Things on my mind. George Drapeau's Weblog

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.
  

Additional Information

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.