For years, open-source advocates have been praying for someone to free us from Microsoft's proprietary grasp. We've prayed in vain as Linux, OpenOffice, and other open-source software programs have failed to dent Microsoft's dominance.
Until now.
Google, not Red Hat or Sun, appears to be the long-awaited redeemer of both personal computers and servers, and has even staked a credible claim in the mobile world, as well. Google achieves this, in part, by writing copious lines of open-source code, but pays for this "generosity" with insanely profitable proprietary services, services that have long appealed to consumers but increasingly appeal to enterprises, too.
Google, in other words, is arguably not the open-source savior we were expecting, but it's probably the one we deserve.
(Credit:
Matt Asay)
Despite more than a decade of trying to make "pure" open-source software businesses work, it's telling that only one company--Red Hat--has managed to pull together more than $100 million per year in revenues for its troubles. For its part, Red Hat is quick to downplay the relevance of its revenue model for just about any other business.
Hardly a rallying cry to the still-growing open-source ecosystem.
Yes, MySQL got to $94 million before Sun gobbled it up, and yes, other start-ups (my own, included) are getting closer to the mark, but none, including MySQL, is wholly dependent on selling open-source software subscriptions to achieve this goal.
We also include proprietary add-on value. Like Google.
So we're left with Google, which is, perhaps, the world's largest open-source company, contributing more open-source software and resources than any other, in my estimation. (Sun likely wins on sheer volume of code, but being an "open-source company" involves more than simply code.)
How does Google do it? Well, for one thing, it learned long ago that monetizing open-source software directly is tough. So it simply uses open source to shepherd prospective customers to its other services, like Search or Google Apps.
Indeed, it is the success of these proprietary products that enables it to be such a generous open-source benefactor, much like IBM, Intel, or, for that matter, Sun (which sells a lot of proprietary hardware). Take away these companies proprietary product lines, and overnight we'd see dramatic decreases in their investments in Linux, Apache Software projects, etc.
And we'd all be the poorer for that.
In an ideal world, open-source software companies would thrive by simply giving away lots of code, and having enterprises and government organizations serve their long-term interests by paying for support.
We don't live in that world. Some organizations do buy support for open-source software, of course, though many others do not, and some only pay long enough to become self-sufficient whereupon they dump their support contracts, as former CTO of NBC iVillage Jon Williams once declared.
Until we cross the border into Utopia, we're going to continue to see the biggest investments in open-source innovation come from Google and its peers: companies with wallets fat with proprietary profits.
As I said, this may not be the open-source world for which we've hoped, but it's the one we deserve, because it's reflective of what we value and, hence, what we pay for.
See also Mark Hinkle's response to this post.
It boggles the mind, but it's apparently true: nearly half of enterprises think a software purchase is successful if the software is installed/deployed, according to a new study. If ever there was reason to believe there's room for improvement in enterprise IT, and billions of dollars to go with it, this is it.
Working software should be the starting point, not an end point.
According to a study recently released by Neochange, Sandhill Group, and the Technology Services Industry Association (TSIA), 45.3 percent of the 353 IT professionals surveyed call a software purchase successful if "the software is deployed/installed."
No, this isn't enterprise IT's only criterion for software success. After all, 75.4 percent pegged their aspirations a bit higher: "Business benefits realization (cost reduction, revenue generation, etc.)." (Note: respondents could choose more than one answer; hence, the results don't add up to 100 percent.)
But it's scary that the software industry has conditioned IT buyers to expect so little. No one should claim victory on the basis of getting software installed, and we should be hitting close to 100 percent actually getting tangible business value for their software investments.
But then, more than half the survey's respondents admitted to not even measuring success criteria. Could this be a sign that IT executives, like the sign greeting Dante on his descent into Hell, have abandoned all hope of getting real value for their software spend?
Things may be getting better. As reported on Tuesday, Google and Red Hat topped CIO Insight's Vendor Value survey. Times are tight, and enterprises apparently can't afford to call software purchases successful just for running as they should.
Red Hat's chief of European operations, Werner Knoblich, says as much in an interview with The Register:
Microsoft was untouchable until recently, but now everything gets considered, which is one of the reasons [Red Hat's] results have been pretty strong. Clearly a downturn is never good generically, it's a bad thing. But our value proposition resonates pretty well all the same.
In the case of both open source and SaaS, enterprises don't pay a dime until they actually see the software working. Working software is the default. It's not cause for special celebration.
The Neochange, et al, survey also asks, "What is the most important factor for realizing value from enterprise software?" The answer "Gaining user buy-in and ensuring effective usage to deliver business impact" garnered a 71.7 percent vote. That's more easily achieved with open-source software, in particular, which allows enterprises to evaluate and use software long before they opt to purchase support or add-on services/software (if, indeed, they ever elect to do so).
In this way, open source improves upon typical IT success. With more than half of those surveyed reporting "less than 49 percent effective software usage," there's clearly room for a better model to optimize software utilization.
We can do better. We must. About 30 percent of those surveyed look to software to enable "business innovation, revenue generation, and market competitiveness."
Such enterprises are increasingly looking to open source to serve as the foundation for innovation. This probably wasn't the "fundamental economic reset" Microsoft CEO Steve Ballmer had in mind, but it will do. And it's about time.
Follow me on Twitter @mjasay.
For years, Red Hat sat unopposed at the top of the CIO Insight Vendor Value study. In 2008, however, Google pushed Red Hat aside with its low-cost, easy-to-use enterprise applications. This year, Red Hat has come roaring back to share the top ranking with Google.
Could this be a sign of CIOs' restive relationships with traditional vendors and an increasingly insatiable appetite for the cost and ease-of-use advantages of open source and software as a service/cloud computing?
The answer is almost certainly "Yes." It is telling that old-school vendors like IBM (ranked 20th overall), Microsoft (25th), Novell (29th), and Oracle (35th) are so far down the CIOs' list.
It is equally telling, however, that it is with these apparently less-preferred vendors that CIOs spend the vast majority of their IT budgets. Or perhaps that's the point? In other words, CIOs spend with such vendors today because they have to, but given their druthers, they're going to invest more money in Red Hat and Google going forward.
Red Hat and Google are still rounding errors in the overall IT spending picture, but CIOs seem to be signaling an appetite for more. It's not about reducing lock-in and other colorful marketing phrases, either: it's about great, easy-to-use software at a compelling price.
You know, the very thing that Microsoft used to win CIO plaudits for delivering.
From the report:
CIOs are more likely to try software as a service (than traditional, packaged software), which is better understood and simpler to use and requires no upfront investment in hardware or software.
This is the heart of the CIO uprising. And it's why low-cost, high-value companies like Intel (ranked first overall), Cisco/WebEx (ranked sixth and 11th, respectively), and Sun (sixth) are climbing the charts.
For now, however, Google and Red Hat rule the roost in the Software category of CIO Insight's annual study:
Both Red Hat and Google essentially offer the same thing: great software on a subscription basis. While this model often offers lower prices than competitors, it's important to note that "free" is not the value proposition here. (If it were, for example, Red Hat customers would be leaving in droves for Red Hat Enterprise Linux clone, CentOS. They aren't.)
No, the value proposition is customer control via the subscription model that enables less costly ways to buy into the software, and to turn off maintenance costs, if desired.
It's a winning formula, one that more vendors should consider adopting. Today IBM, Microsoft, and Oracle command the majority of IT dollars, but this survey suggests a rebellion is underway. Inertia can only support the traditional vendors for so long.
It takes time, leadership, and a fair amount of luck to successfully build an open-source community. It also takes money. Lots of it, if IBM's $1 billion commitment to Linux is any indication.
Unfortunately, the return on such open-source community investments may be permanently scuppered by the European Commission's misguided defense of MySQL from Oracle's intended acquisition. If the EC is going to punish successful open-source endeavors like MySQL, will investors still clamor to finance the rise of open source?
In many ways, MySQL is the quintessential commercial open-source success story. On the financial side, MySQL managed to build a vibrant business, doing north of $90 million at the time of its acquisition by Sun Microsystems in February 2008.
Equally compelling, however, is the exceptional user and developer community that formed around the open-source database project, registering tens of millions of downloads and a massive developer community.
This community augmented MySQL's financial fortunes, of course, but it also protected MySQL database users from the whims of the company, as former MySQL CEO Marten Mickos wrote to European Competition Commissioner Neelie Kroes:
Even if Oracle for whatever reason would have malicious or ignorant intent regarding MySQL (not that I think so), the positive and massive influence MySQL has on the DBMS market cannot be controlled by a single entity - not even by the owner of the MySQL assets. The users of MySQL exert a more powerful influence in the market than the owner does.
Unfortunately, the EC seems intent on punishing MySQL--both community and company--for its success. Already the MySQL database project has started to fracture into competing forks, while business rivals like EnterpriseDB and IBM collect confused customers.
More worryingly, the EC's actions may end up diminishing potential returns to investors in other open-source projects, particularly those that take the added time and cost to build global communities.
Technology mergers and acquisitions activity is at a 20-month high. Open-source companies, however, may miss out on this resurgence, particularly those, like Acquia and EnterpriseDB, that build on successful open-source communities (Drupal and Postgres, respectively).
Indeed, based on the EC's actions, perhaps the worst thing these companies could do is foster successful open-source communities. Maybe they should just take the cash and run?
Consider: the EC didn't challenge Yahoo's acquisition of Zimbra, VMware's acquisition of SpringSource, Citrix's acquisition of XenSource, etc. What do they have in common? Rising revenue but, except in the case of SpringSource, much more limited communities than MySQL. (Even the Spring community pales in comparison to MySQL, impressive though it is.)
Granted, the major difference with Oracle/MySQL is that the two are ostensibly competitors, as CNET points out. In the letter referenced above, however, Mickos dismisses such competition. The reality is that MySQL and Oracle compete in two different database markets.
Regardless, as well as MySQL was doing, $90-plus million is spare change in the global database market. The EC, in other words, isn't trying to protect MySQL's business. It's trying to protect MySQL's community.
Such mollycoddling of an open-source community is destructive to all future investments in similar endeavors. Why should commercial entities bother fostering community--the very community that makes them less susceptible to hostile takeover and anticompetitive forces--if doing so simply ends up ruining financial returns?
The EC means well, but it is not doing the right thing for MySQL, its community, or other open-source commercial efforts. Quite the opposite. Just as the commercial open-source community has been pondering a move back to community-controlled open source, the EC threatens to hobble the shift.
The EC may well end up with less competition, not more, by blocking Oracle's proposed acquisition of Sun and its crown jewel, MySQL.
Enterprises and other users deploy open-source software because it works. For those of us in the open-source vendor community, however, too often we waste time talking about issues that have relatively little resonance for the vast majority of users.
We miss the mark on open-source marketing. In fact, it's often the case that the very standards we seek to set for the software world--interoperability, transparency, etc.--are better observed and delivered by open standards than by open source.
As a case in point, Red Hat and other open-source companies (including Alfresco, my employer) routinely advertise "no lock-in" as a key reason to buy open source. There are two problems with this marketing pitch: one, it's only technically true, and two, customers don't care, as Redmonk's Stephen O'Grady recently noted.
On the first, it's true that open source can reduce vendor lock-in by ensuring that a customer can get support and ongoing code development from someone other than the original developer of the software. But this is only trivially true.
Once a customer invests in a particular vendor (be it Red Hat or Canonical or Novell or MySQL or...), there will always be a cost associated with leaving that vendor, a cost that arguably isn't much different whether that vendor's code is open source or proprietary.
Cost aside (which is easier said than done, as cost is the primary consideration for the buyer), the support options for Vendor X's code from Vendor Y or Z are unlikely to be on par with what Vendor X can deliver. Just ask Red Hat about CentOS or Oracle Enterprise Linux support. ("Compatibility with Red Hat Enterprise Linux can only be verified by Red Hat's internal test suite.")
Apparently there's no lock-in...so long as you stay with the original open-source developer. :-)
The reality is that open-source vendors should be pitching real value to real customers. As Josef Assad presented at the Open Source Days 2008 conference, open source should strive to "lose the TCO (total cost of ownership) war with proprietary vendors." Open-source value is about performance and flexibility at a great price--and not necessarily about absolute freedom from lock-in.
Red Hat gets this. That's why most of the time it sells the value of its subscriptions, and not the hocus-pocus "no lock-in" story. Red Hat doesn't have 75 percent of the paid Linux market (or, probably more accurately, 62 percent, according to IDC) because of its lock-in story.
Would-be customers don't care about that. Really. They just want Red Hat's performance and price, especially compared with Unix.
In fact, to the extent that customers really do want interoperability and reduced vendor lock-in, it's open standards that they should be asking for, not open source.
IBM's Savio Rodrigues points this out in his analysis of the different permutations on the open-source WebKit project. Serdar Yegulalp adds to the analysis:
Source code is a building block, not a standard. It's something you turn into other things. A standard is something that stands above and apart from all of those things, a guideline for what that finished product ought to be like....
The problem with using code as a standard is simple: it's too fluid. The minute you implement it in something, it's not the same code anymore. It almost always has to be changed to fit its container, as water changes to fit.
Open source is an indispensable complement to open standards, but it's not a substitute for them.
This isn't the only area where open-source vendors misread customer tea leaves. For years open-source insiders have debated definitions for "open-source vendor," even as customers shrugged their shoulders and continued using open source--from different vendors with very different business strategies--without worrying about the various shades of ideology and pragmatism that fuel open-source development. I'm as guilty of leading this foolish march as anyone.
Real customers simply don't care.
This is why I think Sun open-source guru Simon Phipps' proposed expansion of the Open Source Initiative's charter is misguided, though very well-intentioned. (The 451 Group's Matt Aslett also weighs in on the proposal.)
Phipps wants the OSI to establish a "holistic vision of software freedom against which businesses can be benchmarked" because too many companies, apparently, are calling themselves "open source" without a consistent definition for what this means.
I don't think it matters. The reality is that businesses don't seem to have any trouble adopting open source regardless of such "truth-in-labeling" initiatives. Gartner suggests that 85 percent of businesses are already using open source. Forrester tells us that a big majority of enterprises are adopting open source because it's delivering real cost and quality benefits to them.
And so the problem is...?
Well, the problem is that open-source advocates are often out-of-sync with open-source adopters. We probably need a new breed of open-source advocate, as ZDNet's Jason Perlow suggests, the kind that reflect customer interests in pragmatic adoption and not advocates' interest in controlling and fine-tuning that adoption.
We don't need paternalistic oversight of open-source adoption, and we don't need to fuel it through vague and inaccurate marketing. Open source is a fantastic way to develop and distribute software. Customers recognize this and don't need to be cajoled or confused into buying.
Open source offers a fantastic way to reach developers and users of one's technology. Ironically, however, the very group most inclined to adopt open source is the least likely to pay for it.
Therefore, to make an open-source business thrive in enterprise software, vendors must learn to distinguish between developer-users and IT operations-buyers. As I'll explain, however, open-source companies may need to guard against becoming too successful in order to preserve their exit opportunities.
It is, of course, quite possible to make money in open source. Lots of it. Red Hat, for example, is approaching $1 billion in annual revenue. MySQL had generated more than $90 million in sales the year it was acquired by Sun Microsystems for $1 billion.
That's real money.
It doesn't, however, come from the developers that download open-source code. Developers, in former MySQL CEO Marten Mickos' words, "spend time to save money."
Hardly the ideal customer.
Developers download software, which a great way to initial a buying conversation but a terrible way to finish it. Open-source companies talk about selling support, but this is a losing proposition. Developers, after all, are highly likely to support themselves through online forums or other means. They don't pay for software, and they don't buy support. Not most of them, anyway.
This is one reason that pure-play support models simply don't scale in open source. They focus on the exact wrong audience.
Sure, there's a honeymoon period for new open-source companies that launch support offerings around established community-led projects. Some developers buy support, either through personal need or corporate requirements. After that initial rush for support, however, it's a tough slog selling support to developers. It's like selling ice to Eskimos.
This brings us back to a real dilemma in open-source companies: how to monetize popularity (i.e., downloads).
Developers are the most efficient way to spread adoption of one's product but perhaps the least efficient way to monetize it. To get paid, vendors must learn to separate IT developers from IT operations, and build offerings for both.
Red Hat is a classic example. People think that Red Hat sells support. It doesn't. Not really.
The primary reason enterprises buy a Red Hat Enterprise Linux (RHEL) subscription isn't for Linux support, and certainly isn't for the bits: you can get the bits free from CentOS, and support comes heavily discounted from Oracle.
No, the reason companies purchase a RHEL subscription comes down to certification that RHEL works with a wide variety of hardware and software, as well as with the Red Hat Network, which delivers updates to an enterprise's RHEL servers.
In other words, IT operations pay Red Hat to help manage their Linux servers in production. The money is in operations.
Red Hat isn't alone. Look at JBoss. The company started minting money, once it licensed Hyperic's software to build the JBoss Operations Network.
SpringSource took it one step further and actually bought Hyperic, the company, as the foundation for its Build-Run-Manage message, a message founded in selling to IT operations, not developers. (Rob Bearden, chief operating officer at SpringSource, was deeply involved in both decisions and remains one of the smartest people in the industry on building open-source businesses. If there's any wisdom in this post, it is his.)
For new open-source companies grappling with how to supercharge sales, the answer is operations. It may not be a systems-monitoring tool like Hyperic or Zenoss, but it likely is about systems management, as operations need and pays for it.
There you have it: the secret to your billion-dollar open-source opportunity. Except for one niggling fact: despite the value of IT operations to make sales, it's really developers who create the most company value, from an asset perspective. SpringSource's sales didn't justify its $420 million valuation. Its developer base did. Developers have strategic value, in terms of IT operations and creating tactical value.
In fact, SpringSource's valuation might well have gone down, had it been making more money, just as TechCrunch's Michael Arrington astutely argues could happen with Twitter. Sales provide a measurable, tangible valuation. Developer traction creates an amorphous, strategic value.
Hence, while IT operations is the crux of making sales in open source, it might well be that open-source companies should focus on community development and avoid making too much money so that they can maintain a healthy valuation. But not too healthy: there isn't an incredible amount of IT vendors that can swallow $1 billion acquisitions, the IPO era seems to be over.
Is this the new open-source entrepreneur's dilemma?
Follow me on Twitter @mjasay.
Goldman Sachs IT Spending Survey
(Credit: Goldman Sachs)IT spending may be tight, but chief information officers plan to increase their budget allocation to a select group of virtualization vendors, including VMware, Citrix, and Red Hat, according to a Goldman Sachs CIO survey released Monday.
It's not surprising that virtualization is top of mind and wallet for CIOs, but things look particularly rosy for Red Hat, given its position as the market leader in open source and a strong challenger in virtualization.
While the percentage of CIOs expecting to increase IT spending has grown since Goldman Sachs' last survey in June 2009, a full 69 percent expect to maintain or decrease their IT spending.
Against this backdrop, Goldman Sachs sees Red Hat boosting its share of IT spending as the open-source leader claims the lion's share of a Unix-to-Linux server shift that "remain(s) in the early innings." Equally important, Red Hat is seen as a critical integration and distribution point for other vendors:
Red Hat is positioned well for the emerging cloud-computing ecosystem, given its open-source background and current positioning in data centers, including enterprises as well as cloud providers such as Amazon. In addition, Red Hat's strategic importance to others is also increased by its platform capabilities that provide a beachhead for many other software products into the corporate data center. That being said, cloud computing remains a nascent opportunity with little revenue contribution to date and an increasing competitive landscape.
To date, Red Hat has mostly resisted the temptation to expand its product portfolio beyond the operating system, and directly adjacent opportunities like virtualization and cloud computing. However, as the company further strengthens its balance sheet and grows in confidence, we should finally see Red Hat use its dominant brand to give CIOs more reasons to pay Red Hat money.
(Credit:
Goldman Sachs)
Intriguingly, Red Hat may be pushed to this step by the increasingly ambitious VMware, which has far more cash and a strong interest in being the foundation for enterprise's cloud-computing technology. According to the Goldman Sachs report:
VMware is a leader in three important growth themes in IT: server virtualization, desktop virtualization, and cloud infrastructure. We also believe that as virtualization penetration increases, the company has an opportunity to take significant share of the large systems management software market. Microsoft's increasing focus on the space is a risk; however, our latest checks give us greater confidence in VMware's customer loyalty and the company's significant technology lead. We also see room for significant ongoing margin expansion as the company matures.
With the recent acquisition of open-source vendor SpringSource, VMware can deliver on the powerful "Build-Deploy-Manage" mantra that SpringSource championed to its 2 million developers.
Both companies should thrive as IT budgets remain lean. But which will ultimately benefit most is a question of execution and ambition.
Follow me on Twitter @mjasay.
Red Hat has launched a project to create an application programming interface that will let developers write applications for use across many kinds of clouds.
The Deltacloud project, introduced on Thursday, aims to provide a "cloud broker," according to Red Hat Chief Technology Officer Brian Stevens. It will provide drivers that map the API to external clouds such as Amazon's Elastic Compute 2 (EC2), as well as to internal virtual clouds.
"We want to foster an ecosystem of users, tools, and products for the cloud," Stevens told ZDNet UK. "Developers can write to a common API to blend public and private clouds."
On Wednesday, Red Hat's president of products and technologies, Paul Cormier, warned that Microsoft and other proprietary software makers are trying to lock customers into their own cloud platforms. Recently, industry efforts have begun to tackle cloud interoperability with the aim of avoiding such lock-in by introducing common standards and providing open-source platforms.
The Deltacloud API will allow applications, tools, and scripts to work across different clouds, Stevens said. For example, a business could start one instance on its internal cloud, then spark up another on an external cloud. A Deltacloud Web portal provides an interface for users to migrate those instances from one cloud to another and to view, manage and provision images across all clouds.
In addition to EC2, the project currently supports Red Hat Enterprise Virtualization and VMware's ESX for virtualized private clouds, and will soon include Rackspace's cloud infrastructure.
Deltacloud will be based on representational state transfer (Rest), a Web-software architecture, according to a blog post by Stevens on Thursday.
Deltacloud is just one more of a number of open-source cloud API projects, which include Rackspace's effort, Laurent Lachal, an open-source research director at Ovum told ZDNet UK. "Red Hat is hoping the (open-source) community will pick this up, but it is just one more effort in a variety of efforts," Lachal said.
Tom Espiner of ZDNet UK reported from London.
Arguments for and against the cloud are starting to calm down a bit, and most people agree that the cloud is somewhere in your future, if not in your present.
Instead of arguing semantics of application development and delivery, the discussion should really be around how to deal with a mix of on-premise and on-demand, a combination that is unlikely to change in the foreseeable future.
I spent the first half of this week in Las Vegas at a nontech trade show, and missed both VMworld and the Red Hat Summit. However, watching and reading from afar, I noticed two major themes in discussion around both cloud computing and virtualization: cloud interoperability and the lack of application management tools.
Cloud interoperability--the ability to abstract the programmatic differences from one cloud to another--is a key to adoption. If we assume that some percentage of private compute clouds will be based on virtualization, and we know that a large percentage of public clouds already are, then the ability to move among virtual machines is a critical function in this regard.
Red Hat is obviously taking interoperability seriously, with Thursday's launch of Deltacloud, a new open-source project "designed to enable an ecosystem of developers, tools, scripts, and applications that can interoperate across the public and private clouds."
Let's remember that right now, there is a difference between managing applications that are in your own data center and managing those at a cloud provider. Missing here are new management tools that cross borders in a seamless manner and don't discriminate against different hypervisors or application platforms.
Cloud application management isn't so much about workloads as it is the ability to move applications and associated data from cloud to cloud and system to system with no interference. This new realm of internal-external systems management opens up a world of opportunities but faces some significant speed bumps.
I noted last week that Amazon's announcement of virtual private clouds presents a challenge for many cloud-oriented start-ups. The issue is that Amazon calls the shots on the cloud and VMware on virtualization. And while both companies have done fairly well by their users (let's say better than we would expect from Microsoft or Oracle), innovation is stuck within their respective ways of doing things.
Regardless, there is a cloud management opportunity, with open-source projects like Puppet, as well as Red Hat's new release of Network Satellite 5.3. While neither is cloud-specific, applications that support large-scale infrastructure management are perhaps the first step in harnessing the computing power inside and attached to your data center.
Arguments for and against the cloud are starting to calm down a bit--and most agree that the cloud is somewhere in your future. The discussion should really be around how to deal with a mix of on-premise and on-demand, a combination that is unlikely to change in the foreseeable future.
Follow me on Twitter @daveofdoom.
Novell reported on Thursday a 22 percent year-over-year increase in its Linux revenue, topping $40 million. That's the good news. The bad news is that overall, net revenue slumped to $216 million from $245 million for the third fiscal quarter of 2008, with every product besides Linux dropping considerably. From identity and security management (down 16 percent) to systems and resource management (down 15 percent) to workgroup (down 12 percent), Novell is in serious trouble, with at least two potential options:
Turn to the open-source community or Microsoft to fix its failing businesses.
Novell's Open Platform business, of which Linux comprises the majority of revenue, has consistently soared for several straight quarters. Though it has had hiccups, Linux has been a factor in Novell's resilience through the downturn. This is either a factor of Novell's commitment to open source or its partnership with Microsoft, or both.
Whichever it is, Novell needs more of it. Now.
Novell's Workgroup business has been underperforming for years now as the company tries to Band-Aid the declining relevance of its once-leading solutions, like GroupWise. It's time to either amputate (sell off assets) or graft new products onto the product line. Companies like Jive, MindTouch (Disclosure: I am an adviser to MindTouch), Open-Xchange, and others could fill out Novell's Workgroup product offering.
Ever the savvy operator, Novell CEO Ron Hovsepian was able to steer the company to positive growth in operating margin, but now he needs to turn around the company's revenue story. His contention that Novell's "revenue performance was similar to many companies in the software industry" is certainly not true of Novell's chief Linux competitor, Red Hat, which has thrived through the recession, even despite plummeting semiconductor sales, signaling lower overall demand for the servers and personal computers that fuel Novell's business.
That's not to suggest that everything is rosy at Red Hat. As The 451 Group reports, Red Hat's rate of revenue growth has steadily declined over the past few quarters, requiring it to take some action to kickstart growth.
Fortunately for Red Hat, the market has clearly signaled that it welcomes acquisitions, as its highest valuation in the past five years came on the heels of its JBoss acquisition. Apparently, investors would like to see Red Hat grow beyond its core Linux business.
Back to Novell. The company needs a growth strategy, and it has only found two ways to grow over the past few years: open source and Microsoft. One or the other will do. Novell's current strategy of using Linux as a loss-leader of sorts to promote its separate, proprietary products is not working.
Follow me on Twitter @mjasay.
