ZDNet has a good round-up of opinion on why Open source won't doom traditional enterprise software

I'll continue to stick my neck out. Free software + Software-as-a-Service are going to drive today's commercial enterprise models extinct. The only question is how long it will take.

(BTW : yes, free software isn't the same as SaaS, but the two are a good fit, along with eXtreme development.)

Proprietory software is ultimately doomed, because "proprietoriness" is not a feature that customers value or want. At best, it's an inconvenience they're willing to put up with in return for other benefits.

But those benefits will diminish relative to the free / SaaS model.

They'll diminish because :

a) however slow burning, free software is cumulative. If one company providing it dies, the source-code won't go away. It will get resuscitated when the next eager entrepreneur sees a new opportunity to apply it. Free-software is the undead, you can't kill it.

Every generation of competitors based on free-software starts one step closer to the proprietory incumbents.

b) as mentioned earlier software-as-a-service is a better fit, as a business model, for agile, iterative development. And agile development is more effective than giant, product-shaped packages.

The two trends will combine : providers of SaaS won't try to differentiate themselves on the whole software stack. Instead they'll focus on their core application functionality and use free components like LAMP for the rest.

It's the SaaS providers who are already, and will continue to be, at the forefront of free software use. They'll continue to have both the expertise and motivation to engage with the free communities and to contribute back to them. In fact, we'll see most serious free-software worked on in service software companies rather than by total amateurs or product companies.

By succesfully re-using free-software, and through having the freedom to work in a more agile way, SaaS vendors will simply outperform the product makers.

How long will it take the big customers to notice? Hard to tell, but the Free-SaaS combination is classic "disruptive technology". At the moment it still lacks features which satisfy the biggest customers, but it satisfies some, and so is eating its way up through the small and medium sized customers, adapting, evolving and improving itself all the while.

Currently, the main argument against free-SaaS is that software providers don't want to offer it (there's less economic rent to be collected in services than in owning Intellectual Property). That's as may be. But as long as someone can make a profit providing free-SaaS, and is willing to do so, competition and customers will drag the market in this direction.

BTW : it's plausible that the free-SaaS world itself will unbundle into the three types of companies : infrastructure, customer relations and developers. Hence small (dynamically assembled?) clusters of programmers will be paid by a more customer-focused SaaS provider to add a small piece of functionality to an existing free system for existing customers.

BTW 2 : OReilly thinks that mating with SaaS (where the GPL doesn't force people to actually share their changes) will weaken free-software culture. That's possible, but I don't think it's a big deal. In the competition between various ecosystems, the more free will tend to flourish and drive out the less. I may think I can lock-up the veneer of business-logic that I put on top of a LAMP-stack, and charge an economic rent for it.

But my slightly less popular competitors will immedietely scent competitive advantage by opening their developments to each other and the wider community. In fact, as a customer-relations company, I'm probably far more interested in holding on to my customers through good service than locking them in by nefarious tricks.