Database vendor Oracle plans to eat Red Hat's revenue stream -- will it destroy Red Hat and the open source movement in the process?
Red Hat's share price sank 24 per cent last week when Oracle announced it was going to be redistributing Red Hat Enterprise Linux, the OS that commands a 61 per cent share of the Linux market -- and providing support for it.
What does that mean for Red Hat -- and for its customers?
Wall Street's response to Oracle boss Larry Ellison's words, part of the closing keynote at his company's OpenWorld conference, made sense from a financial point of view since, as an open source software company, Red Hat makes its money not from software but from support contracts. And now database vendor Oracle wants a sizeable chunk of that revenue too, arguing that a one-stop shop approach is better for customers.
Not only did Ellison say that his company's "true enterprise support" would be cheaper than Red Hat's, it'll be better. That's because Oracle will ship bug-fixes and kernel updates as they appear, rather than waiting for the next software rev, as Red Hat has cautiously tended to do.
Oracle argued that the problem of support was a key issue slowing the adoption of Linux. If a customer has a problem with the Linux kernel, often the bug is fixed by the distributor in future versions of the operating system, not in the software running in the production environment. Linux support has also tended to be costly and some users would welcome IT vendors indemnifying against any potential lawsuits.
"We'd like to fix [all] that," Ellison said, unveiling the second iteration of Oracle's Unbreakable Linux support offering. Pricing for Oracle support for Red Hat Linux will start from $99 per system per year for bug fixing and patches rising to $1,199 for premium support, which includes indemnification.
Ellison denied that Oracle's out to kill Red Hat. "This is capitalism; we're competing," he said. "We're trying to offer a better product at a better price. Our goal is to make all versions of Linux better." He stressed that Oracle also doesn't intend to further fragment the Linux market. "We're not trying to differentiate from Red Hat code," Ellison said. "We're going to stay synchronised with the Red Hat version."
Others, however, seek to differ.
Red Hat's response
Red Hat's response was to come out fighting. On its website, RH pointed out the disadvantages of Oracle's move, from the point of view of compatibility and code forking. RH said that since Oracle's code alterations would be made independently of RH, changes wouldn't be picked up during the company's hardware and software testing and certification process, and "may cause unexpected behaviour". This will, said RH "invalidate Red Hat certifications".
RH said that Oracle's changes will result in a different code base from Red Hat Enterprise Linux so "compatibility with the Red Hat Enterprise Linux hardware and application ecosystem" couldn't be guaranteed.
A more robust response came from self-confessed Unix geek Steve Kong's blog: "Stop the FUD. Don’t put out lies like 'Red Hat only provides bug fixes for the latest version of its software.' People are smarter than you think and you will be called on that." Kong also accused Oracle of forking the Linux codebase.
Compatibility and forking
Many in the OSS movement fear a forking of Linux. Linux's ancestor, Unix, for decades suffered from the fact that each vendor's version was different, hindering the ability of the application software development industry to build cross-platform shrink-wrapped applications cost-effectively. With no mass market for applications, Unix never gained the market acceptance that had been hoped, and the result, perhaps indirectly, was today's market dominance by Microsoft Windows.
The argument against Oracle's issuing bug fixes is that this then creates a second version, whereby an application running on Oracle Linux couldn't be guaranteed to run on the next rev of Red Hat's Linux.
Further, RH reckoned that Oracle's intervention in the bug-fix process could introduce delays and mean that: "In the case where ... [an] update corrects critical security flaws, Oracle customers may be exposed to additional risk."
Customers will also get a worse deal, according to Red Hat which argued that its support "starts when Red Hat and its customers collaborate in the design of new versions. This collaboration extends through the development, testing, and production deployment of Red Hat Enterprise Linux. Vendors of a derivative distribution are simply not positioned to provide their customers the same collaboration opportunity."
The future for Red Hat
Another fear from the OSS point of view is that this could set a precedent -- not only does the move mean customers are locked into Oracle's database and OS stranglehold, Oracle could eventually swallow Red Hat.
If the open source software (OSS) company doesn't drown, Oracle looks likely to swallow a significant chunk of Red Hat's revenues. And at some point in the future, Oracle could, should it so choose, acquire the weakened software development house for way less than it would pay today. Surround and conquer, would appear to be the modus operandi.
It would be a particularly juicy prize from Oracle's point of view, as buying Red Hat would also mean getting its hands on middleware vendor JBoss, which Red Hat bought earlier this year. This is a fast-growing market, and one in which Oracle badly wants a bigger stake. At the time, observers pointed out that the JBoss purchase put Red Hat in competition with a number of other software vendors with whom it previously enjoyed a previously harmonious relationship.
Open source in crisis?
Analysts at Saugatuck Research argue that the move has wider implications. They say it puts the whole open source movement in a quandary, pointing out that "Red Hat cannot prevent Oracle or any other legitimate vendor from licensing, reselling, and supporting its version of Linux." This means, say the analysts, that OSS developers "provide well-positioned competitors ... with the ability to compete directly, and possibly to put them out of business."
Saugatuck predicts that other such moves will follow. "Expect other enterprise software master brands (such as IBM, Microsoft and SAP) to employ tactics similar to Oracle's -- not just in Linux but across the entire open source infrastructure stack and key software arenas such as desktop and server-based applications."
What do customers think?
On the other hand, some welcome the move. Database analyst from Activant Solutions Kamran Rassouli said that buying both database and OS from the one vendor minimises the finger-pointing in the event of problems. What's more Oracle does have the talent in-house to do what it's promising. In particular, it's already contributed a clustering file system that become part of the kernel, said Rassouli.
But customers prefer to deal with Red Hat. A survey by CIO Insight found that Red Hat -- a company whose revenues derive almost entirely from customer support -- achieved the highest overall rating when enterprise IT managers were asked to rank vendors for value, such as meeting expectations for increasing revenues, lowering costs, solving business problems and increasing ROI, in addition to reliability and loyalty. Overall, RH achieved an 84.2 per cent rating. Only Cisco and Apple came close to those results -- while Oracle was 39th on the list with 55.3 per cent.
If that loyalty remains consistent, Red Hat has little to fear, although the survey was undertaken before recent events.
It remains to be seen if Oracle's massive marketing budget, a degree of FUD, and real-world execution on its promises of support will win it enough business to make the potential loss of goodwill among both the software development community and the customer base worthwhile.
Additional reporting by China Martens, IDG News Service