For those wondering whether Oracle or Red Hat is weathering the recession best, this week may have settled the question. On Tuesday the market cheered Oracle for only seeing a 5.2 percent drop in revenue, with a 7.2 percent drop in profit (absent the strong dollar, Oracle would have seen a 4 percent increase in revenue and a 5 percent increase in profit).
Red Hat? Well, on Wednesday Red Hat announced fiscal first-quarter revenue of $174 million, up 11 percent from the prior year. Subscription revenue was up 14 percent year over year to $148.8 million. The company's total deferred revenue balance is now $567.3 million, an increase of 15 percent on a year-over-year basis. Net income for the quarter was $18.5 million.
Both Oracle and Red Hat are doing well, and Oracle is obviously dealing with much bigger wads of money, but it seems clear that Red Hat's open-source model is the big winner in the recession.
In fact, on Red Hat's earnings call, Chief Executive Jim Whitehurst indicated: "Budgets remain tight and we don't see an end in sight for this. In relative terms, this is pretty good for us." He went on to call out the big differentiator for Red Hat's business: certified ecosystem.
The key differentiator for us in Linux is our certified ecosystem. Even those that are clones of RHEL [Red Hat Enterprise Linux] lack this certified ecosystem. The second differentiator is value: great service and support at a compelling price.
We have a very disciplined business model which is based on commoditizing key parts of core infrastructure. We've been laser-focused on this. Open source is particularly good at that. We'd certainly like to work with other open-source companies but they have fundamentally different business models than we have.
Repeatedly asked on the earnings call about competition from Oracle, Red Hat executives took turns dismissing Oracle's Solaris ("When customers decide to jump from Solaris they go straight to Linux, skipping OpenSolaris") and Oracle's Linux strategy ("We've yet to lose a major customer over the last year to Oracle's Linux offering. The only one to leave Red Hat in the past couple of years is Oracle itself.").
Indeed, though Red Hat's JBoss business is growing much faster than RHEL, Red Hat seems devoutly focused to RHEL's staying power in a bad economy. The reason is financial: JBoss, as Whitehurst noted, often requires a significant upfront integration cost, which makes it less palatable for CIOs looking for short-term cost savings. RHEL, on the other hand, offers immediate, short-term gains.
Even so, Whitehurst was quick to point out that JBoss will continue to grow faster than RHEL, and that it, along with other Red Hat technology like Qumranet's virtualization products, helps position Red Hat as a leading infrastructure provider to the nascent cloud-computing market. ("It's hard to imagine why anyone would build a cloud on a proprietary stack in this day and age")
With profit and revenue up, Red Hat continues to impress, especially as it's not dependent on a competitor for its revenue, which remains the Achilles' heel in Novell's otherwise bright earnings reports.
The question is whether it can grow well beyond its core RHEL business. Linux is a great foundation upon which Red Hat can build, but build it must. Today very little of its sales come at Microsoft's expense. At some point in the not-so-distant future, the UNIX-replacement business will slow and Red Hat will need more than JBoss to compete with Microsoft.
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Katherine Egbert has predicted (again) that Red Hat will be bought, this time by IBM. While I have indulged my own Red Hat acquisition fantasies in the past, I just can't see a near-term acquisition of Red Hat by IBM.
Unless....
Unless, as Egbert predicts, Oracle will throw its weight fully behind Sun's Solaris, to the detriment of its Linux business:
It seems inevitable Oracle will favor Solaris. While Oracle has said publicly they will continue support of RHEL, there is a sense within Red Hat that an increased focus on Open Solaris over RHEL is inevitable, as Oracle seeks to protect the declining Solaris maintenance stream. We estimate that 1/3 of Red Hat's new business comes from Unix-to-Linux migrations. The danger to Red Hat is that Oracle will offer customers attractive terms terms to stay on Solaris, potentially even paying them not to migrate.
Maybe. It's no secret that Oracle has been trying to undermine its dependence on Red Hat while satisfying its customers' preference for Linux. But this is the very reason that I can't see even Oracle, with all its market power, being able to stem the tide toward Linux and away from Unix.
Indeed, I can't even see why Oracle would bother. There's so much more money in its applications and databases. Why bother with trying to push Solaris boulders uphill when its primary concern should be ensuring prospective customers choose its applications and databases over IBM's and Microsoft's, a choice that is made easier by Linux and harder with Solaris?
Regardless, I don't see IBM buying Red Hat unless pushed to do so: Oracle promoting Solaris over Linux is unlikely to be that "push." Regardless, I personally think Cisco is the more likely suitor for Red Hat than either IBM or Oracle.
All of which means Red Hat remains an intriguing acquisition target for several big companies, due to its exceptional performance through the downturn, but it's unlikely to go to IBM soon.
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Sun Microsystems has adopted an ambitious business model that depends upon commodity open-source downloads serving as loss leaders and gateways for hardware and services revenue. According to a report in The Register, however, profits have been hard to come by for Sun, which may have been what scuttled its merger with IBM.
Using Red Hat as a foil, The Register suggests that the way forward for Sun, which has seen its proprietary businesses commoditized, may be to commoditize itself further:
The open source distribution model cannot generate the kind of profits that Sun's shareholders became accustomed to in the dot-com boom, where every deal started out with a Sparc/Solaris server and moved on to Oracle databases....
I can't imagine how Sun's software business--particularly if customers abandon Sparc platforms or Sun has to basically give Solaris support away for free to cover the costs of Sparc chip and server development--can do any better than Red Hat has done on commodity x64 iron. And in the end, the decline in Sparc prices cuts Sun's profits, no matter how it dices and slices the categories and numbers in its presentations, just as the same economic pressures from x64 iron on the one hand and Linux and Windows on the other have done for all proprietary and RISC/Unix vendors.
There is no escaping the pinchers, other that to use the tool yourself. And that means Solaris and x64 are likely Sun's future--and Sparc, for all its great engineering, is probably not.
Let's take this one step further. Maybe it's time to move past Solaris entirely, as the Linux Foundation's Jim Zemlin has argued, and focus Sun's impressive engineering abilities on Linux. Sun could do this by creating its own Linux distribution.
Or it could buy Novell.
Novell has recently seen its Linux business slide, but on balance Suse Linux has been a buoyant force for Novell over the past few years. While I'm not sure Sun can afford to spend much more money to give away free software, I believe the rest of Sun's offerings (software, hardware, and services) will look much more palatable to IT buyers if the conversation starts with Linux, rather than Solaris.
IDC predicts that Linux will grow 21 percent year over year in 2009. I'm guessing Solaris isn't seeing that kind of growth this year...or any time in the future.
Buying Novell would give Sun immediate access to a vibrant partner ecosystem, which is critical: ISVs and IHVs don't want to have to certify for a new Linux distribution.
Again, I know there are plenty of reasons for Sun to not buy Novell, but Suse Linux is an excellent reason why it should double-down on its open-source strategy and fully embrace the operating system to beat in the 21st century:
Linux.
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It should be obvious, but the more I talk to people about open source, and where and how it's useful, the more I'm surprised by how overinflated (or underinflated) expectations often are for open source.
One case in point is with the utility of source code as a way to save time and money, rather than reinventing the wheel. For example, Alfresco, my employer, was able to get its initial content management product to a 1.0 state in less than six months because it heavily borrowed from successful open-source projects such as Hibernate, Spring, PDFbox, and others.
However, as Linux kernel creator Linus Torvalds notes in a recent interview, it's not always that easy. Speaking of the possibility of including Sun's OpenSolaris code in Linux, the Torvalds remarks:
One of the problems is that taking code from other projects is hard. You can't take the code as is, right? Solaris is very different in many areas from Linux, so if you take Solaris code, you have to fix it for all the differences.
Quite often, it's actually more work to try to take code from another project than it would be to just write it yourself from the start, from scratch.
In some cases, it's worth the effort, but it is effort. For those who think that adopting open-source software is easy, you clearly haven't been involved in it for very long.
Open source doesn't make development or business easier. It's a different way of doing development that has its own significant benefits and some downsides. I think that it leads to superior code, but don't expect the road to be smooth.
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CORRECTION at 6:30 a.m. PDT September 2: This blog inadvertently had linked to old information about Google's work with OpenSolaris. However, having discovered the mistake, the author realizes how salient the content is to Google's announcement Monday of its new browser.
Two years ago, Computerworld reported that Google was actively testing Sun Microsystems' OpenSolaris Unix distribution as a possible adjunct operating system to be used internally with its existing modified Linux distribution. While I'm sure there continues to be active experimentation at Google around OpenSolaris, I suspect any move away from Linux remains highly unlikely, at least in the short term.
In a similar vein, Monday's news of Google's creation of a new Web browser--Chrome--may not spell the end of Google's cozy relationship with the Firefox browser either.
According to the 2006 Computerworld article:
Sources outside Google of said that its servers currently run a stripped-down version of Red Hat Linux that has been modified by the company's engineers. A Solaris systems administrator who recently interviewed for a job at Google said that he was told by employees there that the search engine vendor plans to create and test its own modified version of OpenSolaris....
Switching to OpenSolaris would be a natural move for Google, which has a large number of former Sun employees and is striving to push the performance of its data centers, (technology consultant Stephen) Arnold said. But he added that he doubts Google is widely deploying OpenSolaris yet. "Will it quickly replace Linux anytime soon? No," he said.
Exactly. Google is the performance king, and so it might have been willing to make a bet on OpenSolaris that others (like eBay and Yahoo) also made. Solaris has long been considered the gold standard for performance.
But two years later, Google has yet to broadly embrace OpenSolaris. Google isn't one to take the short-term view on performance. Linux has a strong, vibrant community dedicated to improving its performance and extending its reach. OpenSolaris, while a great project, still lacks this widespread community involvement. In Linux, Google benefits from the contributions of Hewlett-Packard, IBM, Red Hat, and others. With OpenSolaris? It would be more of a solo act.
This is just one reason I think that Chrome is unlikely to displace Firefox in Google's affections, at least anytime soon. OpenSolaris (and Chrome) may have technical superiority to offer them, but they have nothing to offer in terms of market momentum. And Google knows how to read the momentum tea leaves.
Ted T'so writes an excellent analysis of Sun Microsystems' attempts to build a community around its Open Solaris project. In so doing, he ends up uncovering a much larger issue: The difficulty of getting community development around projects that are hosted and serve corporations.
But first, the critique:
...(I)f you run into a Sun salescritter or a Sun CEO claiming that OpenSolaris is just like Linux, it's not. Fundamentally, Open Solaris has been released under a Open Source license, but it is not an Open Source development community. Maybe it will be someday, as some Sun executives have claimed, but it's definitely not a priority by Sun; if it was, it would have been done before now. And why not? After all, they are getting all of the marketing benefit of claiming that Solaris is "just like Linux", without having to deal with any of the messy costs of working with an outside community.
Probably fair, but let's assume that Sun really, really, really wants to have outside developers contribute to Open Solaris? What's keeping that back (other than apparently poor developer tools, which he describes). As he writes in response to Brian Akers' distinction between "sponsored" (corporate) and non-sponsored communities:
... Read moreWith 12 million Solaris licenses now in the market, Sun's Solaris is no slouch. And while people like I talk up Red Hat's clean-up of the "certification market" [PDF] (with over 3,000 applications certified for RHEL), the chart below indicates that Solaris actually has a pretty compelling application certification story to tell.
(Credit:
Sun)
The question is, "Is it enough?"
A few days ago I suggested that Sun would be wise to partner closely with Ubuntu (Read: Acquire Canonical). It seems the easiest route to continued open-source momentum as Linux vendors continue to cut into Unix. But there's a compelling story in the Solaris numbers that suggests that it may live on for a very long time.
... Read moreSun formally completed its acquisition of MySQL on Tuesday. I was fortunate to spend 15 minutes on the phone with Jonathan Schwartz, CEO of Sun, after the press conference.
I asked him a range of questions about criticism of Sun over Linux, as well as whether the MySQL integration would be as prickly as Red Hat's acquisition of JBoss was at times.
As usual, Schwartz didn't disappoint.
The Linux Foundation's Amanda McPherson recently called you out over Sun's continued push for Solaris despite Linux's rise. Why aren't you giving up?
... Read moreOver the years, Sun has been progressively pushed by the open-source community to open up. OpenOffice, Java, etc.: the company's efforts to embrace open source have never been quite enough for some.
For Valentine's Day this year, Sun received another arrow, this time from Roy Fielding, co-founder of the Apache HTTP Server Project, who quit Sun to protest its alleged inability to relax its control over OpenSolaris and truly forge a community around it. As Fielding notes:
Sun didn't just make vague statements to me about OpenSolaris; they made promises about it being an open development project. That's the only way they could get someone like me to provide free labor for their benefit.
Sun agreed that 'OpenSolaris' would be governed by the community and yet has refused, in every step along the way, to cede any real control over the software produced or the way it is produced, and continues to make private decisions every day that are later promoted as decisions for this thing we call OpenSolaris.
As Stephen O'Grady notes, this isn't a huge blow to Sun's OpenSolaris project, because Fielding doesn't have the same role within it as Linus Torvalds does with Linux. Still, it's yet another voice suggesting that Sun has much to learn about community, something on which its friends and critics alike seem to agree.
This is all the more troubling because Sun seems to want to embrace development communities. There may be a disconnect between "want" and "need," or between executive desire and company culture. I don't know.
One thing is clear: Sun needs to figure this out sooner rather than later. Perhaps letting the MySQL team run amok would help.
To her credit, Amanda McPherson's (Marketing director for the Linux Foundation) broadside against Sun and Jonathan Schwartz is well written and insightful in places. To her discredit, it's really not necessary, nor is it productive for the open-source community.
Amanda is dismissive of Sun's chances with Web 2.0 companies. Fine. The right way to demonstrate this is by ignoring Sun, not by taking pot shots from afar. Sun clearly has an uphill climb. It also has a huge opportunity to help the open-source community. Sniping at it won't accelerate its alleged decline nor help the Linux Foundation push more Linux servers for its customers: IBM, HP, etc. Let's be honest: so long as the Linux Foundation gets its funding from these sources, it's going to speak their mind.
Their mind is Linux. Great. That is what is on most of my customers' minds, too. However, whether Sun's rationale is pragmatic or Quixotic really is immaterial.
The point is that the Linux Foundation is picking the wrong enemy to attack. If it needs help figuring out where to direct its next broadside, try Redmond.
