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Oracle To Red Hat: With Friends Like Us, You Won't Be Needing Enemies

In a brief eight-day period, two of the software industry's behemoths, which agree on little else, seemed to agree on one thing: Something needs to be done to slow the growth of Red Hat. It's almost as if they're miffed that Red Hat didn't have the good sense to remain a third-world supplier of raw materials, the way they intended.

Red Hat produces the version of Linux most commonly used on enterprise servers, with something like 61% of the business server market, compared to less than 10% for Novell's Suse Linux. Oracle now sells a lot of copies of its database to run under Linux, so a healthy percentage of those Red Hat enterprise servers are running Oracle.

So it was news Oct. 25 when Larry Ellison said Oracle was going into the Linux support business. The goal isn't to take all of Red Hat's business away. Oracle couldn't do that if it offered free Linux support, and besides, Linux support is a dead end for a company that aspires to be number one in applications. Nevertheless, by offering combined database/Linux support, Oracle can sap some of Red Hat's revenues, reduce its profit margins, and make Red Hat less able to make ambitious acquisitions, like buying JBoss, the open source Java application server.

Enter Microsoft. Under the guise of wanting to help Microsoft customers make a good Linux purchase decision, Microsoft struck a pact with Novell that includes a cross patent licensing agreement and 70,000 coupons that Microsoft will hand out to customers for Novell Linux support. What better way to help the struggling Novell, which isn't a direct competitor--much of Suse Linux runs on mainframes-- and sap the strength of a Linux vendor that is?

Somehow, I see those Linux coupons lighting fires in fireplaces of second homes in the Cascades at least as frequently as they get handed by the Microsoft sales force to their best Windows customers. Nevertheless, Microsoft has found a way to inject cash into a weak competitor while theoretically weakening a strong one.

Where have we seen this act before? Oh yes, in that beatific moment when Steve Ballmer and Scott McNealy embraced before the cameras and announced that they were in a new mode of cooperation, their directories would soon work together, and here, Scott, is a $1 billion check for dropping those lawsuits. Novell has outstanding litigation against Microsoft; look for it to quietly go away in a few months.

Why would IBM's Executive VP for Software, Steve Mills, stand on the sidelines and applaud this pact? Shortly after Red Hat was founded in 1993, IBM proved to be Red Hat's firmest strategic ally in its promotion of Linux, and IBM Global Services still garners Linux revenues that will dwarf any Oracle might gain. Global Services is frequently called to integrate Red Hat Linux into the enterprise.

But IBM, too, had reason to pause and reconsider as it watched Red Hat buy JBoss. JBoss was the interloper with the potential to do damage to IBM's WebSphere revenues. JBoss, combined with Red Hat, had the potential of producing an open source middleware stack that could do more damage than JBoss by itself. Even IBM wishes Red Hat wouldn't get too big for its britches.

Ironically, in its Year 2000 annual report, Red Hat boasted that it had "strengthened our strategic partnerships with other technology industry leaders, such as Oracle, IBM, Novell..."

These relationships were strategic to Red Hat, tactical to Oracle, IBM, and Novell. At one time, it was Red Hat's role to supply and support a version of Linux they could use as a platform for their own products. Now Red Hat, with 2006 revenues growing by 42% and income by 75%, is taking on a new role and adding its own products to the Linux platform.

That's making a lot of established players uncomfortable, and they'll do in return what they can to make Red Hat uncomfortable. They can bleed off some technical support revenue. But I don't think they can reverse the long-term underlying trends that thus far Red Hat has harnessed so well.

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