But even a quick look at the burgeoning Linux market reveals that Red Hat faces a crowd of competitive threats. A competitor lurks behind every server.
The deep-pocketed Oracle offers a clone of the Red Hat OS, as does the popular CentOS distro. Ubuntu is capturing legions of hearts and minds with its easy-to-use desktop releases. Novell SUSE (which supported Xen virtualization before Red Hat did) touts its Microsoft interoperability agreement in theory reassuring Windows-based sysadmins. Sun Microsystems claims its OpenSolaris project has in excess of 10,000 members. And Hewlett-Packard offers support for Debian on some of its servers. (In 2006, HP claimed that $25 million in hardware sales was due to its Debian support.)
Still, said Illuminata analyst Gordon Haff, in the x86 world, Red Hat has established itself as the go-to Linux for enterprise software certification. Novell SUSE also has a pretty good portfolio of certified apps, but in terms of market share its quite a ways behind. The lopsided market share battle between this David and Goliath is, depending on whos counting, 90 percent to 10 percent.
(However, Haff said, Frankly theres not that much difference, from a product perspective, between the different enterprise Linux products out there.)
A key advantage Red Hat has over its competitors is its sheer longevity.
Weve seen a lot of these flavor of the month, or flavor of the year among Linux distributions over the past five years or so, Haff said. People talked a lot about Gentoo for a period, for example. But then the buzz kind of goes down. At the moment its Canonicals Ubuntu thats riding the buzz wave, though Canonical doesnt have the legacy data center presence of Red Hat.
Yet while Red Hat has achieved status as top dog, thats not enough, Haff opined.
Their bigger challenge is, in spite of this dominant position they have in certified enterprise Linux: theyre not that big a company. Theyre not Oracle. (Red Hats market cap is $3.5 billion, in contrast to Oracles $94.5 billion and Microsofts $257.3 billion.)
To thrive long term, the company needs to move into the neighborhood of major players. I think one of the things that was discussed with their new CEO on board is: can Red Hat take it to the next level, and really move beyond just having a Linux offering? Haff said. Can they do more to leverage their JBoss acquisition? Can they do more around this messaging real time and grid initiative they have? And so forth.
The companys fate rests not so much on the quality of its enterprise Linux platform the product is well regarded. Instead, Its kind of: its that all there is and all theres going to be? In which case, Red Hat will presumably continue on as a company, but probably with fairly modest growth.
On the other hand, growth for this small company means bumping up against some tough prospects. As they try to build up, to a broader stack, a broad ecosystem of products, theyll also be competing against best-of-breed, or piece parts running on their own operating system base, Haff noted.
In other words, growth is essential but it wont be easy.
One of Red Hats key strategies for growing market share will be to stress cost savings.
The whole context for enterprise infrastructure is changing right now, said Scott Crenshaw, Red Hats VP of Enterprise Linux Business. I think the real reason that companies increasingly deploy more open source and I believe that will overwhelmingly be Red hat is because we are attacking new cost drivers that historically Linux and open source havent attacked before, and that I dont believe the competitors in the field address much at all.
An application is an expensive thing to own, he noted. For each app, companies have to acquire it, install it, configure it, tune it, test it, deploy it, manage it, and certify it. The associated costs may account for 30 to 60 percent of an IT budget, depending on the situation.
The Red Hat Enterprise Linux (RHEL) platform is built to reduce this cost, Crenshaw said, by providing a common platform for apps to run on, and then insulating that package from changes.