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Treb Ryan, CEO, OpSource

Treb RyanTreb Ryan, the chief executive of OpSource, hasn't just swallowed the Kool-Aid about the movement in the tech industry to deploy software as a service, known as SaaS.

In his words, he's mainlining it.

All joking and dot-com references aside, Ryan has an unshakable belief in the movement to access software applications over the Web, and he thinks everyone in the software ecosystem will be impacted by it: database providers, middleware providers and, well, the guys in Redmond.

Microsoft's gyrations this week about delays in Vista and Office 2007 until January are yet another reminder of the increasing gap between the development cycles for traditional software that runs on a client device and software that is constantly updated because you access it with a Web page.

But Ryan's got reason to be serious about SaaS. His company is carving out a niche for itself in the industry by providing hosting and infrastructure to software vendors serving up their wares.

The Santa Clara, Calif.-based company also operates a SaaS Incubator program, which helps start-up software companies get started as a provider of hosted software for clients.

Sure, software as a service has a way to go and is best suited for sectors such as CRM and the much-ballyhooed salesforce.com, he concedes. But there's more to the picture, as he recently chatted about with internetnews.com.

Q: First, can you explain the business model of OpSource?

We call ourselves first a SaaS enablement company. We create a platform for software-as-a-service companies that allow them to take advantage of the high quality of service and the number of tools for building their business, but remain focused on selling software.

We offer a complete solution: servers, disks and databases and the management and all of those things. It provides all of the management of the application and the customer support for SaaS organizations. So when you come in and deploy, say, Optimum on demand, our guys are answering the phones [for customer service], running applications and making sure it works for you.

In addition, we provide tools for our customers that help them look at how the system is running. What are response times? They can login wherever they are and get a snapshot of how the application is running.

We charge on a per-transaction basis. They pay for it the way they sell it to customers so they can match up their expenses with how the software is delivered.

This is in contrast with traditional software or shelf ware if it doesn't work. In many cases traditionally, the ISV would come back up its truck to the company and unload the software. So the company is responsible for making sure that the software actually runs and works.

The company has to go out there and buy all the servers and get all the databases and put the system administrators on it, desk support, those types of things. And if it doesn't work, the software vendor still gets paid regardless if they can make it work or not. Those are sunk costs for the customer.

Q: Then it's bad software design that has finally driven the industry to this point with on-demand software?

I think there's the pricing issue associated with it. You want to be paying for things as you're using it. I think many companies were tired of the big capital expenses.

Our argument is that you're buying SaaS as you need it. That could be on a per-month basis, or transaction basis, where you pay for the part you use. There are lots of models for delivering [and paying for] software as a service. And I think everybody understands that.

The second thing driving the trend is the ability to get a complete solution that you know is going to work, especially these days when IT is maxed out on what it can provide inside businesses.

Another part is the small-to-medium-sized business space and what software as a service can do that traditional software can't do.

By the nature of the way it's delivered [via a Web browser], you can now reach out past the enterprise to the customer base, and to all who get involved in [that business's] ecosystem.

It sits on a common platform and is deployed through a Web-based interface. You can reach out through that application to your customer, such as with a sales management application helping to manage a process of designing for chip manufacturers. You can interact much more effectively to do that in a way that is almost impossible with software behind the firewall.

Q:Are you just taking on the costs of running software that companies previously had to shoulder?

We're not, but the software vendors are.

Now, the software [provider] is absorbing a lot of the risk that used to be handled by the enterprise. In the old days, the enterprise bought the software and all the risk sat on them. If it doesn't work, they've already paid for it. Enterprises said: We're no longer willing to accept all the risks of this technology deployment. The reality is, software companies were fortunate to do it that way as long as they did.

Q: If this is really going to spread to the larger software industry, who will be the next DEC? That is, who is in danger of extinction by this shift?

I think the guys selling in the big enterprise-class middleware areas will see their market shrink. Anybody who's dependent on large license revenue is at risk, but because the application market is so big, they won't be the first ones hit.