
SaaS vs. Open Core: Which Business Model Is Best? - twakefield
https://gravitational.com/blog/open-core-vs-saas-business-model/
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twakefield
There is a google sheet which has the data I used for this post [0].

I had also looked at companies like Slack and Zoom which target lower average
deal sizes and it was quite remarkable how much better their metrics were. But
didn't feel like it was apples to apples. That data is the spreadsheet though.

[0]
[https://docs.google.com/spreadsheets/d/1BV1Kk542KHultHOB8Lkz...](https://docs.google.com/spreadsheets/d/1BV1Kk542KHultHOB8LkzAotv1L5PvCb87_mrNMO43JI/edit?usp=sharing)

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statictype
This is great. How did you collect this? I assume we need to tack on an extra
3 0s to each of the figures there?

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graphememes
I agree, these numbers seem low.

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taylorwc
It’s a convention. SEC filings typically list financial data in 000’s.

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tyldum
We buy support. I dislike Open Core as it tends to be unclear where features
go in the future, and the pricing is usually insane. At my workplace we need
to be on-prem so SaaS is out. We often pay for support we don't really need,
in order to fund open source projects.

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sytse
I think in the article SaaS is used to refer to proprietary SaaS companies.

In my opinion these are two different dimensions. You have the delivery
method: SaaS vs. self-managed/on-premises. And you have the license of the
code: proprietary vs. open-core (which can be fully open source, open-core, or
a non-compete license like the one MongoDB and CockroachDB switched to).

At GitLab we have an open-core license and offer the product both as SaaS and
self-managed, so we do both things in the title. The opposite would be
companies offering only proprietary software that you run yourself, like
Sketch.

Another dimension would be billing, people frequently mention SaaS as an
example of subscription billing. At Gitlab we also bill for our self-managed
software on a subscription basis instead of a big license fee upfront and
yearly maintenance.

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twakefield
"I think in the article SaaS is used to refer to proprietary SaaS companies."

That's true and covered in a previous post [0]. I also recently saw this tweet
from @asynchio that also agrees there are different dimensions [1] and will be
covering that further.

[0]
[https://gravitational.com/blog/kubernetes_networking_on_bare...](https://gravitational.com/blog/kubernetes_networking_on_bare_metal/)

[1]
[https://twitter.com/asynchio/status/1136139175437062146](https://twitter.com/asynchio/status/1136139175437062146)

~~~
sytse
Cool, thanks!

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jrochkind1
> In the second post, we discussed how there is actually quite a bit of
> overlap between SaaS and Open Core and to draw a distinction, we would
> assume the Open Core software is primarily being delivered on-premises for
> comparison purposes.

Hmm, that might be convenient for your analysis, but it seems an unsafe
assumption and artificial categorization to me. I think an increasing number
of "open core" efforts, possibly most of them, are trying to monetize the non-
open-source portions via SaaS. In fact, as we saw in the Amazon/ElasticSearch
fight, one of the main motivations for not using a FLOSS license for some or
all of your software is to prevent SaaS competitors from using the software
you are producing.

I tried to look at your list of companies analyzed categorized "Open Core" to
see how many of them offer a SaaS, but I realized that for these companies I
was unfamiliar with it was hard to figure that out quickly from their web
pages. Let alone then figure out if they were _primarily_ delivering as SaaS
if they offered an on-premises option (as even Github does). But that would
seem to be neccessary to validate your assumptions.

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karterk
I've been working on an open source search engine
([https://github.com/typesense/typesense](https://github.com/typesense/typesense))
and this exact deliberation has been on my mind.

Ideally, one could offer both on-premise and hosted versions (like Gitlab),
but that's really tricky and needs a lot of resources to pull off
successfully.

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njyx
This question (or the basis of the analysis) really doesn't make a ton of
sense. The overriding deciding factor is really: who is the buyer and how do
they want to buy. An open-core model for a strictly non-technical audience is
a lot worse off than SaaS. On the other hand, if you have customers with
security concerns SaaS may be off the table (still) for many of them.

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mikekchar
I'm really curious how bootstrapping as opposed to VC money would affect this
comparison. Not really much in the way of data I imagine though... I suppose
it's hard to compare too. Big piece of a small pie vs small piece of a big pie
kind of issues abound. Although HN has a very reasonable slant towards VC
backed startups, I'm _much_ more interested in bootstrapped startups.

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jillesvangurp
I have some experience with both models. Bootstrapping is hard mostly because
of sales, not R&D. I'd say a healthy model these days is to bootstrap the tech
before you start investing in sales as much as you can. The danger with that
is poor product market fit: most techies are not great at doing sales and
marketing and you may end up building what you'd want instead of what your
customers actually want.

For a no-tech company, getting techies to execute your vision is hard and
expensive and generally impossible without funding or a very solid co-founder.
You are basically talking about outsourcing an mvp to cheap consultants that
aren't that great. The result is throwaway code. If you can sell that; great
and you can then start fixing it. If not, that's a problem.

A few of the open core companies pre-date their VC rounds. I know one of the
Elastic co-founders from before he got involved with that. The project was
several years old by the time they incorporated and got proper funding. They
were bootstrapping using consulting and support type stuff (this is how I met
him). After getting organized, they went from a small group of contributors to
closing several big rounds and hundreds of staff in a short time. Also from
there to IPO was quite fast. I'd say this was a good example of bootstrapping
followed by VC capital to grow followed by what looks like a successful IPO:
they are trading at 82$ after an initial price of 70$, they have revenue, and
growth, and what looks like a reasonable valuation to my (not an expert) eyes.

IMHO there's nothing wrong with VC capital provided you do it for the right
reasons and on your own terms and not as a shotgun wedding. In my current
company, we got close to a series A a couple of times but chose not to proceed
for the reason of wanting to stay in control of our company and protecting the
interests of our early investors. The flip side is that this has slowed down
our pace and limited our ability to grow.

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mikekchar
Thank you for that! I seem to remember Gitlab also saying that they tried
bootstrapping before accepting VC funds and had a hard time at it.

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ummonk
Isn’t there survivorship bias by looking at notable successful IPOs?

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karussell
Wrong question as usually both are combined

Edit: as already in other posts highlighted they are two different dimensions

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opensourcenewb
off topic but Neo4j recently executed an open source for open core bait and
switch. thoughts on that?

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Syzygies
It's a Jeopardy! clue.

[buzzer]

What is .. Software as a Service?

