Oracle has gone on a buying spree in the past few years, consolidating an impressive portfolio of market-leading technology. But there's one thing it still lacks, despite awkward efforts to fill the void: an operating system. Though Oracle has unsuccessfully courted Red Hat as an acquisition target for years, its affections might be better placed on Ubuntu.
Yes, by acquiring Sun, Oracle is gaining Solaris, but as Red Hat CEO Jim Whitehurst indicated in the Red Hat earnings call on Wednesday, the exodus of Solaris-to-Linux users continues apace, as Sun's attempt to neutralize Linux's appeal with OpenSolaris have had zero effect on stopping the exodus.
Oracle Enterprise Linux (OEL), a Red Hat Enterprise Linux (RHEL) clone, has failed to dent Red Hat's dominance, with Red Hat renewing all of its top 25 deals (again, and at 120 percent of renewal value) that were up for renewal, losing none to OEL. As such, RHEL's dominance remains a festering sore for Oracle's ambition to own a complete enterprise software stack. So long as Red Hat owns the foundation of that stack, it remains a real threat to Oracle.
So long as it's easier for Oracle's sales force to sell Oracle applications and databases on RHEL than on OEL, OEL will continue to bluster but fail.
Oracle could buy Red Hat, but with Red Hat earnings consistently strong, Red Hat is arguably too pricey to be a viable takeover target, as The Register opines. Besides, Red Hat has shown no desire to jump into the arms of its Redwood Shores business partner and competitor.
All of which makes me think that a strong partnership with Canonical for Ubuntu, rather than continuing to feed Red Hat, could be the right Linux strategy for Oracle.
Ubuntu is the clear community choice in Linux distributions, dominating Linux "desktop" adoption and also claiming a solid foothold on enterprise servers. Unlike OEL or Novell's Suse, Ubuntu comes with built-in enterprise momentum, albeit still at the grassroots level. Oracle's sales force could sell Ubuntu as a complement to Oracle technology, unlike OEL which is a difficult sales pitch.
The spirit to sell OEL is willing, but the flesh is weak.
As just one data point on this enterprise readiness to accept Ubuntu, my company, Alfresco, an open-source content management vendor, has seen adoption of Ubuntu rise to 37 percent of all trials of our Enterprise product, versus 28 percent for RHEL and Fedora.
A year ago, Ubuntu was making serious headway, but today the interest seems to be migrating to using Ubuntu for real enterprise deployments.
Other open-source companies I advise are seeing similar Ubuntu traction, a fact that is perhaps not lost on Dell and other hardware manufacturers that increasingly preload Ubuntu on their servers, Netbooks, and laptops.
Ubuntu, in short, has community momentum. What it lacks is the blessing of a major software vendor. Oracle, with its heft, is a kingmaker, and could give Ubuntu the "enterprise-ready" branding and certification that still elude it.
Not coincidentally, it was Oracle, more than any other company, that blessed Red Hat as the default enterprise Linux distribution years ago. But for Oracle's support for Red Hat Enterprise Linux, we'd almost certainly have a very different Linux market today, one where Novell's SUSE and other Linux distributions would have more respectable market shares compared to RHEL.
Oracle has the ability to make Ubuntu a mainstream enterprise server player. The question is whether it wants to.
As Matt Aslett, an analyst with The 451 Group, told me, "Oracle's Linux strategy is about serving its existing customers," and, given that there are more Oracle customers using RHEL than Ubuntu--coupled with the fact, as Sean Michael Kerner points out, that Oracle has yet to certify its products to run on Ubuntu--RHEL (and its clone OEL) may be seen as the safer course of action.
Even so, it remains unclear why Oracle should continue to plow resources into OEL when the market is voting for RHEL (paid enterprise adoption) and Ubuntu (unpaid community and paid OEM adoption). Either go back to a full embrace of RHEL or try Ubuntu.
Oracle could turn that Ubuntu popularity into paid deployments, while simultaneously asserting a greater measure of control over its operating system story. I'm a big fan of Red Hat's business, but I'm surprised Larry Machiavelli (er, Ellison) hasn't sought to check the ever-growing power of Red Hat in enterprise infrastructure.
What do you think? Would Ubuntu be a good move for Oracle, or is Linux such an afterthought for Oracle that the status quo with Red Hat is the right course of action?
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Oracle has spent tens of billions of dollars buying companies that give it a diverse, rich product portfolio. Such industry consolidation also, not coincidentally, has granted Oracle significant pricing power and a ready-made bevy of customers to which it can cross-sell its products.
I wonder, however, if this is the best way for Oracle to be attracting new customers in a slow-growth enterprise software market.
I've suggested before that open source provides an efficient way to distribute software and attract new customers. No, it currently doesn't generate Oracle-worthy billions in profits, but it wouldn't need to for Oracle to make good use of it.
In MySQL, Oracle bought a fantastic complement to its proprietary database business and, as such, it also acquired an excellent on-ramp to a wide array of proprietary Oracle technology, including its flagship database. Open-source purists might not like such a strategy, but it is the very same strategy that MySQL was pursuing before it was acquired by Sun, and which it continued to espouse post-acquisition.
Let's just say that Oracle is likely to get more bang for its proprietary buck than either MySQL or Sun could achieve.
Oracle, of course, isn't alone in standing to reap benefits from open-source "on-ramps" to its proprietary products. IBM has been working this strategy for years, and to great effect. I think we'll see Microsoft adopting this approach for some of its products soon enough, too, especially as its Windows client business loses pace within the company and it seeks ways to spruce up adoption.
An open client that feeds into closed cloud offerings seems like a great strategy, and it's one that Microsoft is already mimicking with its SharePoint product.
Yes, these companies could spend billions acquiring competitors and complementary product lines so as to achieve economies of scale and sale, but they could also discover the ease of distribution that open source offers. It's a lot cheaper and could prove equally or more effective.
Follow me on Twitter @mjasay.
CNET News Editor in Chief Dan Farber believes a wave of consolidation is about to hit the technology industry, as "sharks--Microsoft, Google, Hewlett-Packard, IBM, Cisco Systems, Oracle, and a few others--are looking at the landscape to see what fits best into their portfolios at discounted prices." I think he's right.
What will this mean for open source? Dave Rosenberg recently opined that Cisco could become the big consolidator of the commercial open-source ecosystem. He may be right, or perhaps Red Hat or Sun Microsystems will step up, though neither has the market capitalization to spend willy-nilly on acquisitions.
Given that most open-source companies are still doing less than $50 million in sales (a factor of their recent vintage, and not their potential, I would argue), it may be that the only companies that can afford to corral them will be the big ecosystem vendors: Cisco, Oracle, Microsoft, SAP, IBM. But then, as Dave points out, such acquisitions may not move the revenue needle enough for a Cisco to justify the experiment.
Not to worry. This may turn out to be an exceptional opportunity for open-source companies to prove that they can grow and scale into standalone entities. There may not be any other choice given the bleak macroeconomic conditions. I suspect we'll see an occasional acquisition in the open-source world over the next year or two, but for most it's time to prove a recessionary "flight to value" favors open source.
Just when you thought it was safe to go back in the water, Oracle makes a picture-perfect suggestion as to why consolidation is creepy. I'm not sure whether would-be buyers are supposed to be encouraged or dismayed by this advertisement that I found in the Wall Street Journal:
Oracle wants to be everything to you
Seriously, why would you want one vendor to service all needs? It's the absolute best way to ensure that you get stuck with an ever-increasing maintenance bill. The best way to keep costs down is through choice. It's what a free market is all about.
Jim Whitehurst is hitting his stride as Red Hat CEO, and does himself proud in this excellent ZDNet interview. Whitehurst was COO at Delta Air Lines prior to joining Red Hat, adding credibility to his take on the enterprise software game:
I was a senior exec, and like every other senior exec I had a huge IT budget. Mine was as large as Red Hat's revenues last year. You sit there and say, "Why are my IT costs going up, but I'm getting less and less functionality?" Every IT professional says the same thing: my lights-on costs are going up. But wait a minute! I bought a laptop, and it cost me half as much as it did three years ago, and my costs are going up? I get the joke now.
If you look at the S&P 500, seven of the top twenty companies are tech, and other than Google, they're not high-growth. But they're just printing money because switching costs are so high. There's this incredible amount of residual goodwill to Red Hat because we're seen as an alternative to that. Oracle announced a 20-something percent price increase just as the economy starts heading south. How can you do that unless you're pretty sure nobody can switch? High switching costs led to infrastructure cost creep. Once you get hooked, you can't get off.
Bingo. In the case of Oracle, industry consolidation has put it into a position of such power over its customers that it has killed off much of its competition. IBM and others have done the same. Enterprises now get to choose between competing behemoths that have little incentive to lower prices.
Open source (and SaaS) may well be the only hope of bringing back meaningful competition to the enterprise software game. The problem, however, is that open source still lacks one trait that enterprise buyers, given their druthers, strongly prefer: Largesse. Who in open source can provide that security blanket?
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Over the past few years, Oracle has bought nearly every enterprise software company in existence, but comparatively few database-related vendors (Sleepycat, InnoDB, etc.). This hasn't mattered, however, as it's gargantuan applications business is helping to drive its database business, now climbing to 44 percent of the enterprise market.
Verdict on Oracle's consolidation strategy? Big ambition with big returns. Well done.
Sun is trying to hollow out Oracle's momentum with an aggressive, all-you-can-eat pricing for MySQL, but the real competition in the short term is from Microsoft and IBM.
I'd love to see data on whether Oracle is cutting into DB2 and making headway with IBM-friendly enterprises. IBM has traditionally done exceptionally well with account control, so I'd be surprised if Oracle were damaging IBM's position in many enterprises, but it now has so many beachheads into enterprises through its acquisitions of PeopleSoft, BEA Systems, etc. that Oracle arguably is well-positioned to grow its market share in databases and applications.
I recently caught up with Brian Gentile, JasperSoft's new CEO, to get his take on the rampant industry consolidation in the Business Intelligence world, where JasperSoft competes. I also asked him about his favorite open-source software (shouldn't have, as you'll see :-) and whether open-source interoperability is a "must have" for his customers.
With more than 2.5 million downloads worldwide and more than 7,000 commercial customers in 96 countries, JasperSoft is on a roll. But with Pentaho getting $12 million more in funding, there's no easy sailing for JasperSoft. I wanted to see how Brian was planning to navigate the difficult dynamics of his industry.
Q: You joined JasperSoft just a couple of months ago. What have you been working on?
BG: Well, I've been on the JasperSoft board for more than two years, so I came to the table in many ways ready to go. I think JasperSoft's opportunity is in its ability to offer choice and flexibility in a market where customers are facing the realities of hegemony: fewer choices, higher costs and little innovation. It's true that choice and flexibility are inherent features of open-source software, but in the BI market, where consolidation is at an all-time high, it's more relevant than ever.
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I couldn't help but think of Microsoft and its track record of "partnerships" when I read this quote from Carla Bruni, France President Nicolas Sarkozy's fiancee.
"I am faithful -- to myself! I am bored to death by monogamy."
I don't know about you, but I'd be feeling pretty secure in that impending marriage. :-)
And so it is with Microsoft (and increasingly Oracle). As these behemoths take on more and more of the enterprise software market, there's no easy way for them to truly partner with companies. There will always be an angle - a rather sharp one - not far from the memorandum of understanding.
Are they bad companies? Perhaps. At times. But really they're just acting out the necessary consequences of their heft. This is why it's so hard to trust them and engage them if you're anything less than a fellow multi-billion dollar behemoth.
Tim O'Reilly writes a thoughtful piece on what we can learn from iTunes, returning to a familiar theme for him: the Internet-enabled address book and software above the level of a single device. The general point is that software should be architected to be Internet-aware and, one step further, should make useful connections between different, disparate applications/data sources.
It's more than a programming language designed to run on a wide range of operating systems and hardware platforms. That was Java. This is now.
In the Internet age, we really shouldn't be limited by silly things like software monopolies, not when the world has given way to a potentially more troubling and much more powerful monopoly of data management:
iTunes needs to work together more seamlessly with other applications like iPhoto, and the internet-enabled address book I keep hoping for. Right now, when you sync your phone, you have both applications open up, competing for your attention. As more data needs to be synced to the phone, you don't want this to turn into a cacophony....
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I spent some time today with Matt Vitale, executive vice president of Sales at Pentaho, about how things are going at the open-source Business Intelligence company. Very well, and as it turns out, the consolidation in the BI market is helping to turn good quarters into great ones from the sales perspective.
Cognos, Hyperion, and Business Objects have all been put on the auction block and have found new homes in ever-dwindling numbers of software vendors. As Matt suggested, this consolidation has helped to create a "perfect storm" of customer "confusion and angst," a lack of vendor choice and visibility into the future of chosen products, and the omnipresent expensive and proprietary bloatware. All of this is pointing to alternatives like Software as a Service and open source.
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