Too Soon for Red Hat to Run Up the White Flag

Oracle made big news in the open source world last week with its announcement that it is going to offer a less-expensive clone of Red Hat. It will achieve this via taking Red Hat's product, stripping out Red Hat-specific material (trademarks, etc.) and rebranding the result with an Oracle trademark. It will then offer support for that product at a cheaper price ($999/year vs. $2500/year for Red Hat's equivalent offering).

Oracle's CEO, Larry Ellison, made a big to-do of the announcement, citing all the advantages Oracle brings to the table: worldwide support offered in multiple languages, Linux expertise, good relationships with vendors (the announcement had so many endorsement quotes from tech executives it was reminiscent of the inside pages of a self-help book; the only names missing were Mark Victor Hansen and Harvey Mackay), etc.

Predictably, the announcement put the trade press in a tizzy. There were articles relaying Ellison's claims verbatim without comment. Other articles quoted industry analysts and open source executives about how this intiative wounds Red Hat grievously. The tone of many articles would make you think that the only decision Red Hat has to make is what kind of cake they should serve at the farewell party.

I don't see it. At all. It's easy to see all the advantages Oracle brings to the fight, but not so easy to recognize all the factors that will handicap it in the struggle. To my mind, Red Hat wields more weapons in this fight and is more likely to prevail.

Here are the reasons for betting against Oracle:

First, while Oracle has huge resources, it has many other things its focuses on. Is it truly going to put its mighty muscle behind this initiative? The trade press is so credulous, it makes Entertainment Tonight look like Woodward and Bernstein. Big technology companies repeatedly make announcements that get reported on as inevitable outcomes. And Oracle is notorious for it. Can anyone remember the "Network Computer"? It was going to obsolete the PC and put Microsoft out of business. After a couple of years and endless ink, the Network Computer deservedly faded from sight, to be replaced by the next ground-breaking announcement from Oracle. Big companies have tremendous resources, which creates a different problem -- competing agendas.

Second, speaking of competing agendas, hardly anyone has commented on what is, in my view, one of the most contradictory aspects of this initiative: Oracle's big pitch for its Linux is that it will be cheaper than Red Hat. This doesn't make any sense and conflicts directly with Oracle's main business: frighteningly expensive infrastructure software. How long will it take for Oracle to realize the cognitive dissonance of trying to sell customers on cheap operating system software and high-priced infrastructure software? The first reaction of customers to the cheap OS will be "Great -- so how much less is my database pricing going to be?" Oracle has done a brilliant job of executing its plan to become the dominant player in expensive enterprise software (indeed, Ellison's rationale for his merger spree is that it enables Oracle to amortize its costs across more products, thereby allowing it to keep high margins). How would you like to be the sales rep trying to present the mixed message that this product portfolio creates?

Third, what about those Oracle sales reps? Clayton Christensen, in his various books on innovation, is convincing, to my mind, on how these kind of initiatives play out in the day-to-day operations of commercial organizations. If you're an ambitious sales rep or marketing manager, do you want to work on the nascent, low margin Linux business, or the high-margin, exciting, gets-you-promoted enterprise business?

Finally, what about the rest of the industry? Just because Oracle claims that its product is compatible with Red Hat doesn't mean that other ISVs and service providers are going to automatically support Oracle's Linux. It is a slog to get these players to certify an application, and, so far, no one has offered any reason that they would particularly want to do so on Oracle Linux. If customers demand it, they'll certify, but I don't see them leaping to take on another combinatorial QA effort to help Oracle's initiative-of-the-moment. Unlike the trade press, industry participants have long memories and jaundiced views regarding these type of announcements. I doubt any of them have formed Oracle Linux task forces this Monday morning.

My prediction as to where things will stand in a year: Red Hat will be doing just fine with its business. In the whirlwind of these breathless announcements, we overlook a certainty -- small companies focus much better than large ones, respond much more nimbly, and have to make a success of their core business, which makes them formidable competitors.

Of course, Red Hat will have to work hard. In the absence of proprietary intellectual property, their business success (and this is true of the entire open source industry) depends on doing an excellent job of delivering value daily to customers. Absent value, there is no lock-in for customers. They can move on to other, better, alternatives.

While Oracle seems to have all the advantages in this struggle, it actually is vulnerable to the new move to cheaper, more open software. Again, Christensen is convincing on how these things play out in the marketplace. Mighty incumbents seem able to crush weak entrants at any time. Yet somehow, at the end of the day, David remains while Goliath writhes in the dirt.