SaaS, Open Source, Freedom, and Funding (SaaS Gone Open Source panel)

By Ravit Lichtenberg (blog) at AlwaysOn Summit at Stanford – Open source has been getting traction in the recent year with the release of Android, continued success of companies like Mozilla, and google Chrome’s open platform approach. In this panel, the connection between SaaS and Open Source is discussed.

Satish Dharmaraj, Partner, Redpoint Ventures, Founder & Former CEO, Zimbra: The primary benefit of enterprise using open source software is freedom of choice. Companies can modify the code and there’s an ecosystem facilitating the success of open source without being committed to one company or another. The benefit to the open source software companies and the enterprises who use them is clear: scalability for one, and reach is another. However, (in a B2B model) it is still unclear how the customer company benefits from the hosted open source solution.

On premise, Open source makes a lot of sense. The benefits are a developer eco-system, supports open standards. Traditionally, when customer companies get the code, they can integrate the code with their own software technology (login, payroll, etc.) But with SaaS and cloud-based model, companies may not be able to apply the same flexibility and modify the code in the same way—they no longer have full control of over a hosted code. In that case, the value of open source and SaaS comes from two areas: open source as a focus for support and SaaS when value-add is transferred to customers, such as when access to enhanced/extended code is directly transferred to the customer.

Ron Yekutiel, CEO, Kalura: The world is about intertwined products. We believe there’s a benefit for all in breaking down the walled gardens and opening it up. Open source can provide significant advantage especially for companies who have already established their brand and have their own IP, brand (equity), and products—it helps them scale quickly and safely in places that matter most for their brand. And, importantly, open source software doesn’t need to replace existing products—it can complement them.

Yekutiel: The advantage to customer using open source software in a SaaS model is that customers have choices. They can use the open source software service while also having other options such as self hosting or 3rd party hosting. It’s about synergy: customers who are self-hosting are doing it behind the firewall but then contributing to the GPL code pool and making it richer. For the whole offering, this results in a richer product (and in a competitive advantage in many cases, reducing the time, effort, and skills that would have been needed to develop the same amount and level of code in-house).

Kim Polese: The decision about open source is about development. SaaS is about distribution. These are complementary and can be used in combination. It’s a matter of business decision.

Yekutiel: If you’re in a business where there are economies of scale for streaming and hosing, each may be using it for their own purpose but together they are working as an ecosystem. It’s hard for a new company to replicate the network effect from scratch.

Choosing to fund an Open Source company

Dharmaraj: When it comes to open source, companies needs to own the intellectual honesty behind the code. They wrote it, can they modify it, are they significant contributors to the content…that makes a difference whether an open source company is fundable or not. We typically look for fresh innovative ideas that disrupt existing enterprise or consumer software products that are distributed via SaaS or open source.

Erickson: In the open source world we have open source friendly markets: education, government…people who are pressured around budgets, as well as the web market—organizations who are intranets on top of Drupal for example.

Polese: There’s a maturity per cycle that is longer. We’re seeing more and more companies adopting a SaaS model. We’re in a market where you’re not seeing that many IPOs or exists but there are a lot of SaaS companies who are doing very well and have healthy margins.

Tom Erickson: Companies are realizing it’s not just about their APIs but that open sourcing a piece of what they have will lead to maturity faster.

Dharmaraj: Companies haven’t yet grasped the full impact of SaaS or open source because of issues such as IP so they’re less than keen on buying in. Moving from license to subscription model will require a paradigm shift. Cisco is the exception—they’re interested in SaaS and are making the rules there. It’ll take some time.

Panel composition

Matt Asay- VP Business Development, Alfresco, & CNET blogger
Ron Yekutiel, CEO, Kaltura
Satish Dharmaraj, Partner, Redpoint Ventures, Founder & Former CEO, Zimbra
Tom Erickson CEO, Acquia
Kim Polese, CEO, SPikeSOurce
Stephen Gillespie, Partner, Intellectual Property Group, Fenwick and West

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