Submitted by “Oracle’s Linux initiative has so far failed to make a serious dent in Red Hat’s business or even in its stock price. Red Hat is actually worth slightly more today than it was when Larry Ellison launched his apparently not-so-scary RHEL clone the week before Halloween. But it is a little early to conclude that we are living in the best of all possible worlds for Red Hat. True, the company’s financial results for the November quarter reassured easily-stampeded Wall Street investors who panicked in the first days after Oracle’s announcement. But the fact remains that Red Hat’s stock is worth 25% less today than it was a year ago. This decline reflects fundamental concerns not about the immediate threat from Oracle but about the long term value of Red Hat’s business model.”
It’s way too early to know the impact that Oracle might have on RedHat income. The big customers who might switch from RedHat to Oracle don’t make those kind of decisions in a couple of weeks. Not to mention that sales/profit figures released today are from months ago. And stock market value is generally based on people’s assumptions about the future, not today’s sales and profits.
Wait until the end of this year and then we can evaluate the impact.
Edited 2007-01-22 20:17
Article got it slightly wrong claiming that people are downloading Fedora (which is more targeted to bleeding edge folks and home power users than businesses) instead of RHEL – it’s actually CentOS that people are getting instead of RHEL surely?
As for the Red Hat model, I don’t like the fact that “updates and support” are bundled together rather than being separately available and I’m *sure* this contributes to savvy IT folk who don’t need the support (and remember anyone can register on RedHat Bugzilla and file bugs against RHEL [just use CentOS to find them for free first…]) choosing to get CentOS instead.
Red Hat really should offer an “updates only” package at a much lower rates than their current model – I’d also like to see a “lifetime sub” (i.e. you pay a lump [discounted] sum up front that takes your updates all the way to the EOL of the release you’re on or 5 years, whichever is the later), so that you only have to deal once with the paperwork.
BTW, irony of ironies after the dubious Unbreakable Oracle Linux release, Oracle have gone in the opposite direction – if you buy a new Oracle DB licence, you are now outrageously forced to buy both updates and support, whereas previously you could just buy updates only.
True, most web hosting companies use CentOS these days. It’s basically RHEL without paid support. As long as you have guru sysadmins (which they do), CentOS is perfect.
“With competitors like Oracle able to clone its products freely, it appears highly unlikely that Red Hat’s revenue or value can ever exceed a small fraction of those generated by the Windows franchise.”
The author fails to mention the free software community’s support of Fedora, and by extension Red Hat. The community gives its support by helping with its development projects (see http://fedora.redhat.com/Contribute/), at no cost for Red Hat.
Will the community give its support to Oracle? It depends. If Oracle is willing to invest and improve free software, the community will reply in kindness.
What you fail to mention (and you are not alone in this) is the contribution that RedHat makes to OSS Software out of their profits.
So, yes RH for benefit from the OSS Community in Fedora and RHEL but the OSS Community benefits from the $$$, £££, Euros etc that RH spends from their RHEL revenue stream in the form of their investment in people who contribute to the greater Linux community.
They also have paid good money for closed source software and made it Open Source (eg the former Netscape Directory Server)
I wait with anticipation for Oracle to start shipping their clone of RHEL. Will they contribute bug fixes back into the OSS Pool? or will their Linux become a Fork and not a clone. It remaines to be seen if Oracle can support Linux and its gazillions of packages better than they can support their own closed source Database.
Before anyone asks, No, I don’t work for RH. I am just a professional software developer (some 30+ years) who prefers Linux over Windows.
The author fails to mention the free software community’s support of Fedora, and by extension Red Hat. The community gives its support by helping with its development projects (see http://fedora.redhat.com/Contribute/), at no cost for Red Hat.
I think that the author fails to take into account one little thing that all analysts fail to take into account – businesses can and will change as conditions change; heck, for all we know, Red Hat might buy out Corel, invest a few million to port all their applications to Linux, and use that, along with a flat rate subscription to get people moving over to Linux as a desktop.
Lots of things can occur from now and into the future, and assumptions, especially assumptions about the IT sector can be rather silly given out quickly things can change overnight.
Also, the assumption in regards to Oracle and customer migration is based on the assumption that customers all customers base their decisions on price when in reality, propcurement is a whole lot more complex than just that – some cases, a business might go for a slightly more expensive solution, choosing from 2 vendors rather than just acquiring everything from one, for stragetic reasons; to ensure that they aren’t screwed later on down the track.
Add to the fact that Jboss as been a recent acquisition, one should hesistant about the success or failure of bringing JBoss up to speed in regards to competing with Oracle; if Red Hat make some major improvements, Oracle might find itself in a position where name recognition and hard nose hype feasts aren’t going to continue to win customers over.
Red Hat’s business model is not the same business model as Microsoft’s or Oracle’s, but that doesn’t mean it is a flawed business model.
Red Hat offers subscriptions with its OS and in order not to have to show up at the clients for minor annoyances in their software, they are forced, and willing, to produce rock solid software. They could have chosen to write crappy stuff so they have to be called many times, and get payed per ‘visit’ – that’s also a way to make money.
But the RH approach gives the company a very good name. People realise that one of Red Hat’s USPs is that “you don’t get screwed by Red Hat.” After all, it is in everyone’s interest (inclusing Red Hat’s) not to have to call – saves RH money, saves the customer time (=money). The result: a good OS, good software.
Don’t underestimate what a good name can do for you in business. People actually do know very well, unlike some superficial analysts suggest, that if they just go for the “cheaper offer” of Oracle (out of short term budget considerations), they would, in the long run, end up with worse software.
What I do think Red Hat must do (feel free not to give a dime) is to reclaim the desktop. Microsoft conquered the server room via the desktop, and Canonical is trying to do the same. Fedora Core is the potential key to achieve this, so I’d suggest Red Hat invest heavily in it. Because mind share becomes market share.
Actually, if you noticed the Unix/Linux scene over the last 20 years, you can see that it has been gradually, but surely, moving from the server room and closed-door enterprise to the home desktop and set-top box.
Back in that day, you had Solaris, Debian, Red Hat, FreeBSD, etc. Today, they share the “Unix-like” designation alongside distros like Ubuntu, Mandriva, Fedora, SLAX, SuSE, etc.
Meanwhile, Windows has evolved greatly within the same time, from being a single-user, non-networking OS in the late 80’s to a server-grade OS in the 2000’s.
Each OS standard has evolved in such manner because they offer what people are looking for at the moment: from Windows Server, a user-friendly GUI in the server room; from Desktop Linux, an Internet-ready architecture in the home.
So, with all the frequent “Year of Desktop Linux” annual gunjumping by the Linux press, I think companies like Red Hat and Novell will move further to the desktop, but at the expense of their place in the server room. Applications like Xen and AIGLX should serve as telltale signs of such a shift.
At the same time, as evidenced by how Vista has mostly had people yawning for various reasons, Microsoft is bound to move into the server business with Windows, abandoning the desktop OS market in the process.
That’s right. Not everybody understands business models, including the author of this article. He mainly suggests that Red Hat drives less revenue than Microsoft per unit market share. This means that the average Red Hat customer pays less than the average Microsoft customer.
This makes sense. After all, no small part of the Linux value proposition is that it costs less, even including the service agreement. How much less? According to the numbers in the article, the ratio is about 1/5. So the author claims that Red Hat’s software offerings, on average, cost one fifth the price of Microsoft products.
Again, this makes sense, and it’s part of the reason why businesses are choosing Red Hat. Red Hat drives down costs by leveraging the OSS stack, enabling them to provide quality software and services at an 80% cost savings when compared to Windows Server. Not bad.
Please – let’s not even get into hypotheticals – Redhat is a poor company that doesn’t even employ the main developers of its products.
They what? Red Hat employs many Free Software developers and has done so historically. Sure they don’t employ every single Free Software developer out there but that is the strenght of this business model, we don’t need a monopoly to get a great product out the door.
One of the strengths of OSS is that no one company can employ all of the key Linux Developers.
You (IMHO) have completely missed the point of the Linux Community.
We work together regardless of location,sex, race, religion or creed for the greater good. The diverstiy of ideas and backgrounds of the key developers makes for a better product. We (OSS Developers) are not MS Borg Droids.
I have little to add to the two other posts in reply to your OP (Alan Cox Red Hat employee, RedHat member of OSDL/Linux Foundation, RedHat member of patent commons, no reason to employ all kernel developers, etc. ).
Just one correction more:
The brand of car you meant is obviously Porsche and not Porche. And if cars made by Yugo were as reliable as RedHats Linux Distribution, Yugo wouldn’t have such a bad name
EDIT: OSDL -> Linux Foundation http://www.linux-foundation.org/
Edited 2007-01-22 22:38
it is not going to be easy to replicate redhat’s connections, sales, and support, but it will be easy to replicate their product. should their pricing become uncompetitive, it will be straightforward for a competitor to offer a nearly identical product with lower margins.
this is good! it means the market for supported free software will stay competitive. a potential negative is that redhat might not be able to assemble a war chest large enough to assault microsoft directly or fund major ad campaigns, but that is the nature of the open source market. it is not redhat that microsoft is competing with in any case, but all of free software in its entirety.
Then why is it that Microsoft has never said anything about Red Hat – or any other Linux vendor – in their press releases?
If you notice their “Get the Facts” advertisements, Microsoft only vaguely refers to their main competitor as “Linux” rather than as the name of any particular commercial Linux vendor. Then, in the press conference from last year, Microsoft made a deal with Novell on the professed grounds that it was helping Novell to make “Linux” more interoperable with Windows.
If anything, I think Microsoft’s official position is that Novell = Linux, hence the patent deal with Novell and not with any other Linux vendor.
I mean, I tried Googling for any MS quotes concerning Red Hat the other day, and all I could pull up was quotes from Red Hat’s press releases concerning Microsoft. Not once could I find a Microsoft statement on Red Hat, not once.
If that’s the case, then I think that Microsoft is being narrow-minded in their competitive approach to FOSS.
Their belief is that, officially, they can only talk to, compete against, make deals with, and eventually assimilate companies, not simple developers or grassroots organizations.
Who have they competed against in the software sector? Novell, Netscape, Adobe, etc. In the web sector? Google, Yahoo, AOL. In the hardware sector (most recently)? Apple, Sony.
Are they against open source? Not really, just allergic to the GPL (and, by extension, FOSS which is licensed under that license).
But I personally don’t think they can understand FOSS, and neither can I blame them. Microsoft offers software as a product, while FOSS offers software as a service.
So….I guess that makes the two models antithetical, hence, non-competitive to each other.
Thus, Linux (unless it or its services are offered as a product) isn’t commercially competing against Windows, and vice-versa.
I tried Googling for any MS quotes concerning Red Hat the other day, and all I could pull up was quotes from Red Hat’s press releases concerning Microsoft. Not once could I find a Microsoft statement on Red Hat, not once.
What about:
http://seattlepi.nwsource.com/business/292702_msftredhat17.html
“We are willing to do the same deal with Red Hat Linux and other Linux distributors,” Microsoft Chief Executive Steve Ballmer said at an SQL database software conference in Seattle.
Note the funny reference to the company Red Hat as “Red Hat Linux”.
In any case, maybe Red Hat does have a special place in Ballmer’s heart after all.
Not as special as Google, naturally, but he is kind enough to mention its name.
What Redhat should do is this
1. modify the future kernel to execlude alot of device drivers (allowed by OSS) and publish changes as source to stay compatible with OSS.
2. Create a bunch of non open source commercial tools that helps the OS be more productive and don’t publish this.
3. Support a narrow hardware vendor names (eg sun, HP) to lock up the software to limited amount of hardware to force customers buy these hardware if they need the full power of Redhat software.
4. other measures .. to be filled by others…
if I was redhat, I would take everything -the kernel, X, gnome, etc and fork it, put it under one bugzilla and push the direction for the entire linux platform.
see
http://eugenia.blogsome.com/2006/12/27/os-distro/
Who cares about stock holders? Less parasites = more wealth for people. Red Hat will never be Microsoft and that is a good thing!
This is OSNews, not the Financial Times.
First the article states:
“the company’s financial results for the November quarter reassured easily-stampeded Wall Street investors who panicked”
Which seems to say that stock price does not reflect business reality. Then the article goes on to say:
“This decline reflects fundamental concerns not about the immediate threat from Oracle but about the long term value of Red Hat’s business model.”
Put simply, Red Hat is the most successful open source software company in the world, it has been a public company for nearly eight years, its software is used by hundreds of thousands of companies, and yet when all and said and done it is barely worth 3% or 4% of Microsoft’s Windows operating system business. This is a problem.
Therein lies the problem with the author’s assumptions. Redhat is not attempting to be Microsoft. Redhat is focused on the server right now, not the desktop. The Linux desktop has yet to fully emerge. When that happens we can talk about Windows vs Redhat as a whole. For now we should only be worrying about competition amongst server versions of each companies operating systems.
Of course one might argue that this comparison is unfair since Red Hat is mostly a server business these days and that therefore it should only be compared to the Windows Server side of Microsoft, excluding the far larger desktop Windows business. All right then, let’s do that. In the last fiscal year, making adjustments for SQL Server, I estimate that Windows Server and its associated middleware generated around $6.5 billion in sales, give or take a few hundred million. That would put Red Hat’s current revenue run rate at about 8% of last year’s Windows Server sales. Call it Catbert vs. Godzilla.
Now we are getting somewhere. The problem here is that now we are comparing Redhat’s subscription service to all of Microsoft’s server products. It isn’t a secret that Microsoft’s products are overpriced, especially when you need SQL server and such. One of the biggest selling points for Linux is the price. We should be comparing deployments not dollars and cents. Because of Microsoft’s current status the value of their product is extremely inflated. It isn’t a very good baseline to measure from. Redhat is just fine and will continue to grow, while Microsoft’s OS and Office share will probably shrink in the coming years, along with its prices if it wants to stay competitive.
The article states that Redhat suffers because only 10% of its users pay for the software. As a result, the author states that Redhat will never catch up to Microsoft’s revenue because Redhat is hurt by free software.
What is missing from this analysis is that Redhat also benefits from having free software. It puts them in a position to have more rapid and lower cost development, and it allows them to price the product (or services) lower than Microsoft. It seems that Redhat can be competitive and has much more upside potential.
I would like to think they can do better.