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Open source evolving into SaaS?

SaaS may well prove to be the next phase of open-source business.

I've talked before about the close affinity between open source and SaaS, including that SaaS is built using open source, but it's only been this week that it the full import of open source-begets-SaaS came home to me.

Perhaps it was seeing Zimbra and OpenX both announce hosted offerings of their respective open-source email and ad server offerings.

Or perhaps it was my conversation with Bill Kaiser, a friend and Greylock venture capitalist, wherein it seemed that the most interesting new venture opportunities were in SaaS, and that open source has not resolved one of the fundamental problems with enterprise software: it's too complex, too cumbersome, and too Soviet in its design aesthetic.

This thought was underlined by Terry Barbounis, a friend and Christian Science Monitor CTO, who practically gushed about the positive experiences with SaaS offerings like Jive Software's Clearspace he has been having lately.

Open source is a massive upgrade over the proprietary lock-in of incumbent enterprise software solutions. It returns control to customers and makes it easy for them to try software for free and without obligation, as well as to tailor it to their individual needs.

But open source has not gone far enough - at least, as a movement - in addressing the need for software that is easy to pay for and use.

Intriguingly, somewhere in that need open source can be forgotten, as Dusty Davidson of BrightMix, an OpenX customer, unwittingly reveals in endorsing OpenX's hosted version:

OpenX Hosted lets us focus on what we do best, which is creating great content and selling ads for that content. Now we don't have to worry about upgrades, hosting, ad server performance. OpenX Hosted takes all of that out of the equation so we can devote more resources back into making our sites great.

In other words, now BrightMix need not concern itself with open source.

Is there a fundamental conflict here?

There certainly could be, but I think open-source vendors that provide SaaS solutions can resolve it. How? Simply offer the SaaS solution with the on-premise, open-source software as a hedge and as an easy way for customers to try it out before buying (either a server-based install or a hosted deployment).

This removes some of the "stickiness" (read: lock-in) of SaaS, but I'm willing to bet most SaaS customers are in it for the simplicity of deployment and maintenance. Most will continue to pay for SaaS to avoid having to install and maintain the software themselves.

And pay they do. In fact, while the trend in open source is to push longer-term contracts (to ensure customers stick around long enough to become profitable, the trend in SaaS is for ever-shorter contracts because it leads to more uptake and higher prices (i.e., less discounting). SaaS vendors have discovered that customers are unlikely to leave once their data is in the service, so they don't need long-term contracts to keep them around.

Now, marry the freedom of open source with the stickiness and ease-of-maintenance (and ease-of-use, if done right) of SaaS and you have a billion-dollar software opportunity waiting to happen.