Oracle Forks RedHat Linux?

If you've read yesterday's story about Oracle announcing their support offering of RedHat Linux, you may disagree with the title of this blog.  But I think that's the logical end of Oracle's move yesterday.  Let me explain by starting out with some context.

Yesterday, at Oracle's annual conference (Oracle Open World), Larry Ellison announced that Oracle will be offering support of the RedHat distribution of the Linux operating system, and would do so at half the price that RedHat charges.  RedHat's stock has dropped over 25% in one day due to the announcement.  Ouch.

Oracle said the reason they're doing this is because they feel that RedHat doesn't do a good job of supporting RedHat customers.  Essentially, Oracle is claiming this move helps the viability of Linux.  Larry said that Oracle would fix bugs in the RedHat distro and then give those fixes back to RedHat for RedHat to incorporate into their distro.

I think this is where Oracle's argument starts to break down: how willing do you think RedHat will be to accept every source code change that Oracle sends RedHat's way?  There's no way every bug fix will make it back into the RedHat distro, which means that Oracle customers will face a problem: do I use the RedHat distro, or do I use the RedHat distro + Oracle's bug fixes that I need?

Oracle will be forcing customers to choose between what will amount to two different distros of Linux.  Fragmentation will occur, and Oracle's independent software vendor (ISV) partners will have to do another certification of their applications on the Oracle RedHat distro.  The ISVs will have to spend more money to support extra Linux platforms, which they won't like.  That will slow the adoption of apps on Oracle's Linux, and may even take apps away from RedHat because some ISVs will do whatever Oracle tells them to do, and will choose Oracle Linux over RedHat Linux.

Enterprise customers (i.e., the customers with the big bucks) will have a fragmented Linux market, even more so than it is now.

There is an excellent analysis of the situation here that points out an irony in all of this: Oracle is claiming that lowering support costs will help customers, but Oracle is not offering to lower the support cost of the database product itself or the DB license cost.  Oracle DB and support licenses dominate the cost of the sale pretty much no matter what the size of the deal (yes, the Oracle DB and support licenses commonly cost more than the hardware itself).

Oracle says this is about making Linux better, and it's not about control.  If that were true, then why charge half price for the support?  If they're adding value, they should charge extra for that value; after all, they're perfectly comfortable charging plenty for the DB license and support.  Follow the money: Oracle is driving down the cost of Linux, a piece of infrastructure software that Oracle doesn't own.  I think it's pretty clear that Oracle is trying to control the sale by marginalizing everything that they don't own.

So at the end of the day, what do we have on our hands here?

  • Oracle continues to commoditize its complements, cutting the cost of the RedHat Linux offering in half, which means more of the customer's wallet for Oracle;
  • Oracle makes money on this deal because they don't have to change the pricing of their cash cow (DB licensing + support), and they add a revenue stream with Linux support;
  • RedHat has a major threat to their main revenue stream, and Oracle can decide how much or how little value they wish to add; RedHat has little control and ironically, Oracle's move may actually destabilize Linux viability, not bolster it;
  • The enterprise Linux space is about to get more complex, potentially yet another enterprise Linux distro.  Complexity is not good for customers;
  • Oracle gains more control over the enterprise Linux market, without having to pay much for it.

I don't see how this is good for customers, but I do see why Oracle thinks it is good for them.

Additional Information

Several people have written some interesting blogs about the news; here are a few:

ZDNet has an excellent summary of the situation, with good commentary and pointers to other opinions.

Here is another blog that characterizes Larry's move as "a ruthless and brilliant act of capitalism".

Here is an article in BusinessWeek that discusses the announcement.

Comments:

And yet another reason why Solaris 10 and PostgreSQL make perfece sense when the database replication issues may be delt with.

Posted by Wes Williams on October 26, 2006 at 06:17 AM PDT #

Now that RHAT share has dropped by 25%, Oracle can buy up RHAT at a discount price, smart Larry. That would be another way Oracle obtains dominency in the Software market. Just a thought.

Posted by Ghee Teo on October 26, 2006 at 08:34 AM PDT #

This move makes perfect sense for Oracle. It has been rumored for quite some time that they were going to produce their own Linux distro. Has they done so, they would have had an uphill battle with acceptance, particularly the downsides notes above, fragmented distros, increase in app qualification, etc. With this plan, there are several possible outcomes. One, they buy Red Hat at the reduced price noted by the previous commenter. Two, Red Hat distro forks as noted in the article. After the initial fork, apps will not require re-qualification, and we will have two distros one of which has a huge company with great tech-support that costs less behind it. My bet is that most customer will follow Oracle. This amounts to the same outcome as the first scenario, since Red Hat will cease to exist and the distro will be owned by Oracle. The third is that Red Hat will continue, put to avoid the fork, they will have to take anything that Oracle says. Oracle will be in control and again we have essentially the same scenario, except there will still be a Red Hat. How can you blame Oracle?

Posted by Brian Utterback on October 27, 2006 at 12:46 AM PDT #

Interesting point, Brian, and I don't blame Oracle. I completely understand why they feel this is a good move for them. All I'm saying is that this is a destabilizing move for Oracle's customers. Oracle's reputation for service seems to have some chinks in its armor; from customers I speak to directly, I hear plenty of complaints about Oracle's service quality, and I'm not alone here. So the premise that Oracle is going to provide better RHAT service than RHAT does is unproven at best. RHAT published this on their front page today: http://www.redhat.com/promo/unfakeable/ They clearly state that Oracle's RedHat is a fork and that support from RedHat is uncertain. Now ISVs have to choose which distribution they will support and certify. That's just added cost to Oracle's ISVs, and it's created uncertainty and a more complex decision-making process for customers. If Oracle wins, it may be fine for them, but it's certainly not going to win them love from their customers. I'm not sure why customers would want this move. And if Oracle were customer-focused, I'm not sure why Oracle would do this move, either.

Posted by George Drapeau on October 27, 2006 at 04:40 AM PDT #

I don't think that Oracle's decision is something new. I can say that Oracle from now on has changed the way that is offering the RHAT Linux suuport from free to billable. Oracle is now trying to get money from Linux. I know for sure that Oracle (at least for the last two years) was offering Free support for RedHat Linux OS to any customer that had a support contract for any Oracle'sTechnology Server products (Database, Application Server, Collab Suite) and have them installed in RHAT Linux.

Posted by George Kanellopoulos on October 29, 2006 at 05:45 PM PST #

The trick for Oracle is to maintain (or even guarantee) binary compatibility with RHEL. If they can do that, then they might be able to stop the encroachment of the OS folks looking to expand the system stack.
Its interesting that RH's immediate argument/response in the "Unfakeable Linux" piece was to assert that anyone making bug fixes than them were forking the base. Unless they think they are the only ones who understand how to fix the OS, there cant be any truth to that. Its probably the lamest response I've ever seen to a major announcement.

Posted by Vijay Tatkar on November 01, 2006 at 02:29 AM PST #

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The views expressed on this blog are my own and do not necessarily reflect the views of Oracle. What more do you need to know, really?

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