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.
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.
What, me worry?
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.
Every year, spring brings gives us two things: another rendition of the Open Source Business Conference and rumors of Oracle buying Red Hat, plus various other activities related to open-source consolidation.
In years past, OSBC has taken flight with rumors of Zend (false!), JBoss (true!), MySQL (true!), etc. on the block, with Oracle often the proposed buyer.
This year is no different, as Barron's has obliged by printing yet another rumor that Oracle is planning to invade Raleigh, N.C., to take Red Hat captive.
The source of the rumor is Katherine Egbert, an analyst at Jefferies & Co. The substance for the rumor?
Well, there isn't any.
The only proffered clue is Oracle's "history of organically entering new markets and driving the perceived value of the incumbents before ultimately buying shares." There's just one problem: while Oracle did arguably try this with its Unbreakable Linux rip-off of Red Hat Enterprise Linux, the effort has failed to cram down Red Hat's market capitalization.
Indeed, Red Hat remains one of the few companies (along with Oracle) to outperform a suffering market. While a Red Hat acquisition right now wouldn't price Red Hat at its peak, Red Hat also isn't trading at a huge discount.
While there are difficulties inherent in an Oracle acquisition of Red Hat--it's doubtful that IBM would be very pleased with the move, for example--I personally believe the combination could make a lot of sense, and is almost inevitable as Oracle seeks to outflank its primary competitor, Microsoft.
But I've seen no signs that it's happening anytime soon. And again, for all the reasons Egbert points to as hints of Oracle's interest in buying Red Hat, those same signs suggest that Oracle would do better to wait until Red Hat trades at a more pronounced discount to historical highs.
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In the midst of an otherwise insightful analysis of Oracle's contributions to the Linux kernel (spoiler: they're significant), Wim Coekaerts, Oracle's vice president of Linux engineering, makes this baffling statement:
We're offering (Oracle Unbreakable Linux) only because Red Hat requires customers to pay for binary downloads of (Red Hat Enterprise Linux). If RHEL was free, we would have never done (Oracle Unbreakable Linux).
Let me get this straight. If Red Hat would just give away its product for free (as in price, source code, etc.), Oracle would be happy to not try to compete with Red Hat? Is that generosity, or what?
I'm sure that others would like to sign up Oracle to this plan. Maybe IBM and Sun Microsystems could simply abandon their database development if Oracle will simply give away its database for free.
Deal?
Oracle is a great company that has made significant contributions to the Linux kernel. That is not in question. But the company's motivations for trying (unsuccessfully) to undermine Red Hat in the Linux market are far from clear.
First, Oracle says it is getting into Linux because Red Hat, which CIOs rate dramatically higher than Oracle each year, can't offer high-quality support the way Oracle does, only to discover that Oracle's Linux support pales in comparison to Red Hat's.
Now we find out that it's not a question of support at all, but rather that Oracle simply wants Linux to be free. Why? Because that makes its overpriced software seem cheaper.
At least Oracle is being honest now. Coekaerts' argument is cheeky, but it makes strategic sense for Oracle. It just makes no financial sense for Red Hat.
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Even as the global server market contracts by 14 percent, and Linux server sales decline 7 percent (Windows dropped 17.8 percent), according to IDC, Red Hat's Linux server business is swimming against the current.
A February 11 Piper Jaffray report ("Red Hat Inc.: Buy. Survey Shows Red Hat Will Be a Top Share Gainer") says its "survey of 89 domestic Oracle applications customers indicates that Red Hat is gaining IT budget share."
This isn't surprising. In late 2008, a Goldman Sachs report found that 44 percent of enterprises surveyed were planning to increase their Red Hat investments, even as budgets fell. In a downturn, money seeks value, and Red Hat has been delivering value in spades.
What is surprising, however, is that more companies haven't sought to trim their Red Hat pricing further by going to a Red Hat knockoff like Oracle's Unbreakable Linux. According to Piper Jaffray's report, however, this isn't happening:
The strong showing of support for Red Hat from a broad sample of large, sophisticated IT vendors is highly noteworthy, in our opinion. Red Hat's unique ability to leverage advancements from the open-source community creates a superior price-performance equation for customers.
In turn, this superior price-performance experience drives Red Hat's ability to become an increasingly pervasive layer of enterprise-computing infrastructure...Oracle's own customers appear to vote in favor of Red Hat rather than Oracle's own Unbreakable Linux offering...If Oracle cannot compete effectively against Red Hat inside its own customer base, we highly doubt it can do so outside its customer base.
Why? Why aren't even Oracle customers shaving costs with Oracle's Red Hat knockoff?
It's the value. Oracle's own Linux support policy site is enough to give prospective customers pause. For one thing, Oracle offers "Basic" and "Premier" Linux support plans. The Basic offering, which is the pricing with which Oracle has blandishing the market to demonstrate how cost-effective it is, expires after three years. Three years into the program, in other words, customers are going to get hit with the "switch" part of Oracle's Unbreakable "bait-and-switch."
It gets worse. Oracle also reserves the right to stop supporting its Linux customers at any time (PDF):
It may become necessary as a part of Oracle's support life cycle to desupport certain Enterprise Linux and Oracle VM program releases and, therefore, Oracle reserves the right to desupport certain Enterprise Linux and Oracle VM program releases.
How could any chief information officer sign up for this, especially given Oracle's tenuous relationship to the Red Hat product it purports to be supporting? Why would any CIO invest in Unbreakable Linux rather than simply going directly to the source, Red Hat?
According to Piper Jaffray's survey, they're not. Enterprises go with trusted brands, especially in times of economic uncertainty. That's why Oracle's database business will certainly grow through the recession, but its Linux business will not. Red Hat is the trusted brand in Linux, and for good reason. Red Hat's support policies demonstrate an understanding of what Linux customers require: mission-critical support for mission-critical deployments.
Oracle claimed that it was creating its Red Hat knockoff because Red Hat's support wasn't good enough. The facts suggest otherwise. At a lower cost and allegedly superior support, Oracle should have thousands upon thousands of Unbreakable Linux customers by now. It doesn't.
In fact, how's this for a slap in Oracle's face? Early on, it claimed that Yahoo was dumping Red Hat for Oracle's Linux offering. For several reasons, however, inside sources at Yahoo are telling me that most, if not all, of the servers Oracle claimed at Yahoo have since shifted back to Red Hat Enterprise Linux.
Oracle needs a new Linux story. It might be wise to go back to its original Unbreakable Linux story: Red Hat Enterprise Linux. Delivered and supported by Red Hat. CIOs like that story.
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Vinnie Mirchandani writes provocatively on his Deal Architect blog that Oracle's penchant for acquisitions may be hampering its ability to innovate in-house and write code:
In existing Oracle internally developed and acquired products in the last five years, Oracle's enhancements have been anemic.
Oracle, in my opinion, has forgotten how to develop code. Its top executives are deal makers, not technology visionaries. Worse, when it comes to their acquisitions, they cannot retain or easily replace the entrepreneurial talent...The rapid pace of acquisitions has also had a significant impact on Oracle support.
Customers report frequent and confusing changes to Oracle's support policies, as so many products go in and out of stages of "lifetime support." Little has been done to rationalize support across products--other than, of course, raise maintenance to 22 percent.
Arguably, it simply does not matter: even through acquisitions, Oracle has managed to deliver increased value to its customers.
Even so, a big question is looming as to whether Oracle, which spends just 10 to 15 percent of its budget on research and development, can keep up with competitors and, in particular, open source.
"Open source?!" you say, "that's just a big commodifier of others' innovations." Not so. In fact, if you look at the budgets of most emerging open-source companies, we spend significantly more on development than Oracle and, importantly, more of that R&D budget goes toward real innovation, not reinventing the wheel. Indeed, that's the whole premise behind open-source development: efficient reuse of code.
That's not the whole story, however. As Mirchandani points out in a follow-on post, Oracle customers are troubled by its support morass. Such customers are likely to be enticed by open-source offerings, which make support, not license fees, the centerpiece of their offerings.
Oracle has made a lot of noise about its Unbreakable Linux and has suggested that the impetus behind its Red Hat knock-off is that its customers couldn't find Oracle-class support at Red Hat.
Well, Oracle is probably right, but not in the way it intended: Red Hat's support and value proposition is apparently much better than Oracle's, given that Red Hat continues to leave Unbreakable Linux in the dust.
Oracle is a great company that continues to make smart moves. However, it is becoming more and more like Microsoft: less about innovation and more about distribution. That's not a bad thing. Not at all. But Mirchandani's comments point to a few areas, like support, where Oracle still needs to get its execution right for the strategy to pay off in the long term.
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Red Hat has been taking a beating in the stock market recently, but in a recent research note leading analyst Mark Murphy of Piper Jaffray thinks this represents an exceptional opportunity to buy into a "deeply undervalued" company. More interestingly, Murphy finds significant cause for Red Hat optimism based on Oracle's failed attempt to undermine Red Hat with its Unbreakable Linux product.
If Red Hat's model were fragile, the thinking goes, surely a behemoth like Oracle could make a dent in Red Hat revenues? Oracle got into the Linux game two years ago, hoping to cannibalize Red Hat's business for itself.
As Murphy points out, however, Oracle has completely failed to hurt Red Hat, calling into question the belief that Red Hat's demise is just a fork away. Novell, too, despite starting to build a decent Linux business of its own, as The VAR Guy has noted, has completely failed to touch Red Hat's rising revenue. The reason? Red Hat remains the default choice for enterprises looking to move off expensive Unix to high-performance and low-cost Linux.
Murphy writes:
Oracle has failed in its attempt to enter the Linux market. Our recent survey of Oracle database customers reveals that only 1 out of 32 customers currently uses Oracle Unbreakable Linux. This one customer also commented that "support is terrible, it is difficult to get an answer to my problems, Oracle's agents never understand my company." The survey reflects a very low penetration rate in the 2-year period since Oracle unveiled Unbreakable Linux with much fanfare, including live penguins running around onstage with Larry Ellison. Resellers continue to characterize Unbreakable Linuxas a failure because Oracle ultimately cannot control the future direction of RedHat Enterprise Linux, upon which it is based.
While the Street has expected Unbreakable Linux to severely impact Red Hat, its failure ironically serves as a proof-point of the underlying defensibility of RedHat's business model. In fact, in the two years since Oracle introduced Unbreakable Linux, Red Hat's billings have grown at an average rate of 31%--representing clear market share gains.
When Red Hat's biggest rivals can't hurt it, surely this is cause for optimism, and not a market slide? It turns out that being the "source of code" is a great alternative to owning the source code, at least in Red Hat's case.
Red Hat has shown no signs of slowing, with its subscription model able to weather the current recession: even if it doesn't sell any new subscriptions, it can tread water and/or grow with its existing customer base, something that license-revenue driven companies simply can't afford to do.
... Read moreThe financial markets being what they are, companies like Red Hat can nail their quarter (indeed, years of quarters) and still get pounded on Wall Street. Red Hat has been pummeled down to $15 per share.
At what point - or, rather, at what price - does Oracle give up its Quixotic Unbreakable Linux quest and simply buy the real thing?
Yes, I know that Oracle suggests that Unbreakable Linux is changing the world. I'm not buying that, nor are my customers. I've had one enterprise out of 30,000 deployments switch to Oracle's Unbreakable Linux, and that was because it's a hard-core Oracle shop. (Having said that, it's perhaps instructive to note that it hasn't bought Oracle's ECM offering or its Stellent web content management offering, but I digress.... :-)
I don't think Red Hat wants to be acquired by Oracle. In fact, I'm pretty certain about that. Red Hat, while certainly aggressive, still focuses on customer freedom. Oracle does many, many things right, but customer freedom? That's not one of them.
Would it happen? Never say never.
... Read moreFor those who had forgotten, Oracle provides Linux support. It's called "Unbreakable Linux."
Most of you stopped thinking about it long ago, but for those who didn't, Oracle's chief corporate architect, Edward Screven decided to remind everyone. Edward is a big fan of Red Hat Enterprise Linux. So much so, in fact, that he wants the industry to rally around the Red Hat flag as the Linux standard.
The hitch? He's willing to take money from Red Hat to aid in the effort, but give absolutely nothing back. Just the sort of person you'd want in your community, right? Public Parasite Number One?
This has long been Oracle's problem with its Unbreakable Linux program. Not only has it not been very successful (according to two inside sources affiliated with the program with whom I recently spoke), but by its very design it hurts the party investing the resources to make the RHEL distribution solid in the first place.
Screven says it's all about providing a better RHEL experience for the customer:
... Read moreOracle has a history of making BIG announcements about how much better its technology is, how it will crush feeble-minded competitors, and such. Its history of actual delivery is somewhat less grandiose. While Oracle has demonstrated an exceptional ability and voracious appetite for acquiring others' innovation, it has proved less adept at actually building things that are dramatically better than the opposition's.
A case in point may well be its virtualization technology, which it trumpeted as three times more efficient than rival products. But as Larry Dignan notes, analysts aren't buying the hype this time around. Oracle's crying wolf over Unbreakable Linux may well be the most immediate reason:
Oracle on Monday announced its own server virtualization software and claimed it was three times more efficient than rival products. VMware shares were whacked on the news. What a difference a day makes. On Tuesday, analysts called Oracle?s virtualization announcement "virtual FUD" and noted it was reminiscent to the company?s Unbreakable Linux announcement a year ago....
... Read more
