Red Hat Competes in Crowded Market

An analyst, customer and company VP talk about the open source company’s place in the highly competitive Linux market. Red Hat’s platform recently won a Datamation Product of the Year award.
Posted February 26, 2008

James Maguire

James Maguire

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It’s no surprise that this year’s Datamation Product of the Year Award in the Enterprise Linux category was snagged by Red Hat. The open source pioneer, founded in 1995 (a mere four years after Linus Torvalds released the first Linux kernel) has long been the dominant Linux vendor.

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 it’s quite a ways behind.” The lopsided market share battle between this David and Goliath is, depending on who’s counting, 90 percent to 10 percent.

(However, Haff said, “Frankly there’s 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.

“We’ve 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 it’s Canonical’s Ubuntu that’s riding the buzz wave, though Canonical doesn’t have the legacy data center presence of Red Hat.

Yet while Red Hat has achieved status as top dog, that’s not enough, Haff opined.

“Their bigger challenge is, in spite of this dominant position they have in certified enterprise Linux: they’re not that big a company. They’re not Oracle.” (Red Hat’s market cap is $3.5 billion, in contrast to Oracle’s $94.5 billion and Microsoft’s $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 company’s fate rests not so much on the quality of its enterprise Linux platform – the product is well regarded. Instead, “It’s kind of: it’s that all there is and all there’s 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, they’ll 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 won’t be easy.

Insider’s Perspective

One of Red Hat’s 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 Hat’s 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 haven’t attacked before, and that I don’t 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.

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