Business & Technology Nexus

Dave Stephens on technology and business trends

Archive for July 2009

Transfigured Open Source

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A few years ago, Linux appeared to be headed towards dominance in the server OS market. At the same time, MySQL “broke out” and seemed on its way towards making databases free. At layer after layer in the technology stack, open source was cool & moving forward.

So much so that vc-backed companies formed and grew taking traditional enterprise software or technology areas and professionally building and running open source project versions.

Here in 2009 the scene has changed. It feels very different.

For open source software companies expecting customers to choose to “pay” for “free” software, the bait-and-switch mindset which was so inevitable is more exposed.┬áImho, this is a good thing, as it frees the open source movement from a moral gray area where companies offered products for free but were incented to somehow cause those products to need other services or support to make them complete & functional.

Microsoft’s server OS seems to be faring better than expected vs. Linux. And Oracle has been very active, acquiring InnoDB (the jugular of MySQL), offering enterprise support for RedHat Linux (exposing the lack of intellectual property in RedHat’s business model), and then swallowing Sun to take Java & MySQL in full.

This leaves us in an interesting spot, where we seem to have only 2 viable technology stacks left – one from Microsoft and the other from open source + Oracle / IBM. IBM has growing gaps while Oracle seems strengthened in the enterprise.

As a fan of Ruby on Rails and other script-based languages, it will be a telling 2010 to see whether the market will consolidate around .Net and Java or whether choice continues & the tools market remains fragmented…


Written by Dave Stephens

07/25/09 9:17 PM at 9:17 pm

Posted in IT, Open Source, Opinion

SaaS and Profitability

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It’s been interesting to monitor profits for public SaaS companies over time. Ever since Bruce Richardson’s 2008 research report “SaaS and the elusive path to profitability” I’ve been looking for examples where gross margins look like they will trend towards the 40 points that so often seem the target for the wold’s best software businesses.

So far, I haven’t seen it.

It’s possible that the reason is that these businesses are simply viewing today as “land grab time”. When operating in that mode, a SaaS business may be willing to spend 1.5-2 times the annual recurring revenue to acquire business, especially if they have direct evidence with 90+% renewal rates.

But once the mindset takes hold that profits aren’t a key measure, you end up in an interesting predicament. Whenever you adjust (and it is inevitable) towards a profit-motive in the business, employees and outside parties tend to view the adjustment as a capitulation that growth has slowed and will continue to slow.

Until the big SaaS players can “show Wall Street the money” we should all be skeptical that the business model will prove as lucrative as its’ “on-premise” predecessor.

Written by Dave Stephens

07/18/09 12:01 PM at 12:01 pm

Posted in Software