Its the capitalism

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Larry Ellison, the CEO of Oracle, surprised the IT/software world again yesterday with the Unbreakable Linux annoucement of “support of Red Hat Linux support and charge less than Red Hat does”. That news crushed the Red Hat stock today, it went down 24%. There are many good technical blogs explains and discusses Oracle’s move. Here is blog one and two. I am going to put it in plain English terms and share some of my thoughts on Open Source and Linux movement.

So Oracle is the guy who sells beer at baseball stadium, and Redhat sells peanuts. Sometimes they work together (parter) because a customer needs both beer and peanuts. They are happy because they both make money; Oracle makes more money because it has a higher sales revenue and profit margin. One day this Oracle guy decides to roll out its “Larry” brand peanuts, at half the price Redhat guy sells. As much as customers like Rehat’s personality, many customers decided to buy peanuts from Oracle.

Seriously, I think this is a big blow to the Open Source and Linux movement. Open source and linux have been buzz words in the technology world in recent years, partly because of people don’t want to see Microsoft taking all the market share, partly because its superior technology. Note many innovations are made by volunteering programmers all over the world, for the benefit of the technology community. IBM, the big blue, also put great effort behind Linux development for competition reasons (hint, to compete with Microsoft). To be fair, Oracle also contributed the Linux development in the past. Of course Redhat is the biggest player in the Open Source world: unlike all the proprietary software companies keep the source code inside company and derive revenues from software licensing, Redhat shares its source code with the community and solely derives its revenue from support and service. Now with Oracle’s jump into the ring, where is Redhat’s future? The following is what I saw from Redhat web site.

I think the market and financial analyst over reacted to this news to some extent. Obviously this news is not really news to Redhat (otherwise their CEO would be really dumb). I think Redhat at least has two advantages:

1) technology and people: although Oracle has very smart Linux gurus, Redhat should have a larger pool of talents and have more experience in this Operating System field.

2) brand: Redhat is No. 1 Linux in the US and the world. This can not be wiped out overnight.

Certainlly there is other way out: such as turn to the Big Blue (IBM). But with Redhat’s size (market capital $2.84 B as of Oct 26 close), it’s hard for IBM to swallow. Redhat could also cut its price but it has decided not doing it for now.

As Larry Ellison said in Q&A following the annoucement “This is capitalism, we are competing….we are trying to offer a better product at a lower price.” Eventually the customers will decide who is the winner.

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