The coming software revolution

If Marc Benioff, CEO and founder of Salesforce.com, is the biggest spokesperson for SaaS (software as a service), then Greg Gianforte, CEO and founder of SaaS CRM competitor RightNow Technologies, is in the avant-garde of that software revolution, adding open source to the war on packaged apps. The difference between the two may offer us a peek into the future of IT infrastructures.

RightNow is not as large as Salesforce.com, but it does have some heavyweight clients. It handles all the online queries for the Social Security Administration and Medicare Web sites, to name two examples, and it does it all on a single instance of the MySQL database.

Gianforte says RightNow handled 188 million queries last quarter. Multiply that by four and you get three-quarters of a billion queries a year.

The cost of purchasing and maintaining RightNow’s infrastructure, including personnel, comes to 6 percent of its revenue. That has to be an order of magnitude less costly than running a similar operation on Oracle clusters and Sun servers.

In fact, Salesforce.com just spent $50 million on a new datacenter infrastructure, according to Bruce Francis, Salesforce’s vice president of corporate strategy. Gianforte says it doesn’t have to be and won’t be that way in the future. 

Gianforte believes the convergence of SaaS and open source will commoditize IT infrastructure -- first the operating systems, then the database, and then, of course, application and Web servers. Who cares what the underlying software is, he asks, as long as the customer gets what is needed?

Yes, bringing someone in to fix a problem with open source software will still cost you $300 an hour, but the real win comes when you don’t have to pay 25 percent of the cost of your software license in yearly maintenance costs and your products aren’t forcibly sunset on you. Between that and having access to the source code, IT definitely has more control. 

I also spoke with the CEO of another SaaS provider, Nestor Zwyhun, of TradeCard, a 6-year-old company that delivers accounting as a service. TradeCard is built on DB2 and MQSeries, but Zwyhun is also transitioning, albeit slowly and carefully, to open source. TradeCard currently uses JBoss for its J2EE Web application server and it will replace Windows Server 2003 with Linux next year.

The first to benefit from solutions built on open source will be the SaaS providers themselves. But if they are able to scale their infrastructure on the open source platform to an enterprise level and provide 100 percent uptime, the good news will spread quickly. 

There is a caveat to this rosy picture, and I have Rob Enderle of the Enderle Group to thank for reminding me of it. Open source companies have historically operated on margins that are thinner than proprietary companies, which doesn’t necessarily bode well for their futures.

“They don’t have much buffer,” Enderle tells me, compared with a company such as Oracle that generates a lot of cash. Can such a company generate enough revenue to weather a major competitive storm or a short-term software problem?

According to Enderle, a customer relying on a SaaS solution provider that builds its platform on open source may be trading future risks for short-term, tactical cost savings. That said, SaaS and open source together are a juggernaut, the rewards of which may outshine its risks.