Comments on: Two big reasons Dell should buy Red Hat

Dell needs a software business to grow, and it could hardly do better than to buy into open source through Red Hat.

[JunkSiu]

If I were Dell, why should I take part in the windows / linux war?

[tm_anon]

What war? Nobody's fired anything. You either pay for software that gets bogged down with viruses unless you're constantly running an antivirus program, pay for proprietary software because that's what windows users around you are doing, run a defrag that takes a day to finish and end up having to replace your software by buying another OS in a few years because the one you bought won't be serviced anymore or you download a complete OS or attain one for free, legally, that doesn't have nearly as many viruses written for it at the moment, you have the option for an antivirus program, but not the necessity for the most part, you are able to get free software that does at least as good a job for most applications and you have a huge number of people to ask if you happen to run into any problems. If you download Ubuntu or ask for a free disk or borrow someone elses to install, you don't even have to pay for the disk. Doesn't seem like a war to me, just seems like good business sense to go with the guy who isn't going to try and make you do everything their way in order to get any kind of support.

[dennisl59]

Market Caps.

redhat=2.7B
sun=3.3B
novell=1.3B

Does anyone honestly think that Dell would spend, at least, and this economy, 2.7 Billion Dollars for RedHat?

Just wondering.

Thank You.

[Matt Asay]

Well, it's only $2.7B today. Just wait for a few days. In this volatile environment, it could be $1B tomorrow. :-)

I think Red Hat's value is strategic and long-term, not a short-term buy for its revenue.

[Goodbye Helicopter]

dell doesn't have the money to buy, nor the savvy to market it.
and in this economy, with their balance sheet, no loans are coming.

[solitare_pax]

So in other words, Dell should marry their software and hardware together into a superior package that will blow Windows out of the water?

Sounds interesting - but didn't Apple try that one?

[nw15062]

Dell already sells computers with Ubuntu linux on them, why would they spend money on a software company that has shallow market share compared to Ubuntu, when they could just use Ubuntu free.

Red Hats client base is dwindle ever since they started marketing their operating system, and divided their product into Commercial / Hobbyist groups. Suse has suffered a similar fate since Novell bought them and the same rift occurred.

Personally I prefer Ubuntu when recommending it to new linux users because it has everything that Dell would have to change about Red Hat already implemented.

[Matt Asay]

I'm actually thinking beyond just the distribution. Red Hat is a gateway to consolidating open-source solutions for enterprise IT. I think that's valuable beyond RHEL.

[shootthecops]

what we really need here is a big budget commercial company sponsoring distros. a dell aquisition would do this, but would people buy the computers? android is a perfect example of what can happen when you have money to spend on a distro, but will that bring it functionality that people want? video editing/photoshop/etc windows is a powerful beast for a reason, developers developers developers...

[GellDuru]

Which is great until Shuttleworth decides he doesn't want to fund the cash flow negative Canonical any longer as a hobby and it folds like the kiddie table after thanks giving dinner leaving the Ubuntu community high and dry. He has said he is happy to keep it up for 3 - 5 years, but then what?

I am also curious if you can substantiate your claims that Red Hat market share is shrinking when the company continues to post growth every quarter. That would seem to be two hard statements to reconcile.

[inscitekjeff]

Good thing Matt Asay is not running Dell. Some basic math here:

Dell is a $60,000M+ dollar (revenue) company with $3,500M+ in profits
Red Hat is a $520M dollar (revenue) company with $70M in profits.

We're talking orders of magnitude difference here. Dell spends more on the UPS shipping costs of it's products than the entire size of Red Hat's business. Red Hat is totally inconsequential to Dell's scale and would do nothing to change it's financial business dynamics.

Not to mention, with Red Hat's insanely overvalued Market Cap of $2B+, what is the business case to buy a Linux distribution support company when it is a FREE operating system. If this is the path they wanted to go down, they could simply start supporting a distribution of their own for millions (not billions) of dollars or at the very least, pickup one of the secondary players for considerably less money....not that I think that would be a good idea anyway.

Think bigger. I would be going after Cisco with competitive routers, switches and VoIP telephony equipment and systems. Do what they originally did to IBM and Compaq to Cisco. Target a feature set and price point that hovers somewhere around or between Linksys brand and native Cisco brands. Those are large businesses with relatively good margins compared to Dell's main business and if even reasonably successful at it could potentially double their bottom line within several years.

[Mam00th]

Actually going in the router market would not be that of a bad idea, the only problem being that they have no expertise at all in that domain. Dell is a hardware company, routers on the other hand require quite a bit of software. I don't know if they'd be able to pull it out, they can always buy the expertise though.

[Matt Asay]

I think Dell's lack of experience in M&A make "thinking bigger" difficult for Dell, though I take your point. And I'm not interested in Dell picking up $500M or so in software, but rather using Red Hat as a means for Dell to become the commodity software player (i.e., center of the open source solution universe). That's pretty big, no?

[MSSlayer]

Bad idea, the network game is not only Cisco.

Dell would have to outperform and outprice someone like Foundry, something that even Cisco can not do.

You are looking just at money, not the real value and leveraging that buying RH might bring.

*******************

Dell is NOT a hardware company. They are an OEM. They buy hardware that others make and slap it together. Intel, AMD, NVidia, Cisco, etc, etc are hardware companies.

[GellDuru]

So why did Dell buy Everdream, Message one and Silverback, whose combined market cap was below Red Hats? Dont limit your thinking in that Dell cannot make strategic plays outside of hardware, indeed they must and small ones that cost very little but give them potential advantages in positioning their hardware in the datacenter is going to be money well spent. I am not sure Red Hat is it, but writing the concept off entirely is too broad a brush.

[MSSlayer]

Dell is a maker of third rate computer systems coupled with low class service. They need to fix that before trying to take on the world.

[db001b]

I read that story and agree but also disagree. The biggest mistake Novell did to loose to Microsoft in 80's was to sale NetWare and give away eDirectory. Novell allowed Microsoft to basically give NT away while developing AD loosly around eDirectory while Novell struggled to sale NetWare. Linux is the same senario, why buy something that you can get for free.

Buying Red Hat makes no since while giving SUSE away and aquiring a reoccuring revenew stream that Novell poses is a better aquisition for Dell. Dell doesn't need an OS to give away it needs an engineering platform like eDirectory with products it can control much like IBM.

To Aquire Novell is like asking to buy the Louvre, it's easy to put a price on the building but try putting a price on the art inside. Love or hate Novell you can't argue with it's ability to engineer and If Dell can pull off a Novell aquistion it will have plenty of art to hang on it's walls.

[jusben1369]

Matt,

Surely MSFT would be unimpressed and Dell can't risk having poor relations with MSFT via a RHAT frontal assualt? I do think the Dell guys know what you're thinking though - the acquisition of ASAP software by Dell was supposed to fix some internal compliance issues BUT also position Dell to manage the commodity elements of software purchasing and management into a one stop for CIO's

[gerrygadget]

Red Hat and Canonical need to merge -- one for the server, the other for the client. Some might say that's impossible, but probably not. If they were both under the Dell umbrella, it makes a lot more sense. If Google's Android makes inroads on netbooks, laptops, and "nettops", Canonical's niche shrinks, and it can't afford to wither even a little or it's all downhill.

There's a few other open source companies that would be worth bringing under the same umbrella if Dell or somebody else (Sun?) decides to build out a reasonable stack of software for small/mid-size companies as well as enterprise. If Dell bought Sun they'd need to close down or sell off parts of it in order to stay solvent long enough to swallow and digest.

Dell needs to do something to diversify, no matter what happens. There's too much pressure from Acer, Asus, and others in the consumer market, as well as HP (even though it's hardware business customer service has won the "suckiest" award from PC World two years running). Dell could use software as one way to do that, assuming they feel they can avoid all the problems Sun has had as a combo hardware/software vendor. IBM sold off most of their business to focus on services and software. They only reason IBM is still in hardware is because they have a strong R&D background and are still generating patents. Dell isn't into R&D.