OpenSource.com Launches

Red Hat has recently launched OpenSource.com. This isn’t a site where Red Hat will simply extol the virtues of its products, but about Open Source in general… even outside the technology context. We already know that Open Source has the ability to definitively produce better software. Red Hat is now asking a bigger question: where else can the principles we’ve learning in building OSS be applied. From the about page:

opensource.com is where we explore what happens when the Open Source way is applied to the world. What problems can we solve? How would it affect the way we learn? Work? Run our governments?

We want to shine a light on the places where the open source way is multiplying ideas and effort, even beyond technology. We believe that opensource.com will be a gathering place for many of the open source stories we’d like to share–through articles, audio, web presentations, video, or open discussion.

The term open source began as a way to describe software source code and the collaborative model for how it’s developed. Red Hat used this model for developing technology and built a business model around open source and its principles: Openness. Transparency. Collaboration. Diversity. Rapid prototyping.

The open source way is more than a development model; it defines the characteristics of a culture. Red Hat and other open source thought leaders want to show you where open source is headed next. Tell you how to get involved. Help you apply it to your life and the world around you.

The open source way is about possibility.
Open source presents a new way to solve old problems. To share ideas and effort.

The open source way opens doors.
Open source offers a new perspective. Open, not closed. Collaboration, not isolation.

The open source way multiplies.
Knowledge. Effort. Inspiration. Creativity. Innovation. The impact is exponential.

And it’s already happening:

CHANGING OUR SOCIETY…

The open source way thrives on broad collaboration and shared effort. Wikipedia is one of the world’s most extensive collections of information. Its rapid, exponential growth arose from a very different model and philosophy from the traditional encyclopedia. Anyone can contribute, and entries are subject to peer review.

CHANGING HOW WE WORK…

Two key characteristics of the open source way are transparency and accountability. With natural and organic foods market Whole Foods, they pass accountability to the employees that can most directly impact their individual areas throughout each store. Wages, staffing decisions, even choosing what items to stock–these activities are all done in the open.

CHANGING OUR GOVERNMENT…
US President Barack Obama came to office with the promise of change. His campaign encouraged participation, and his administration has pledged to create a new environment of openness and participation in government.

CHANGING HOW WE LEARN…
Education is all about an exchange of knowledge. MIT took the lead in sharing knowledge and chose to try and change the world in the process. They make the materials used in the teaching of almost all of its undergraduate and graduate subjects available on the web, free of charge, to any user in the world. With nearly 1,800 courses available, MIT OpenCourseWare is delivering on the promise of open sharing of knowledge.

It will be interesting to see what kind of participation they get outside the RHT ecosystem and what kind of ideas and actions they’ll be able to evoke. IMHO it was a clever move tying this site to the Open Source name. It both furthers Red Hat’s image as a leader in the Open Source brand and looks to expand awareness of that brand. I’m sure they hope both add to their bottom line.

–jeremy

Red Hat: Bad economy is good for Open Source

From a post by Matt Asay:

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.”).

You can view the full RHT quarterly report here. Red Hat continues to do well and I think it’s become clear that the continuing recession can benefit certain Open Source business models. Matt makes a very good point in his post though. At some point, the UNIX-replacement business is going to slow. Currently that business is a huge chunk of Red Hat sales. When that slowing finally happens, Red Hat is going to have to look to others places for growth and competing more directly with Microsoft seems like one clear place to look for that growth. Today, less of Red Hat’s sales come at Microsoft’s expense than many people realize. It may very well take an acquisition or two for that to change. With JBoss now fully consumed, some additional acquisitions seem inevitable, but they may not come for a little while for a couple reasons. First, most companies are trying to conserve cash right now, and Red Hat is no exception there. Secondly though, Red Hat really has to be careful whose toes it steps on with its acquisitions. They learned that lesson the hard way with JBoss. That being said, at some point they may end up being too conservative in this regard. Competing with much larger companies means you have to use your small size to your advantage and take risks. I think Red Hat is up to the task, it may just take a little time to find the value and situation they’re looking for.

Disclosure: Earlier this year I held a moderate position in NYSE:RHT. I no longer hold that position.

–jeremy

On the record with Jim Whitehurst, Red Hat's new CEO

When Red Hat announced that Jim Whitehurst, the COO of Delta, would be taking over for Matthew Szulik there were quite a few skeptics. As I noted, going outside the tech industry for a CEO has had both its ups and downs. After reading this interview of Jim Whitehurst by Matt Asay, I have to admit that I am more optimistic than I was before. A couple snippets:

Tell me a little bit about yourself. What are the last three bands you listened to on your iPod?

I don’t have an iPod (or a Zune). It won’t play Ogg Vorbis files.

When the airline industry appeared to be falling apart, Delta’s CEO asked me to be COO. I had been serving as the treasurer of the company (while still at BCG). I became the finance/strategy guy for a few years and ran Delta for the past two years with the company, except for Finance, reporting to me. I left Delta on good terms.

I looked at doing further corporate turnaround work. But I’ve found that I have to have a mission to fuel my work. I can’t just work for a paycheck. Just turning around a random company had no interest for me.

Red Hat appealed to me. Red Hat is different. By doing well as a company at Red Hat we are doing good. Open source is a way to focus on the customer, letting us grow, succeed, and change the technology landscape…all while doing something that is fundamentally good. Fighting for open standards and open formats. These things will change society. I’m thrilled to be here.

When I look at the quality of our existing technology, and the incredible brand that we have and the markets we play in, we should be a $5 billion company or more. If you just look at operating systems and middleware – that’s nearly a $100 billion business. We’re a $500 million business. We have barely scratched the surface.

We need to figure out what our “fair share” of each market should be and aggressively go after it. We need to make sure we nail the markets we’re already in. I’m not saying we won’t go broader, but we really need to ensure we’re building our presence in our core markets and technologies. Perhaps we need to set our ambitions a bit higher.

You just became leader of the “free world.” You also must appease Wall Street, which cares less about freedom of code and more about certainty of profits. How do you balance the two? Developers and investors?

I actually don’t think it’s a hard line to walk at all. If you fundamentally believe, which I do, that open source is a superior way to develop software, then that is our mission and that is what we’re going to do.

There will always be distractions: suggestions that we should make a product proprietary, the idea that we can get to revenue faster by adding proprietary this or that. But we fundamentally believe this is a better way to build a software business. The two groups are appeased together.

It’s all about serving your core constituency – the customer.

I suggest you read the entire interview, but I really like what he’s saying from both a technical and business perspective. I’d say that under Jim there is a very good chance we’ll see Red Hat become the first pure play $1 Billion Open Source company. From there, the sky is the limit.

–jeremy

Matthew Szulik resigns as Red Hat CEO, is replaced by an airline COO

Matthew Szulik has somewhat abruptly announced his departure as CEO of Red Hat. He will remain on as chairman of the board. It’s extremely sad to see this is a result of family illness (which is sometimes a euphemism in CEO departures, but in this case is legitimate from what I understand). From his recent post:

After almost a decade of leading Red Hat, I have decided to transition my CEO and President role for the personal reasons I have already discussed. It’s my privilege to continue serving this great company in the role of Chairman of the Board. Red Hat will be in the capable hands of a world-class executive team under the leadership of Jim Whitehurst as President and CEO.

My early days at Red Hat were sitting in small office with no door in Durham, NC, across from the free soda machine. People by the hour would stop and punch their selection for Mountain Dew or Coke. My challenge was that I was tasked to go and raise venture money for this free software company. And over the phone, in the middle of my sales pitch, corporate types at Dell, IBM and HP and others would hear the constant banging of soda cans dropping in the soda machine and would ask if there were fights going on outside my office. So, after a while, I told the prospective investors that YES there were fights going on. And yes, these fights happened frequently. It’s how people at Red Hat settled technical issues likes software bugs and features in new releases. Red Hat was a real tough place to work. Dell, HP and IBM became investors because they liked the fighting spirit of Red Hat.

I wish Matthew and his family the best in what must be extremely trying times. This is also going to be a huge transition for RHT. Szulik epitomized the fighting spirit and disruptive nature that embodied Red Hat. The choice of an airline COO as the next CEO is one that will surely draw both fans and critics. The airline industry isn’t really known for its transparency, which is absolutely key in an Open Source company… and truth be told, Delta is not exactly known for great customer service (which would be the responsibility of the COO). That being said Jim Whitehurst does seem to have some technical chops and it’s even been confirmed that he’s a Fedora user, which should ease the some of the fear that Red Hat employees have to be feeling right now. It also seems that through the entire interview process Jim has impressed. He has huge shoes to fill as Matthew was not only one of the most successful Open Source CEO’s to date, but a CEO that was liked by his company. Going outside the tech industry for a CEO has had mixed results in the past. It was a nightmare when a PepsiCo CEO took over the reigns at Apple, but worked out well when a RJR Nabisco CEO took over at IBM. How it works out in the case remains to be seen. The implications not only for Red Hat, but for Open Source, will be huge. You can bet many eyes will be watching closely.

–jeremy

Red Hat: BofA Downgrades; Cites Troubles With JBoss

(via Matt) Following news that Novell may be building momentum comes news that Bank of America has downgraded RHT. As is often the case with stock analysts, more are piling on the downgrade now. From Barrons:

Red Hat (RHT) shares are lower today after Bank of America analyst Kirk Materne cut his rating on the stock to Neutral from Buy. His price target goes to $21 from $23.

Materne says the company’s fiscal third quarter ended November should be “solid,” but that its JBoss application server software “continues to have trouble gaining momentum.” He adds that there are “few catalysts on the horizon” that could add to current billings and cash flow growth estimates for the fiscal year ending in February 2008, or for that matter, FY 2009.

Meanwhile, Trip Chowdhry, of Global Equities Research, also downgraded the stock today, moving to Equal Weight. Chowdhry contends that the company’s business fundamentals are “deteriorating,” and that the JBos acquisition “is a complete failure.”

Chowdrhy also asserts that Red Hat Linux “is gradually being relegated to a position of non-criticality.” He also says Red Hat is losing momentum in the BRIC countries – Brazil, Russia, India and China – to Microsoft (MSFT) and Oracle (ORCL). And he says hardware vendors IBM and Hewlett-Packard are providing support and bug fixes for Red Hat Linux since “vendors feel Red Hat support is not enterprise class.”

Not least, he says that developer momentum is shifting away from the Open Source LAMP software stack – Linux, Apache, My SQL, PHP – and toward Microsoft’s .Net platform.

It’s true that Red Hat is having a little more difficulty than it anticipated integrating JBoss. When you acquire an Open Source company, much of what you are acquiring is the people. Many of the top JBoss people have left. The cultures were different, the sales models were different and I’d guess given the information Red Hat has now, they’d have done things a little bit differently. Hindsight is always 20/20 and I think the long term benefits for Red Hat and JBoss are still there.

Moving on to the Global Equities Research comments, I have no idea where Trip is getting his information. All other leading indicators I’ve seen indicate that Linux and Open Source are doing quite well in BRIC and other emerging markets (and in many of those markets Microsoft is either having difficulty gaining traction or is gaining traction by discounting heavily). Additionally, more and more companies are clearly choosing Linux for absolute mission critical applications. The NYSE is a recent example of this. Finally, LAMP adoption in general has been seeing very strong growth and MySQL AB still seems headed toward its IPO, despite the weakening US economy. It just goes to show that an “analyst” can say just about anything they want, typically with little to no justification or real repercussions.

–jeremy

Some Novell Momentum

It looks like Novell might be quietly building up some momentum. First came news that Office Depot is consolidating onto the SLES platform:

In its latest significant victory, Novell announced that Office Depot has elected to consolidate its server infrastructure on SUSE Linux Enterprise Server 10 Service Pack 1.

In the past, Office Depot, with offices in 43 countries, has used an eclectic collection of server operating systems. These include Solaris, Windows, IBM’s mainframe operating system z/OS, i5/OS (the newest version of IBM’s OS/400 midrange computer operating system) and several different kinds of Linux. According to Novell, moving to SLES on commodity hardware has already helped Office Depot reduce its hardware and power costs.

Now comes news that SAP is recommending Novell’s SUSE Linux as its preferred platform. Both announcements serve as good news for Novell, who may soon be announcing additional layoffs despite this growing momentum. Novell recently reported a loss, but its Linux revenue is up almost 70%. It’s clear that the Enterprise Linux market wants at least two solid vendors in play. Red Hat seemingly has one of those spots locked up. Canonical is now making an Enterprise push with Ubuntu, so if Novell wants to hold onto its current number two position it needs to take advantage of this traction. As usual, all of this should be quite good for consumers.

–jeremy

Patent Firm Acacia Loses Case Against Microsoft; More To Come?

It looks like Acacia, who recent filed a suit against Red Hat and Novell, just lost its first court battle. From a paidContent article:

The notorious patent holding company Acacia Research, which first came to light in the digital media industry for claiming broad patents in the streaming media field, has lost first of its many lawsuits to reach as far as a jury trial. In a federal court in Lufkin, Texas, the jury found that Microsoft (NSDQ: MSFT) did not infringe on an Acacia patent related to technology used to quickly power up computer, reports Marketwatch. Filed in 2006, the lawsuit sought as much as $900 million in damages from Microsoft, based on sales of its Windows XP OS. The news sent Acacia’s shares down nearly 35 percent in late Nasdaq trading.

As the story says, Acacia has distinguished itself as a particularly aggressive patent holding company, and has embraced the public spotlight that comes alongside suing high-profile companies. Earlier in the week, it announced a patent settlement with AT&T.

Let’s hope this is the first of the many cases they are trolling that end up with a loss. With the stock already plunging 35% on this one loss, a couple losses strung in a row could put significant pressure on the company to get a new revenue model. If patent trolls didn’t make money there would be significantly fewer of them.

–jeremy

Lessons from Google and Red Hat for Facebook and Open Source

Matt has articulated something I’ve tried to explain to people many times. From his post:

Twentieth century software business models focus on scarcity because they’re founded upon 20th century conceptions of property (actually, their origin is a few centuries’ older than that, but never mind).

Scarcity is the absolute wrong way to build a software business in the 21st century, with the rise of digitization. It is pointless and fruitless to insist that the digital world act like the physical or analog world, and build business models that conform to this false view. To thrive in the new software world, we need to embrace its changes rather than fight them.

The old model was to assume that the value was in the software itself and to therefore lock it up. It turns out, however, as Tim O’Reilly notes, that data is the real value, not bits and bytes. You don’t discover or, rather, uncover, that value until you have abundance.

There will be a few companies that continue to effectively monetize the old world. Oracle, Microsoft, IBM, and SAP, to name the four primary ones. But these outdated models will eventually fall against the rising tide of abundance-based business models, because the new models recognize that digital bits really do want to be free, and that all attempts to artificially lock them are doomed to fail.

It fascinates me how many companies still operate under the guise of artificial scarcity. The landscape is rapidly changing and the shift is so large and fundamental that it seems some are completely missing it. That’s not all that surprising in the end, but as with most industry paradigm shifts, at least one seemingly invincible player will almost invariably not survive.

–jeremy

Amazon to host Red Hat Linux online

In a move that’s somewhat divergent from the direction they’ve been headed, Red Hat recently announced that RHEL will soon be available on the Amazon EC2 platform. I say somewhat divergent because Red Hat had been clearly focused on the Enterprise market for a while now. From the article:

Red Hat on Wednesday announced a significant departure from its current business plan, saying its flagship Linux product will be available on Amazon.com’s Elastic Computing Cloud online service.

Previously, the Raleigh, N.C.-based company only sold its Red Hat Enterprise Linux product in the form of a support contract costing between $349 and $2,499 per year. But in a beta program beginning in the fourth quarter, the software will be available on Amazon’s EC2 infrastructure, Red Hat said.

The move also signals a new phase in EC2. By using RHEL, a supported product for which numerous applications are certified, the online service looks more like a variation of an existing, established software product and less like a radical departure from how computing is typically performed today.

Currently, EC2, still in beta, is effectively a blank slate on which customers install and manage their own software.

The Amazon partnership was among a host of Red Hat announcements. In addition, the company upgraded its RHEL to version 5.1, including new virtualization abilities with Xen 3.1, announced an upcoming RHEL version geared for use embedded as a foundation for software companies’ products, and declared an ambitious goal to conquer half the server market.

Pricing for the Red Hat EC2 option is variable–a classic example of the “pay as you go” philosophy that some prefer, because it ties expenses to actual use, though it can be less predictable. The service will cost $19 per month plus 21, 53, or 94 cents per hour, depending on computing and storage capacity, plus 11 cents per gigabyte transferred in and 19 cents per gigabyte transferred out.

Amazon is doing some really cool things lately and I think this move makes a lot of sense for Red Hat. They have been really emphasizing virtualization recently, and EC2 plays right into that. When EC2 comes out of Beta (which to me means: an SLA, some kind of persistent storage and a static IP) it will be an extremely compelling platform.

–jeremy

How badly is CentOS hurting Red Hat?

That’s the question asked in this article:

Why does Red Hat tolerate CentOS? The Community ENTerprise Operating System is an identical binary clone of Red Hat Enterprise Linux (minus the trademarks), compiled from the source code RPMs that Red Hat conveniently provides on its FTP site. It is also completely free, as in beer. CentOS provides no paid support, but it does track Red Hat updates and patches closely, and usually makes them available within a few hours or at most a few days of the upstream provider, which it refers to for legal reasons as “a prominent North American Enterprise Linux vendor.” Free support for CentOS can be found in numerous places around the web, and a few third parties offer modestly priced paid support for those who want it.

It’s easy to understand what CentOS is. The question is, how much business is it really taking away from Red Hat? The answer: probably more than you think. For a hint about what’s going on, check out this amazing comparative chart on Google Trends.

I used to think most CentOS users were either just fooling around and not really running production servers, or else were using it in small IT shops populated by Linux geeks with a do-it-yourself culture. But a recent conversation with a friend set me straight. (I published part of this conversation here.) My friend runs the web site of a big city daily newspaper. Although it’s not in the same league as the Wall Street Journal or the New York Times, it serves tens of millions of page views per month and pumps a big time advertising revenue stream into the coffers of the media conglomerate that owns it. The site is managed by a small in-house team and runs on several dozen dual and quad Intel servers with a classic LAMP stack that includes Apache, Perl, MySQL and of course Linux.

Until fairly recently they ran this web site on an old version of Red Hat with essentially no outside support. But they found that the up-to-date versions of the applications in their stack didn’t run so well on Red Hat 7.3, so they decided they needed to upgrade to something more recent. Naturally the first thing they looked at was RHEL 4 (this started a while back), and then RHEL 5. But they freaked out when they saw Red Hat’s prices. $1,299 per year for 24×7 support on the two socket version of RHEL 5, or $2,499 for the unlimited socket version. True, if you cut back to 12×5 support those prices come down, dropping to $799 and $1499 respectively. But even if they run RHEL on a mix of two and four socket machines, they’re still looking at $50K per year minimum for the privilege of sticking the little red logo on their servers.
Bottom line? They decided to go with CentOS 5, which they are now rolling out to their production servers.

So, is CentOS hurting Red Hat? I don’t think so, in fact I’d say it’s actually helping Red Hat. You see, the company mentioned didn’t balk on Red Hat because of anything but price. That means if they didn’t move over to CentOS, they would have moved to Debian, or Ubuntu, or Suse… or insert some gratis distro or direct Red Hat competitor here. Now, with a CentOS base let’s say the company grows or needs to run an app that is only supported on RHEL/SLES. What distro do you think they are likely to pay for in that scenario.

It goes further than that, though. Many members of the CentOS community are also valued members of the Fedora community. Red Hat gets Open Source at a very fundamental level and sees the benefit of this. Also, with no free version of their enterprise product, CentOS serves as a way to get broader exposure and therefore enables additional gratis testing for many RHEL bits. In the end I see CentOS and RHEL as more complimentary then competitive. I know it doesn’t appear that way at first glance, but when you really look at the market each is serving, it becomes a little more clear.

–jeremy

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