Business Tech

Someone needs to let the folks in Raleigh know we're in a down economy still. While much of the tech market lingers in the doldrums, Red Hat announced another strong earnings report for its fiscal third quarter 2010.

Here are some of the headline numbers:

1. Revenue of $194 million, an 18 percent increase year-over-year.
2. Subscription revenue topped $164 million, up 21 percent year-over-year (and 85 percent of the company's revenue).
3. Deferred revenue climbed 23 percent year-over-year to hit $619 million.
4. All 25 accounts up for renewal in the quarter renewed, and at 120 percent of value.

Small wonder, then, that the company elected to repurchase 1.9 million shares of common stock for $52.3 million.

While Red Hat's revenue growth rate has been sliding for some time, as The 451 Group has detailed, Red Hat's prospects remain bright. Piper Jaffray, for example, recently highlighted a range of factors contributing to its "Overweight" rating on Red Hat's stock:

Recent conversations with 40 Red Hat industry contacts point to an improved operating environment, an ongoing acceleration in the pace of Unix-to-Linux migrations, and Q3 results essentially inline with plan. We continue to see longer term catalysts for outperformance based upon the recently introduced virtualization products (RHEV), upsell to the premium priced Advanced Platform, adoption of cloud computing, and broadening awareness of open source offerings

In my own conversations with Red Hat executives, it's clear that the company has plenty of headroom in both its JBoss business (8 of the top 25 deals in the quarter included a JBoss component, and Red Hat CFO Charlie Peters said that it continues to grow faster than Red Hat's core RHEL business), but particularly in its virtualization strategy. Virtualization is effectively a way for Red Hat to sell much more deeply into existing accounts. Much deeper.

But Red Hat is also seeing traction in its nascent cloud-computing initiative. In the third quarter, Red Hat saw a major movie studio building a private cloud with its technology in addition to NTT choosing Red Hat for its cloud infrastructure, plus the signing of a six-figure Red Hat Enterprise Linux-based cloud deal.

Clearly, there is gold in the Linux hills for Red Hat, gold that doesn't seem to be running out, especially as Red Hat improves its ability to get free-riders (CentOS and unpaid RHEL users) to pay, as it did this quarter with two sizable "free-to-paid" deals. The only negative in Red Hat's quarter seems to be a back-loading of revenue, meaning that more deals closed at the end of the quarter than normal.

But Peters said that cash flow for the year would come in at the high end of his former guidance, so things remain on track.

In light of Red Hat's strong performance in its core Linux business, it's somewhat strange to see Novell reorganizing to emphasize its proprietary products instead of hitting hard on its still-solid Linux business.

But perhaps there's only room for one Linux vendor in the data center. Based on the last several years of Red Hat performance, that vendor appears to be Red Hat.

Mozilla Messaging hopes to release Thunderbird 3.1 in early April, a date that reflects a new frequent-release strategy adopted from the better-known Firefox effort at Mozilla.

Dan Mosedale, a programmer for the open-source e-mail software, published the date in a Thunderbird schedule draft he announced Thursday.

"If we're lucky, we relabel 3.1RC1 [release candidate 1] as final and ship it on Tuesday, April 6. Otherwise, there's an RC2," Mosedale said in the planning document.

The new version is due to get an updated Web browser engine. Using the same Gecko project that Firefox is built atop means Thunderbird messages can integrate with Web activity such as Google Calendar.

Another possibility for 3.1 is a revamp of the Thunderbird start page, Mozilla Messaging CEO David Ascher said Friday. That redesign, which Ascher described in May, could show more useful information than the present splash screen--for example, information about what activity people has been up to help pick up where they left off.

"The 'start page,' which makes a lot of sense in Firefox, never made a huge amount of sense to me in Thunderbird. In particular, it's shown only when a folder is selected, and no message is selected. That's hardly a logical time to show the (colorful, pretty, but fairly useless) page we show now. Instead, why not show information about the selected folder and help people who clearly intended to select a folder, so most likely wanted to do something related to that folder," Ascher said in the blog post.

The faster Thunderbird release cycle is just one attribute the Thunderbird team is trying to adopt from Mozilla's higher-profile Firefox effort. Also on the longer-term plan is financial self-sustenance. Those are big challenges, though. An easier adoption will be fun names.

Starting now, Thunderbird versions will be named after beaches, Ascher said in a blog post this week.

"Firefox releases have cool code names while in gestation," Acher said. "Firefox picks national parks as code names, as metaphors for the values that go into making a Firefox release. The idea made a lot of sense to us, so we decided to follow suit for Thunderbird. Rather than parks, we picked beaches."

First up: Hawaii. Thunderbird 3.1 gets the name Lanikai, Ascher said, adding that he misspelled it "Lanakai" in the blog post.

Mozilla, racing to release Firefox 3.6 by the end of the year, issued a fifth, and likely final, beta version of the new browser.

The open-source browser backer announced the new Firefox beta (download for Windows and Mac OS X) in a blog announcement Thursday.

Firefox 3.6 builds in a feature called Personas for customizing the browser's appearance, adds the File interface for better file management such as selecting what to upload, and, my personal favorite, placement of new tabs next to the ones that spawned them.

A total of 127 bugs were fixed since the fourth beta, but this time Mozilla didn't announce any new features. The first Firefox 3.6 beta arrived in October.

Mozilla had considered issuing its first Firefox 3.6 release candidate this week: "If we can go to build today or tomorrow, QA [quality assurance] will scrap Beta 5 and we'll release RC to the beta audience ASAP," the Mozilla meeting notes said.

For those entrepreneurs looking to make a living from open-source software, Index Ventures general partner Bernard Dallé has some advice: get thee to a cloud strategy.

Bernard Dallé

(Credit: Index Ventures)

Why? At a time when enterprises may be less willing to spend on software, they're increasingly interested in spending on the operation of that software through cloud computing, an interest that can be bought...and sold.

The cloud isn't simply a clever way to provide social-networking services, either. As Dallé suggested in a phone interview on Wednesday, cloud computing may well be the best way to monetize enterprise-facing open-source software.

He should know. Index Ventures has been one of the most successful investors in the changing world of software, hitting home runs with MySQL, Skype, and more. So when Dallé says that as much as 70 percent of the investment opportunities they see now are cloud-related, and that this bodes well for open source, it's worth paying attention.

Given that the cloud renders software less visible to end users, I asked Dallé if cloud computing spells the end for open-source businesses. Far from it, he said:

I think it's good news. I don't think open source is going away. It's here to stay. The world is increasingly moving to a hybrid world: a combination of on-premises and cloud computing. We're not going to see a 100 percent cloud world.

If I look at our portfolio, even our "open-source companies" like Pentaho, OpenX, and DimDim are turning to the cloud to monetize their open-source software assets.

Open source provides a convenient on-ramp and off-ramp for customers, helping them evaluate the software at low to no cost and also gives a free (as in cost and as in freedom) exit in case things go wrong. Between that entrance and exit is a ripe opportunity to make a lot of money by delivering value to customers.

Dallé further explained that open source helps vendors reach customers through low-cost distribution, but cloud computing, importantly, makes the open-source software palatable to a class of customer that finds open source too risky, yet has no problem using it when hosted.

If this sounds like a potent mix, it's because it is. It's also a highly efficient, low-cost way to start and build a company. Dallé elaborates:

The other big trend, not related to open source, is cloud-on-cloud: cloud services running on other clouds. It used to be that everyone ran their own data center, but now an increasing number of companies are happily running their services on Amazon EC2 or other public clouds. This dramatically lowers the cost of starting a service, and starting a company around it.

This might raise the concern that we'll see too many open source/cloud companies, not too few. Dallé isn't worried: "The quality of an investment always comes down to the quality of the people involved and their execution."

If Dallé's correct, the right place to look for open-source businesses to flourish is at the nexus of on-premises open-source software and cloud computing. It could prove to be a potent mix. And while the cloud might not be the right delivery platform for some software, it probably does have a high degree of salience for many.

Mike Milinkovich

(Credit: Eclipse Foundation)

Open-source communities are founded on trust. It's therefore disappointing but not surprising, to see the Eclipse Foundation's executive director, Mike Milinkovich, rip into former Eclipse Foundation director of community Bjorn Freeman-Benson and tell him to take his "steady acid drip of negativity" and "go away."

Milinkovich, a steelie, hockey-playing executive, didn't mince words in a blog post:

Your former colleagues at the Eclipse Foundation have tolerated your public abuse quietly because we are professionals, and we honestly thought that you would tire of it. Apparently we were wrong. But the time has come to say it: You are a jerk. Please go away. You quit the Foundation, you have zero commits since April, and we tire of your sniping from afar.

Not the most diplomatic but better than a body check against the glass any day.

Given Freeman-Benson's constant carping on the foundation and his former colleagues, it's understandable that Milinkovich went on the offensive. In a variety of posts, including the one that prompted Milinkovich's post, Freeman-Benson has sought to undermine the Eclipse Foundation, which has successfully managed one of the industry's top open-source projects.

His criticism may have been fragmenting the trust that held together the Eclipse community.

Indeed, as Eclipse Foundation director of marketing Ian Skerrett told me, "There is a long history of troll-like blog post[ing] that built up to this point; yes, it is harsh, but it was hurting the community."

Call it tough love for the open-source set. Given the existence of poisonous individuals in many open-source communities, it may be "love" we see more often.

Google, ever eager to renovate the computing industry for the benefit of the Web and its own business, is working to link two nascent but potentially significant projects, its experimental Go programming language and its Chrome Web browser.

Gordon, Go's gopher mascot

Specifically, the company is building a foundation to let programs written in Go run directly within a Web browser endowed with Google's Native Client software. Native Client is designed to let browser-based programs run faster than is possible with today's widely used JavaScript; though it's still in its early stages, it's built into Chrome and available as a plug-in for other browsers.

A little poking around the Go source code reveals a reference to NaCl, the abbreviated name for Native Client. And Native Client is indeed on the Go agenda, said Rob Pike, one of the five core members of the Go team, in a Wednesday interview.

"We have an embryonic implementation of the NaCl support for Go using 8g," a compiler that produces code for x86 chips such as Intel's Core line, Pike said. "It's restricted by a couple of details of NaCl's implementation, but we hope to see changes to NaCl one day that will make Go a full-fledged language in that environment."

The Native Client compiler--the tool that converts what people write into software a computer can run--is specially modified to screen out a variety of software instructions that could expose a computer to an attack from a Native Client module downloaded off the Web. And the Native Client software itself checks such modules before they run. The result, if the security approach stands up to security scrutiny, is browser-based software that runs close to the speed of ordinary software that runs natively on a PC.

Rob Pike discusses the Go programming language at a Google Talk

(Credit: Google)

Native Client has been maturing, the most recent stage being inclusion of NaCl within Google's Chrome browser, though disabled by default for now. Google is using Chrome as a vehicle to distribute other Web technology, too, including Gears, which can let people use Gmail while offline, and WebGL, which gives hardware acceleration to 3D graphics in the browser.

Go is only experimental at this stage, but Google hopes to use it to produce some of the software running on its vast array of servers. Google's scale makes even academic projects potentially commercially relevant, which is enviable to many companies who've tried to get projects off the ground.

Indeed, an episode earlier in the Go team's history is illustrative. Pike, Unix co-inventor Ken Thompson, and Russ Cox all worked on the Plan 9 operating system project that, like Unix, began at Bell Labs. (Yes, Plan 9 is named after Ed Wood's famously bad movie, "Plan 9 from Outer Space.")

Unlike Unix, Plan 9 didn't have much commercial success, although Vita Nuova does sell a version called Inferno. Getting a mainstream operating system off the ground is hard: you must convince programmers, software companies, and hardware makers to embrace it; you must convince people to use it in the real world; and you must keep pace with the evolution of entrenched operating systems.

A bit of Plan 9 lives on inside the Go project, with various Plan 9 tidbits appearing in the Go source code. Pike, though, says there's not much.

Glenda, the Plan 9 bunny mascot, looks similar to Gordon, Go's gopher mascot. Both were drawn by Rob Pike's wife, illustrator Renee French.

(Credit: Bell Labs)

"The 6g/8g/5g compilers are almost completely new but are tied to the open-source Plan 9 compiler suite's C compilers and linker," Pike said. "That's really about it except for the obvious historical connection for some of the protagonists: Ken, Russ, and myself."

Programming languages face similar challenges as operating systems in getting off the ground: A lot of interdependent elements in the ecosystem must all be built simultaneously. It's what's known in the trade as the chicken-and-egg problem: you can't make a chicken without an egg or vice versa.

But Google makes things different for Go. It's devoting real resources to the project and believes it could be useful on its own servers to run software such as the Gmail service Web browsers tap into. It's got the chicken and the egg under its own roof.

And with the money Google could save by increasing the performance or efficiency of its servers even just a fraction of a percent, it has abundant financial incentive to make things work.

Marrying Go to browsers is just another aspect of the same issue.

Assuming Go and Native Client mature enough to be useful, Google can't mandate that Web developers embrace them; indeed, they generally haven't embraced Gears even though it can help with some Web site matters. But again, Google has a browser and some awfully big Web sites it can use to get the ball rolling.

Mozilla, racing to release Firefox 3.6 before the end of the year, has released a second beta of the open-source browser for Windows, Mac, and Linux.

Firefox 3.6 beta 1 introduced most of the new features, most visibly the ability to customize Firefox's look through Personas, less than two weeks ago. But among the 190 patches in the new beta is what Mike Beltzner, Mozilla's director of Firefox, described in a blog post as "a mechanism to prevent incompatible software from crashing Firefox."

There also are a number of deeper changes in Firefox 3.6 that Web developers likely will be more interested in. Note that one of them, the ability to use color gradients with formatting technology called Cascading Style Sheets (CSS), has changed syntax in between Firefox 3.6 beta 1 and beta 2.

Mozilla is trying to accelerate the pace of Firefox releases; Firefox 3.7 is set for release in the first half of 2010 and 4.0 some time later that year. The project faces new competition from Google's Chrome browser.

A recent survey suggests that CIOs are loosening the purse strings on IT spending. IT vendors may want to hold off their celebrations, though, because much of the spending appears to be headed for deflationary forces like cloud computing, virtualization, and their kissing cousin, open source.

An economic rebound never looked so dire.

That's unless you're an IT buyer, of course, suggests a new report from Goldman Sachs. In this week's report, titled "A Paradigm Shift for IT: The Cloud," Goldman Sachs said it expects that pent-up IT dollars will flow in the short term to building out next-generation data centers (e.g., cloud computing). But in the long term, less money is expected to find its way into fewer wallets:

After the initial build-out, Cloud Computing could drive some headwinds for the IT industry, as a result of two factors. First, we see virtualization as a deflationary technology. Second, we see IT spending consolidating in the hands of fewer buyers--the Cloud providers, hosting vendors, and large enterprises. These factors will likely dampen IT spending growth due to greater utilization and buyer pricing power.

Even short-term build-outs may prove disappointing, however, as Goldman Sachs expects large enterprises to grow existing virtualization and automation technology adoption in the rollout of private clouds, shifting slowly to an embrace of public clouds over time. The chart below gives some idea as to when cloud computing will hit its stride:

Who wins in this scenario?

According to the report, Red Hat stands to benefit from the cloud-computing craze. ("Red Hat is well positioned for the emerging Cloud Computing ecosystem, largely due to its open source background and current ubiquitous deployments in data centers, including enterprises, as well as in Cloud providers such as Amazon," the report states.)

But the real beneficiaries will be...the same old crew. "[K]ey suppliers for internal Clouds are likely to be those that have the most complete portfolio of hardware, software, and services," including IBM, Hewlett-Packard, Cisco Systems, EMC, and Oracle.

New boss...same as the old boss.

The other beneficiaries are the start-ups that provide critical components of cloud computing, with an emphasis on management tools. Here we may see open-source companies benefit, including Reductive Labs (Puppet project), Cloudera, and the two rising private cloud companies, VMOps and Eucalyptus, among others.

While open source doesn't factor heavily into this particular Goldman Sachs analysis, the firm has before called out open source's role in wringing more value out of fewer IT dollars. Open source is a primary driver of the global reset in IT spending expectations.

With less money flowing into the pockets of fewer vendors, we can expect to see both increased consolidation and fierce competition for the IT spending that remains. Those vendors that can help CIOs do more with less stand to benefit from this shift to low-cost, high-value computing.

And those that can't? Well, let's just say they may pine for the good old days of the global recession.

Five years ago, Mozilla made it clear that the browser wars weren't over after all.

Images: Firefox through the ages

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In the 1990s, Netscape had lost its dominance in the browser market to Microsoft's Internet Explorer, and the Netscape-spawned open-source project called Mozilla had sunk into obscurity. Even a federal antitrust suit accusing Microsoft of anticompetitive practices with its browser and Windows was not enough to turn the tide.

But on November 9, 2004, Firefox 1.0 emerged to fight back again.

The project, originally named Phoenix to symbolize rebirth from Netscape's ashes, has now clawed its way back to account for nearly a quarter of the browser usage today. Microsoft may not be on the run, but it's on the defensive, gradually building its browser development effort back up into fighting form.