A newyear’s prediction: Red Hat becoming a Gorilla?

Last year Red Hat’s acquisition of JBoss was one of the most important event in the OS arena.

Today Red Hat is not just a Linux vendor, it’s really becoming an open source powerhouse, as optimisticly predicted a long time ago by Red Hat itself. Now that Red Hat is starting to offer its customers an application software stack, the game is getting harder.

Whether Ellison’s decision to launch the “Unbreakable Linux” initiative was or not an emotional response to Red Hat’s acquisition, it’s true what Goldman Sachs said about the JBoss deal:

Red Hat’s acquisition of JBoss begins Red Hat’s migration up the infrastructure-software stack and leads it into direct competition with Oracle and IBM, two important partners of Red Hat.
Oracle, in particular, seems likely to align with a competing Linux distribution in an effort to deliver a bundled, integrated, open source infrastructure stack of its own.

One goes up, one goes down the stack, but both somehow play the gorilla game.

Delivering open-source stacks to customers might turn them in permanent ones, offering them technical integration, broad support, legal indemnification, in one one-stop shop solution. Just the opposite of the marketing approach I early commented, though.

But Increasing returns theory, central for non-rivarly goods, is far to be predictable.
What is known from Paul Romer, is that economic growth and the technological innovation it requires are impossible under perfect competition: they require some degree of monopoly power.

If Red Hat will keep acquiring other OS firms (applications), delivering valuable subscription services, offering a full intellectual property coverage, it might take the most.

But in order to get there, do Red Hat need a mechanism to enforce excludability or not?

P.S. Here I’m assuming that support seller with constraints not proven to be effective for enforcing excludability, as shown by the Oracle move

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3 thoughts on “A newyear’s prediction: Red Hat becoming a Gorilla?

  1. Roberto, good article.

    I totally agree that Red Hat’s future is going to be very interesting. The more they grow into Middleware (IBM, Oracle) and Applications (Oracle), the more that they stand to compete with IBM & Oracle, two vendors who helped Red Hat grow. To be sure, IBM and Oracle (amongst other traditional IT vendors) have benefited extensively from the success of Linux, Red Hat and the acceptance of Open Source.

    I’ll make the “bold” prediction that Red Hat will be acquired by, or merge with, a traditional software vendor within the next 5 years. I say “bold” with a laugh, because we’ve already seen news about Oracle possibly acquiring Red Hat.

    As the acceptance of open source grows, I believe that traditional software vendors will either acquire open source vendors or build open source divisions to meet customer needs. When this happens, we’ll see a hybrid open source & traditional software business model.

    Exciting times to come! :-)

  2. Thanks Savio for your comment.

    Let’s see what people say about Oracle buying Red Hat:

    Ellison while speculating about a move into the Linux business is worried about the lack of IP ownership:

    “We’re missing an operating system. You could argue that it makes a lot of sense for us to look at distributing and supporting Linux; it makes a lot of sense. That’s the one area where Oracle isn’t a player. We looked at buying Novell, for instance: we look at everything, play this thing out. IBM is Novell’s biggest customer. We buy Novell, IBM says thanks very much, takes the source code and boom, there goes all our money down the drain on day one”

    Raven Zachary, from the 451 Group, suggested Ellison was trying to drive down Red Hat’s market capitalization:

    “Given the amount of drama involving the PeopleSoft acquisition, you can’t rule out the possibility that this is a move by Oracle to make Red Hat a more affordable acquisition target”

    My guess? Hybrid business models are not an easy game to play.

  3. Yeah, I think Oracle will re-evaluate their Linux options once they’ve seen how well/poorly their Unbreakable Linux is doing in 6 months or a year.

    >”My guess? Hybrid business models are not an easy game to play.”

    I definitely agree with you Roberto.

    But with the amount of money traditional software vendors have at their disposal, I’d say it’s more likely that they’d buy their open source counterparts before going open source with all their products.

    I guess we’ll see :-)

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