Novell, Sun, and Red Hat: Three degrees of open source

Novell, Sun, and Red Hat have open source in common, but also open source separates them.

Red Hat is an open-source company, while Novell is not, as Novell's CEO and CFO both emphasized in Novell's most recent earnings call. Sun, for its part, was desperately trying to reinvent itself as an open-source company, but struggled to do so given the weight of its declining hardware businesses.

Only Red Hat has managed to thrive as an open-source company while achieving significant scale of revenues.

Open source, it turns out, proves to be a much easier business strategy for upstarts than incumbents: it's hard to thrive on open-source prices unless your business is architected from the ground up to do so.

No incumbent technology vendor yet has managed to successfully transform itself into an open-source player, though Sun has tried, and sometimes to very good effect, as its vice president of Lifecycle Marketing, Zack Urlocker, has written.

Novell, for its part, fits the description Redmonk analyst Stephen O'Grady proffers for Sun:

...[A]s much as Sun's ambitions were to sell to a volume audience, its execution in that respect never matched its aspirations and it was therefore disproportionately punished by the high end slowdown....

[Sun is a ] pesky upstart...saddled with big company obligations in headcount and real estate.

To both Sun's and Novell's "burdens" we could add "saddled with legacy, proprietary businesses."

This is Novell's albatross, one that weighs down every effort it makes to find a renewed brand and resurrected corporate fortunes.

Hence, as much as Novell might like to focus on growing its open-source business in SUSE Linux, it's forced instead to dump resources into legacy businesses like its sagging Workgroup product line, using SUSE as a mere loss-leader for more profitable (but uninteresting) products like ZENworks.

Not convinced? See this statement from Novell CFO Dana Russell in the company's most recent earnings call. Russell calls out the fact that Novell's Linux business has required "heavy investments" while incurring significant "losses," but suggests that Linux losses are worth it because they can lead to proprietary upsell opportunities:

I think we have been fairly aggressive with pricing and we have been over the last couple of quarters here sort of sent a message that has been we are willing to do what it takes especially in our open source and within the Linux products. That particular set of products is an avenue to generate more customers and the opportunity for us to sell our other proprietary products on top of them.

So from that standpoint, if you look at our model, and our model is really is different than Red Hat's model, Red Hat's model is an open-source model.

Indeed. The problem for Novell is that this strategy, which started back when i was still with the company in 2003, has never really worked. While I agree that some mixture of "proprietary" value-add and open source is critical to ensuring community and corporate success, I believe Novell has approached open source in the wrong way, though its strategy is understandable given the legacy it continues to have to service.

Red Hat agrees. In its most recent earnings call, Red Hat CEO Jim Whitehurst called out that even in Novell's competitive Linux business, which Novell has been discounting to free to win deals, Red Hat still largely wins.

What about Sun? Now that Sun will be part of Oracle, I doubt we'll see Oracle perpetuate Sun's "adoption-led" business model--albeit one that differs from Novell's because it's meant to lead to paid open source, not paid proprietary--because Oracle has its hands more than full cross-selling into all the accounts it has picked up through its acquisitions of Sun, BEA, etc.

At some point Oracle will need the efficiency of open source as a sales model (as may Microsoft, which keeps getting battered by the economy), but I think we're a ways from that day.

Which leaves Red Hat as the only pure-play, public open-source vendor on the planet. it is the only public company that views open source as the core of its business, rather than as a complement. IBM, Microsoft, Cisco, HP, and Oracle all view open source as a valuable complement, to differing degrees.

Red Hat stands alone. Again. So far, it's paying significant dividends. It will be intriguing to see what happens next.


Follow me on Twitter @mjasay.

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About the author

    Matt Asay is chief operating officer at Canonical, the company behind the Ubuntu Linux operating system. Prior to Canonical, Matt was general manager of the Americas division and vice president of business development at Alfresco, an open-source applications company. Matt brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. He is a member of the CNET Blog Network and is not an employee of CNET. You can follow Matt on Twitter @mjasay.

     

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