The Open Road

Novell has been positioning itself as the Avis of Linux, a distant but gaining Red Hat competitor that "tries harder." Like Oracle, Novell argues that it can give customers Red Hat value at a lower price.

There's just one problem with this marketing spin: the "low-cost alternative" to Red Hat isn't Novell. It's CentOS. And CentOS is free as in $0.00.

It's true that adoption of unpaid Linux like CentOS is booming, and that this no-cost alternative to more expensive solutions like Red Hat is a real threat to Red Hat. This is no doubt why Red Hat has made "free-to-paid" a core element of its ongoing strategy, as related in its recent earnings call.

But it's a much bigger threat to Novell and Oracle, both of whom are trying to position themselves as cheaper alternatives to Red Hat Enterprise Linux.

If a customer really wants Red Hat at a lower price, they're not going to move to an incompatible distribution that may or may not run their applications properly. They're going to jump to CentOS, which is basically a carbon copy of RHEL, minus the trademarks (and price tag).

Oracle, for its part, is clearly not in the Linux market. It's in the market to eradicate Red Hat, so as to claim top-to-bottom control of its software stack. But even as Oracle tries to squeeze Red Hat into oblivion, CentOS provides an excellent hedge against commercial competition from Oracle (and Novell), making its pitch ring hollow.

CentOS: Red Hat's biggest annoyance and greatest friend?

It's not dissimilar to the role that piracy plays for protecting Microsoft's Windows dominance against Linux, especially in emerging markets. Quite possibly the worst thing that Microsoft could do, as IDC has also suggested, is to succeed in its anti-piracy efforts.

Were Microsoft to raise its pricing above $0.00 in such markets, suddenly Linux would look like a much better alternative.

Back to Novell and Oracle. It's not enough to try harder. Red Hat has created a dominant global brand that CIOs trust. It's not worth a few dollars here and there to disrupt that to shift to SUSE or Oracle Enterprise Linux.

Not when those CIOs can shave 100 percent of their RHEL subscription costs by moving to CentOS.

I know some CIOs who have, but they tend to be enterprises with lots of developers that are comfortable supporting themselves. Fortunately for Red Hat, few CIOs care to take that risk. Unfortunately for Novell and Oracle, those who do want to save all of their Linux subscription fees, not just some of them.

At the recent Red Hat Summit, company CEO Jim Whitehurst quipped that "flat is the new up," but he clearly wasn't referring to Red Hat. On Wednesday Red Hat announced another strong quarter, with revenue of $183.6 million for the company's second fiscal quarter of 2010.

That's a rise of 12 percent compared with the same period last year. Despite the company's against-the-grain performance in a weak market, however, it may need to invest more in its middleware business to ensure future growth.

But first, the good news. Of Red Hat's total revenue, roughly 85 percent, or $156.3 million, came from subscription revenue. That's an increase of 15 percent compared with the year-ago period. Putting this into context, IDC projects Linux subscription revenue to top $1 billion by 2012. Red Hat should claim virtually all of this at its current pace of growth.

Customers seem content to pay Red Hat for free software that they could get more cheaply elsewhere. While recent IDC data hint at hard times to come for commercial Linux vendors, it hasn't hit Red Hat. Not yet. The company is still a darling with CIOs.

And it may not for some time, with Red Hat reporting deferred revenue of $581 million, up 17 percent compared with the same period last year. The company is increasingly profitable, too. It reported net income of $28.9 million, or 15 cents a share, compared with $21.1 million, or 10 cents a share, for the year-ago quarter.

As part of its quarterly earnings call, Red Hat executives revealed a range of reasons to think its business is on track:

• All top-25 customer accounts renewed, and at 120 percent of the prior year's value. Most customers are expanding their adoption of Red Hat, and more and more are upgrading to Advanced Platform.
• Only three of its top-300 customers up for renewal didn't renew in the quarter, and two of those have returned to Red Hat after the quarter closed.
• Two deals were over $5 million, while 10 deals hit $1 million. Red Hat EMEA (Europe, Middle East, Africa) closed its biggest deal ever in the quarter.
• Of the top 30 deals, 23 included Red Hat Enterprise Linux (RHEL) Advanced Platform, and five included a JBoss component. This suggests that Red Hat's big customers are upgrading to Advanced Platform, according to Red Hat CFO Charlie Peters.
• JBoss continues to grow much faster than the core RHEL business.
• Deal length extended to 22 months from 19 months last quarter, reflecting
• One former Red Hat customer, a large financial services company (almost certainly Credit Suisse), dropped Novell's SUSE Linux and returned to Red Hat with a big order in the quarter. Credit Suisse is one of the companies Novell pulled away from Red Hat by using Microsoft-subsidized coupons, but Peters indicated that the customer had returned because of Red Hat's superior value. It appears that Red Hat is a better value than free.
• Red Hat is taking share from its competitors rather than seeing an increase in net new server purchases.

Despite the mostly sunny skies, Red Hat's slowing revenue growth remains a concern. The trend kicked off in 2005 and has continued apace since then despite a brief respite in 2007, as The 451 Group reports.

Of course, as Red Hat gets bigger, and as the economy remains stagnant, it's normal that Red Hat's revenue growth will slow.

But it's also normal that as it slows, companies like Red Hat will look for increased growth beyond their core businesses. Oracle is perhaps the most obvious example of this.

Red Hat doesn't need to get into video game consoles (e.g., Microsoft's Xbox) or hardware (e.g., Oracle's pending acquisition of Sun) or a variety of businesses far afield from its core infrastructure business. After all, Red Hat clearly has a lot of room to grow its JBoss/middleware business, and arguably needn't acquire its way to that growth.

But it does need to significantly change the way it views its channel partners.

Red Hat's traditional Linux partners are absolutely the wrong group to be selling its middleware offerings, a fact that took Red Hat some time to digest. Now, however, Red Hat seems to be getting the picture and has launched its Catalyst Program to sell turnkey open-source solutions through a growing ecosystem of value-added resellers (VARs).

Catalyst, however, is still in its infancy. It remains to be seen whether this program will stick, as Red Hat has moved away from ecosystem efforts like its Red Hat Exchange in the past.

For Red Hat's sake, it should stick with this one. Through Catalyst and other means, Red Hat needs to place more emphasis on the world outside of Linux. The company believes that virtualization and cloud computing are big opportunities, and they are, but these are mostly ways to build upon RHEL, rather than ways to extend its reach into fast-growing, diverse markets.

Red Hat is an execution machine and will undoubtedly be able to continue to grow its Linux business, and possibly to accelerate that growth again through enhanced investments in virtualization and cloud computing. But the real growth for the company is a bit higher up the stack in its middleware business.

Peters said that the company is investing significantly more in JBoss than RHEL, proportionate to the revenue each brings. That's good, but also obvious, given that Red Hat's JBoss business is comparatively small to its RHEL business. It may be time to invest even more in JBoss.

Drupal is a fantastic Web publishing platform that derives much of its value from a disparate community of contributors, as Xconomy recently wrote. With more than 4,000 contributed modules from over 3,000 active contributors (741 of which contribute to Drupal Core), Drupal has something for everyone, which is both its greatest asset and biggest liability.

Choice is good. Too much choice, however, can be bad.

The same holds true for Red Hat, which charges a premium for its Red Hat Enterprise Linux distribution to enterprises that want to tap into Linux but don't want the bother of rolling their own version of Linux from Kernel.org.

The problem, however, is that such a business model depends upon the complexity of the underlying platform. If that complexity goes away, does the business model?

The Drupal-focused company Acquia is thriving because deploying Drupal, what with its myriad of choices, can be complex. Ditto for Red Hat. There are thousands of packages that comprise Linux, making it worthwhile to pay a trusted guide like Red Hat.

But Red Hat CTO Brian Stevens suggests that "you need product complexity" to make its model work. Does this mean that Red Hat and Acquia will be hitting the unemployment lines if they do their jobs too well, and Drupal and Linux become too easy to use?

I don't believe so, but that is certainly one way to read IDC data that shows unpaid Linux adoption is now outpacing commercial Linux adoption, which has the potential to disrupt Red Hat, Novell, Canonical, and other Linux vendors.

It's less an issue, however, for Acquia, which has been rolling out for-free software and services to augment Drupal, including enterprise-class search. Acquia's Drupal distribution teases the complexity out of Drupal, but it also extends beyond Drupal with enterprise-only features. It is therefore well-positioned to foster the Drupal community while simultaneously feeding its top and bottom lines.

For this reason, I believe Acquia's model has more staying power, though it has a long way to go before it generates Red Hat's nearly $1 billion in annual revenues. Acquia's model allows it to thrive even if Drupal becomes easy, and also affords the company greater latitude to enter new markets, like the application market, where product complexity is not as much of an issue.

Red Hat, on the other hand, must resolutely focus on core infrastructure, an area of the software stack that is naturally prone to such complexity, because of its adherence to its complexity-dependent business model.

Both models are generating impressive returns. But Acquia's open-source model seems to offer more potential in the long term than Red Hat's does.

Follow me on Twitter @mjasay.

Even as the recession continues to cool CIO appetites for software purchases, Linux is bucking the trend, according to a new IDC report.

IDC is projecting Linux revenue to expand at a compound annual growth rate of 16.9 percent from 2008 to 2013, topping $1.2 billion in 2013.

As IDC notes, this growth will comprise just 4 percent of total software market revenue by 2013, up from 2.2 percent in 2008. However, for the second time, IDC has also examined nonpaid deployments of Linux, revealing some troubling data.

I've always assumed Red Hat's primary Linux competitor is Novell. And based on IDC's numbers, it does appear that Novell is increasingly a real threat to Red Hat.

But it is the nonpaid usage of Red Hat's software that may well pose a bigger risk.

Novell has 27.9 percent market share of paid deployments and 20.1 percent of the total paid and nonpaid market. This doesn't look so great at first glance; after all, more people use Red Hat (including Fedora) for free than pay for Suse Linux Enterprise Server.

However, in growth, Suse stands out. On paid shipments, Red Hat's 2007 to 2008 growth was 1.9 percent, while Novell's Suse was nearly double that at 3.5 percent.

On revenue, Novell comes in at 29.8 percent market share. That represents 50.3 percent growth in market share, versus Red Hat's 14.8 percent growth. Granted, Red Hat has a much larger base of revenue from which it's growing ($319.5 million compared with Novell's $112.6 million in 2007), but Novell's Linux revenue growth has outpaced Red Hat's since 2007.

I don't particularly like Novell's partnership with Microsoft to promote Linux, but it does appear to be paying off for Novell.

If Red Hat could elect to eliminate one competitor tomorrow, though, I'm wiling to bet that it would not choose Novell's Suse. It would choose unpaid Red Hat Enterprise Linux (RHEL), which accounts for a big chunk of the overall Linux market.

This may seem trivial, given that Red Hat earned a 62.2 percent share in the overall market for new license paid shipments/subscriptions, measured by deployments, or 64.7 percent, measured by revenue.

Sounds great, right?

Maybe. Intriguingly, Red Hat also claims 28.6 percent of the nonpaid market...for RHEL, its Linux distribution that should only be available to paid subscribers, but which many companies dishonestly use without paying (e.g., they may violate their contract by running more RHEL servers than they actually pay for).

Add Red Hat's paid and nonpaid deployments together, and Red Hat accounts for 47.6 percent of the global Linux market, whether users are legitimate customers or pirates.

It gets better (or worse, depending on your view). If one adds in the RHEL clone CentOS and Red Hat's own community distribution Fedora Core, Red Hat and its offspring dominate the global Linux deployments market with 57.1 percent market share.

This might not be so bad, if the trend were toward more paid Linux adoption, but it's not. While paid Linux server deployments will grow at an impressive rate, nonpaid deployments will grow even faster, nearly reaching parity with paid deployments in 2013.

Why this growth in nonpaid Linux?

Undoubtedly some of it stems from enterprises wanting to get something for nothing. Rather than pay for value, they attempt to cheat the system, leaving less money to help develop Linux.

But it may also be that the longer the world uses Linux, the less it feels the need to pay for it. Noted technology CTO Jon Williams once posed a dilemma to me at the Open Source Business Conference. He indicated that the longer his team works with an open-source project, the less need it has for support and maintenance from a vendor.

In other words, the minute the customer becomes profitable to the vendor is the same minute the customer no longer needs that vendor.

We could be seeing this in Linux. Still, the fact that they seem to be stealing RHEL rather than adopting Ubuntu or another "community-led" Linux distribution suggests that we're seeing enterprise IT attempt to cheat vendors rather than do without them.

All of which may mean that the world increasingly recognizes that Linux is a superior server operating system...and doesn't want to pay for it.

How comforting...and alarming. It's not as if Linux development costs nothing. Red Hat pays over $100 million each year to develop Linux, and it's not the only company making such hefty investments.

UPDATE @ 11:03 PT: For the reading-impaired: When I talk about "stealing RHEL" I'm in no way referring to CentOS or Fedora, as my post clearly states. I'm talking about using RHEL without paying for it. Not CentOS. Not Fedora. RHEL. Red Hat has a fair number of companies that actively underpay on RHEL: that is, companies use more RHEL than they are legally allowed to use as per their contract with Red Hat.

So, please read the post, and don't get worked up by the word "steal" and "CentOS" in the same post. I'm not referring to CentOS or other legitimate uses of Linux. I'm talking about theft of RHEL (which is what IDC is talking about, too. Maybe you should buy the report and read it before commenting so that we can have an informed discussion.

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Ten years ago today, on August 11, 1999, Red Hat saw its shares triple in an initial public offering that ushered in a new era of commercial open-source prosperity.

Iain Gray, then a Sun employee and now Red Hat's vice president of Global Support, writes nostalgically: "I remember sitting in the Sun office in UK watching the stock skyrocket, thinking the world had gone mad."

Indeed it had. Soon Red Hat's stock was to plummet to earth but not before the company learned a valuable lesson: there must be more than hype to make open source grow.

Red Hat's S-1, the document filed with the Securities and Exchange Commission registering its intent to sell its shares on the public market, was filled with desire to use the IPO cash to improve its brand, expand professional services, and to improve its Web site to "create the definitive online destination for the open source community."

Very little attention was paid to the nuts and bolts of actually making money. In fact, as LWN.net pointed out back in 1999, "Nowhere in the [S-1] filing is anything about 'make more money selling our distribution.' Red Hat clearly sees its future elsewhere."

Not for long. Whatever Red Hat's vision of its business model in 1999, it soon realized that it needed to spin value far beyond a strong brand. The company recognized in its S-1 filing that "if faster Internet connections become widely available, more users may download the distribution from the net, and fewer will buy it."

That worry absolutely proved to be true, leading Red Hat to introduce (the initially proprietary) Red Hat Network in 2000 and in March 2002 upped the ante with Advanced Server, which later became Red Hat Enterprise Linux.

Over the past 10 years, Red Hat has maintained its investment in strong branding, but has focused even more on its core distribution and the value therein, investing more than $100 million each year to improve Linux and its distribution thereof.

The results speak for themselves. Red Hat demonstrated that anyone can be rich for a day with a hype-based IPO launch, but it has more importantly proved that there's a whole lot of substance to open source over the past 10 years. Red Hat has made a massive impact on the software industry, not the least being making open source palatable to the enterprise buyer, to the extent that now open-source competitors are giving Red Hat a run for its money.

There could be no better testament to Red Hat's influence and importance.

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When Oracle decided to fork Red Hat Enterprise Linux, it did so under the banner of offering improved support and lower costs for its customers. Oracle Enterprise Linux has failed to set the world on fire, perhaps in part, as Gartner highlights in a new research report ("Red Hat vs. Oracle Linux Support: When and How Does It Matter?"), because its cost and support advantages appear to be overstated.

While some Oracle customers may disagree, the company wins awards for the quality of its support. But it's hard to see how Oracle can match Red Hat for Linux support because Oracle contributes dramatically less (3.3 percent compared to Red Hat's 12.3 percent) to the Linux kernel.

It's hard to compete on supporting code when you write and influence much less of it.

But Oracle can charge less, right? Yes, it can. Gartner reports: "Some 90 percent of users that have gotten a price quote on Linux from Oracle claim that Oracle has lower support fees due to aggressive discounts, with most users saying the fees are 50 percent below Red Hat."

A 50 percent discount sounds great, right?

Maybe. That discount comes at a significant cost, for several reasons that Gartner points out:

1. Although Oracle claims that it maintains lockstep on RHEL [Red Hat Enterprise Linux] code, and applications need not be separately certified to Oracle if certified for RHEL, in reality, users bear some risk to assure quality of service. [Translation: Oracle Enterprise Linux (OEL) customers have to invest extra budget to ensure their applications will run seamlessly on OEL.]
2. OEL begins with the source code of a RHEL version as its base....However, if a priority fix is required for a problem in RHEL code in a complex configuration, then there is the potential for temporary forking....Thus, Oracle users are likely to have a different patch from a Red Hat-supported configuration, at least temporarily....Of course, users need to go through regression testing to make sure that the temporary fix has not created potential problems. This puts Oracle in the position of quickly reacting to problems of severe priority; however, users must monitor the fixes closely. [Translation: OEL customers must do regression testing and closely monitor OEL fixes to ensure they'll work.]
3. Users with RHEL contracts will face significant challenges in reducing support costs by selecting specific Red Hat-supported servers and not others. [Translation: Because of Red Hat's pricing/contractual terms, it becomes difficult to mix-and-match support for some servers while not for others, so it may be hard to find cost savings this way.]

According to Gartner, it is this last item that may be driving the most interest in OEL, because Oracle doesn't adopt Red Hat's "all-or-none" approach to Linux server support. Even so, Gartner only finds 20 percent of Red Hat customers surveyed are annoyed by its contract policies. That's a significant number, but not overwhelming.

Given Oracle's aggressive discounts, including its willingness to buy out the remainder of a customer's Red Hat contract, as Gartner reports, one would think that it would be flying high. But it's not. OEL has roughly 2 percent market share, compared to Red Hat's 60 percent market share. Enterprises aren't stupid: if Oracle's Linux story were compelling, they'd be buying. But they're clearly not.

Not that Red Hat is in the clear. Its biggest weakness against Oracle and others is that Oracle can sell a much more complete story to the CIO. Red Hat, to the extent that it talks to the CIO at all, is a tactical decision. It's an important tactical decision, but big contracts are awarded to companies like SAP that promise dramatic competitive differentiation through optimized business processes.

The best Red Hat can do is improve performance and lower costs on server infrastructure. This isn't insignificant, but it's not something that gives Red Hat an impregnable hold on a CIO's attention and wallet. While I've only seen one defection to OEL in the past two years within Alfresco's customer base, I have seen an increasing number shifting to alternatives like CentOS.

In sum, while Oracle's Linux play isn't yet serious competition to Red Hat, it does establish just how limited Red Hat's position is.

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Oracle doesn't want to own Linux. Oracle just wants Linux to be cheap.

That's the insight an analyst shared with me the other day as we discussed why Oracle hasn't made a move to acquire Red Hat (recently, anyway). According to this source, who is familiar with Oracle's Linux plans, Oracle wins eight of 10 deals where the operating system is Linux, and only wins five of 10 where the OS is Windows, a win rate that continues to drop as Microsoft's SQL Server gets better.

Oracle's Enterprise Linux strategy is therefore not so much about neutralizing a threat from Red Hat as it is establishing its own threat against Microsoft, a thought that others have highlighted.

Indeed, Oracle's Wim Coekaerts has declared that if Red Hat Enterprise Linux were free, Oracle would exit the market for Linux entirely.

Red Hat isn't likely to drop its pricing for RHEL anytime soon, at least, not for Oracle, but the reality is that Oracle already has a way to offer a popular, enterprise-quality Linux distribution for free, or close thereto. It's called Ubuntu.

The only thing Ubuntu lacks, as I've written, is the blessing of a major enterprise software vendor. Oracle could grant that blessing. All it would need to do is start offering Ubuntu as part of its certified stacks.

Oracle wouldn't need to pay billions for Red Hat, only to undermine the value of that deal by cutting the price of RHEL. Oracle could pay exactly $0.00 to establish a partnership with Canonical, the company behind Ubuntu, and Ubuntu's already significant traction--both in personal computers and in servers--would do the rest.

If Oracle wants to beat Windows, it needs to get Windows-like distribution. Its applications help drive its databases, but if it wants a bottom-up distribution strategy to complement its sales force, it couldn't do better than Ubuntu, the leader in community Linux.

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Oracle has gone on a buying spree in the past few years, consolidating an impressive portfolio of market-leading technology. But there's one thing it still lacks, despite awkward efforts to fill the void: an operating system. Though Oracle has unsuccessfully courted Red Hat as an acquisition target for years, its affections might be better placed on Ubuntu.

Yes, by acquiring Sun, Oracle is gaining Solaris, but as Red Hat CEO Jim Whitehurst indicated in the Red Hat earnings call on Wednesday, the exodus of Solaris-to-Linux users continues apace, as Sun's attempt to neutralize Linux's appeal with OpenSolaris have had zero effect on stopping the exodus.

Oracle Enterprise Linux (OEL), a Red Hat Enterprise Linux (RHEL) clone, has failed to dent Red Hat's dominance, with Red Hat renewing all of its top 25 deals (again, and at 120 percent of renewal value) that were up for renewal, losing none to OEL. As such, RHEL's dominance remains a festering sore for Oracle's ambition to own a complete enterprise software stack. So long as Red Hat owns the foundation of that stack, it remains a real threat to Oracle.

So long as it's easier for Oracle's sales force to sell Oracle applications and databases on RHEL than on OEL, OEL will continue to bluster but fail.

Oracle could buy Red Hat, but with Red Hat earnings consistently strong, Red Hat is arguably too pricey to be a viable takeover target, as The Register opines. Besides, Red Hat has shown no desire to jump into the arms of its Redwood Shores business partner and competitor.

All of which makes me think that a strong partnership with Canonical for Ubuntu, rather than continuing to feed Red Hat, could be the right Linux strategy for Oracle.

Ubuntu is the clear community choice in Linux distributions, dominating Linux "desktop" adoption and also claiming a solid foothold on enterprise servers. Unlike OEL or Novell's Suse, Ubuntu comes with built-in enterprise momentum, albeit still at the grassroots level. Oracle's sales force could sell Ubuntu as a complement to Oracle technology, unlike OEL which is a difficult sales pitch.

The spirit to sell OEL is willing, but the flesh is weak.

As just one data point on this enterprise readiness to accept Ubuntu, my company, Alfresco, an open-source content management vendor, has seen adoption of Ubuntu rise to 37 percent of all trials of our Enterprise product, versus 28 percent for RHEL and Fedora.

A year ago, Ubuntu was making serious headway, but today the interest seems to be migrating to using Ubuntu for real enterprise deployments.

Other open-source companies I advise are seeing similar Ubuntu traction, a fact that is perhaps not lost on Dell and other hardware manufacturers that increasingly preload Ubuntu on their servers, Netbooks, and laptops.

Ubuntu, in short, has community momentum. What it lacks is the blessing of a major software vendor. Oracle, with its heft, is a kingmaker, and could give Ubuntu the "enterprise-ready" branding and certification that still elude it.

Not coincidentally, it was Oracle, more than any other company, that blessed Red Hat as the default enterprise Linux distribution years ago. But for Oracle's support for Red Hat Enterprise Linux, we'd almost certainly have a very different Linux market today, one where Novell's SUSE and other Linux distributions would have more respectable market shares compared to RHEL.

Oracle has the ability to make Ubuntu a mainstream enterprise server player. The question is whether it wants to.

As Matt Aslett, an analyst with The 451 Group, told me, "Oracle's Linux strategy is about serving its existing customers," and, given that there are more Oracle customers using RHEL than Ubuntu--coupled with the fact, as Sean Michael Kerner points out, that Oracle has yet to certify its products to run on Ubuntu--RHEL (and its clone OEL) may be seen as the safer course of action.

Even so, it remains unclear why Oracle should continue to plow resources into OEL when the market is voting for RHEL (paid enterprise adoption) and Ubuntu (unpaid community and paid OEM adoption). Either go back to a full embrace of RHEL or try Ubuntu.

Oracle could turn that Ubuntu popularity into paid deployments, while simultaneously asserting a greater measure of control over its operating system story. I'm a big fan of Red Hat's business, but I'm surprised Larry Machiavelli (er, Ellison) hasn't sought to check the ever-growing power of Red Hat in enterprise infrastructure.

What do you think? Would Ubuntu be a good move for Oracle, or is Linux such an afterthought for Oracle that the status quo with Red Hat is the right course of action?

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Cisco Systems doesn't seem to know how to color inside the lines.

The networking-equipment giant has been foraging in a diverse set of new markets lately, taking on Microsoft in the collaboration and unified-communications markets, but now sticking a finger in the eye of longtime server partners Hewlett-Packard and IBM by jumping into the server market, as The New York Times reports.

Is Cisco reckless, or simply smart?

Whichever the case may be, Cisco just took on a host of powerful competitors. All at once. Sun Microsystems' Zack Urlocker notes that Sun, among others, is jumping into Cisco's profitable network equipment market. It was bound to happen that partners would become competitors to Cisco, as they sought to eke out a living in a recessed economy.

What wasn't certain is just how grand Cisco's ambition could be and how fast it would happen. As CNET's Marguerite Reardon writes, Cisco isn't going halfway with its new Unified Computing push:

It shouldn't come as a surprise that the company's new data center server strategy, announced Monday, is fueled by a grand vision to not only help its corporate customers improve efficiency and reduce costs, but also (to) transform how average consumers can access loads of cool new applications on cheap devices.

Few companies have the luxury to make such bold moves. Cisco, as well as IBM, Oracle, and Microsoft, is one that can.

Intriguingly, Cisco's Unified Computing initiative puts it into close collaboration with Linux leader Red Hat, as the two are collaborating to ensure that Cisco's new servers run seamlessly with Red Hat Enterprise Linux (RHEL). While VMware and Microsoft got a lot of coverage in the Cisco announcement, my conversations with executives behind the scenes reveals a different picture:

• Cisco has been working on this project for more than a year, and it initially figured that it could cover the market with VMware for virtualization, and Windows and RHEL as the operating systems. However, when the company talked with early prospects roughly nine months ago, the vast majority reported that they were using VMware or virtualization in only 5 percent to 10 percent of the workloads Cisco was targeting for its Unified Computing push. They weren't using Windows, either. Virtually all of them were using Unix or RHEL, with a large swath embracing RHEL.
• RHEL, in fact, is expected to claim 80 percent to 90 percent of Cisco's Unified Computing customers: those using VMware for virtualization but running RHEL as a guest server operating system, and those not yet comfortable using virtualization in high-end computing workloads, will use RHEL as their base operating system.

While Cisco's Unified Communication technology is hardly open source--Cisco has built its own proprietary Ethernet, for heaven's sake!--the initiative will largely depend on open-source software. In my conversations with executives involved in the initiative, Red Hat, specifically, and open-source proponents, generally, are deemed to be critical to its success.

This isn't surprising, given how integral open source is to Cisco's other new initiatives, such as its push into collaboration, which involved the acquisitions of PostPath (which also includes Zimbra's open-source Web client in its offering) and Jabber, as well as a variety of open-source projects from the Apache Software Foundation and elsewhere.

HP's vice president of marketing for enterprise servers and storage, Jim Ganthier, dissed Cisco's foray into his market with a dismissive hiss:

It may have looked like a really great idea on paper, but as they start to wade into the water, they may find out that there are some things in the water that they don't like.

Maybe. But Cisco has the heft to completely dam HP's river and fill a lake. That's the plan. And open source will play a major role in making it happen.

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