As part of some business model research I am doing for a friend, I tried to figure out what model is the most appealing if you have a green field (untapped market opportunity) and you were going to start something from scratch. As an open-source software guy first and a software-as-a-service guy second, I really wanted open source to be the right way to go. And I believe it is for infrastructure software, but not for packaged applications. I still can't figure out how Web 2.0 companies translate into dollars though maybe it's as simple as advertising?
For packaged apps, there is really no reason to go through the hassles of deployment when you have the option to integrate hosted applications with your internal systems.
New-school business model Monetization Scorecard:
Open source: Monetization via subscription, tooling, support and licensing
Open source gives you multiple options to monetize users but you pretty much always are going to compete with free.
Web 2.0: Monetization via advertising and subscription
To be successful you need lots of eyeballs, which is why the Web 2.0 companies make it feel like 1999 all over again. The net positive is that lots of cool new technologies have been figured out that will trickle down as all the Web 2.x companies eventually go out of business while a select few get bought by Yahoo and Google.
Software as a service: Monetization via subscription
Software as a service companies like Salesforce.com seem to have really figured out how to monetize and lock-in users with no reliance on banner ads or complicated explanations of General Public License vs. Commercial. Is it the perfect model? For packaged apps like customer relationship management, or accounting, I have to say this is the right way to go. If you are doing infrastructure, like service-oriented architecture or enterprise content management, the model falls off due to the necessity of connecting internal systems. In this case, hosted apps just become endpoints.