SaaS and Open Source Meet the Grim ReaperThe VAR Guy has spent the last two years evangelizing software as a service (SaaS) and open source as a killer combination that VARs need to master. But now Trip Chowdhry from Global Equities Research says SaaS and open source companies will suffer greatly amid the economic turmoil. Here are Chowdhry's perspectives and The VAR Guy's observations.

According to a blog entry posted on Barron's, Trip says:
  • “almost every” VC funded open-source company is struggling and will run out of funds within the next 6 months. He also says that “many VC funded Web 2.0 companies are shutting down…the Web 2.0 fad is now coming to an end.” He has a similarly dark view on the prospects for software as a service start-ups
  • First-generation SAAS companies - NetSuite, Kenexa, RightNow,, Rackspace, SuccessFactors, DemandTec - “continue to struggle and probably will not see any recovery in their business, irrespective of the economy.”
  •’s business “continues to deteriorate, the best is over, the worse is still to come.” He writes that one of his contacts describes the company as “a modern day Visi-Calc.”
Hmmm. The blog entry has several other bleak predictions. And in many cases, The VAR Guy agrees with them.

Misleading Picture?

Still, it's dangerous to paint with broad strokes in the SaaS and open source markets. On the open source front, SugarCRM is well-funded and sitting on $20 million cash -- waiting for the economy to recover enough before launching an IPO. And Openbravo recently raised more money had has achieved 1 million downloads. And the list goes on.

And in the SaaS industry, NetSuite's quarterly revenues just jumped 44 percent to $40.4 million -- though profits fell short of analyst expectations. Alas, NetSuite and other SaaS stocks have fallen sharply this year, according to the MSPmentor SaaS 20 Stock Index.

Balanced Perspective

So, what's the truth: Will SaaS and open source companies implode or will they perform better than traditional IT companies?

Generally speaking, The VAR Guy thinks both SaaS and open source remain the path to long-term channel profits. Skeptics should check out all the consulting revenues you can make by supporting Red Hat JBoss middleware.

The VAR Guy is updated multiple times daily. Don’t miss a single post. Subscribe to his newsletter, RSS and Twitter feed.