick with the same application due to various reasons. This is the kind of scenario where releasing the SaaS application as Open Source adds value to the customers. They could just install the app in one of the cloud infrastructure available and keep going as if nothing changed in their world. Mindquarry, a collaborative software, is a perfect example for this kind of scenario. I have emphasized this kind of value addition for a long time.

Instead of spending time arguing if Open Source is a viable business model or not, it is important for us to understand the true nature of Open Source and use it innovatively to add value in areas like SaaS, SaaS’ next iteration called Enterprise 2.0, etc.

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