Some background:
- Matt asked “Why doesn’t Oracle just buy Red Hat?”
- I explained why Oracle would not buy Red Hat
- Luis Villa replied to Matt’s question: “Because Red Hat employees would leave en masse.”
- Microsoft announced fiscal 4Q07 growth of 13% on Thursday (or 16% if you only count their true software revenue – which falls into the “Client”, “Server & Tools” and “Microsoft Business Division” reporting categories). Microsoft crossed the $50 billion total year revenue mark with the close of fiscal 2007.
- I compared Red Hat’s stock performance over the past year vs. some Traditional software vendors (see below)
If you’re still with me….
Red Hat is growing and executing well. Financial analysts expect Red Hat to hit $517M this year (fiscal 2008, ending Feb. 2008), and $631M in fiscal 2009. At this pace, Red Hat should cross the $1 billion revenue mark in fiscal 2011. Red Hat may well be the gorilla in the Open Source marketplace. But after everything is said and done, that marketplace is tiny in comparison to the total software market. If you believe in the stock market’s ability to predict a company’s future value, one could argue that Red Hat investors are in a “sit tight” mode right now. At a P/E of 72 and PEG of 1.44 (vs. Google’s PE of 45 and PEG of 0.99), Red Hat’s stock has likely priced in as much growth and “great news” that we could think of. Few doubt Red Hat’s position in the overall OSS market, but some may be waking up and asking whether being #1 in 1.8% of the software market is enough to drive the multiples that Red Hat shares enjoy today.
While both vendors have strong operating system franchises, Red Hat isn’t really eating into Microsoft’s revenues. IDC predicts that the Linux & Windows markets are growing 26% and 9%, with Unix revenues declining by 3% from 2006-2011. Red Hat’s Jboss division adds a JEE portfolio that does compete with .NET as the infrastructure for enterprise applications. But here again, it’s very unlikely that Microsoft faces off against JBoss in (m)any customer deals. It’s more likely that Microsoft competes against IBM WebSphere, BEA WebLogic or Oracle AS, and JBoss only comes into the picture when the customer has already selected JEE. While there is some overlap, Red Hat is much more complimentary to Microsoft’s offerings than we’d like to think.
Just imagine a Microsoft that could offer customers a choice of Windows/.NET, Linux/JEE or, and here’s the magic, BOTH. The fact is most customers have heterogeneous environments, and those that don’t today, will likely in the future.
In the face of OSS competition, one of the best moves we made in the IBM WebSphere division was purchasing Gluecode. As I’ve mentioned (over and over), having a free application server, based on the open source Apache Geronimo project has done nothing but spur the growth of our overall WebSphere Application Server family. In some cases, the customer chooses WAS CE, in other cases, they choose Traditional WAS products. We help customers be successful with their choice and, equally important, ensure that their previous investments in WebSphere infrastructure are protected. This is exactly the scenario that Microsoft could create for themselves. Microsoft would be able to offer Windows, Linux, .NET or JEE in various combinations to solve customer problems. As a competitor, this would be a scary combination.
What’s more, Red Hat could help Microsoft gain OSS street cred almost instantly. To me, this would easily become Red Hat’s most important contribution to the software industry. Forget being #1 in 1.8% of the software market. How about helping a $50B software company evolve its thinking around OSS in order to become a $75B software company while increasing customer choice and satisfying customer needs? Goosebumps.
I doubt this acquisition will ever take place for three reasons. First, because of vendors such as IBM, HP, Intel and Oracle who have investments in/with Red Hat. Second, because Microsoft wouldn’t want to take the risk. I’d argue that there is much less risk than appears on the surface. Sure, there would be some internal friction during product positioning discussions if the deal went through. But internal friction is healthy and shouldn’t get in the way of helping customers succeed with your offerings. Lastly, as Luis’ comment highlights, Red Hat’s culture would also pose a barrier to this deal. But I’d argue that the only thing that these comments do is put a damper on the deal price, which, at the end of the day, is bad for Red Hat investors. One could argue that JBoss employees felt the same way about Red Hat prior to the acquisition. And yes, some left Red Hat, but some stayed. It would be up to Red Hat management to convince employees about the historic importance of their efforts inside of Microsoft, which would be a pretty compelling reason to stay.
A Red Hat marketing slogan states: “truth happens”, what about “change happens”? And why not help Microsoft change?
PS: I truly doubt this deal will ever happen, but it’s interesting to think about the possibilities.
07.23.07 at 2:59 pm
[…] Link to Article open source Why Microsoft Should buy Red Hat » Posted at rand($thoughts); on […]
07.25.07 at 5:05 am
Red Hat change Microsoft? That won’t happen. More likely, Microsoft will ruin Red Hat’s culture and end up destroying its products too.
Besides, Microsoft is already doing its darndest to remain free of GPLv3 entanglement. Well, Red Hat’s Linux is going to have a LOT of GPLv3 components. That would be risky, at least in Microsoft’s view
07.25.07 at 12:19 pm
No. Microsoft won’t dare take that route.
If they did, they couldn’t release a new version, at least not with a Linux kernel. And maybe not even then.
See, they can’t at once be publishing software under a Free license, and claim that said software violates their patents.
If they did distribute such software, they’d be screwed: they’d never be able to pursue a patent violation. Promissary estoppel is such a lovely thing.
07.25.07 at 12:20 pm
Ps. Not that I think any of Microsoft’s patent claims are worth warm snail spit. The fact that Microsoft hasn’t tried killing any of its Linux competitors indicates to me that Microsoft itself agrees with me.
Or that they’re afraid they’d lose a number of those patents to “prior art” claims.
07.25.07 at 3:02 pm
Microsoft is the reason I’m running Fedora as opposed to OpenSuse.
07.25.07 at 5:04 pm
Red Hat’s stock performance is not relevant. They are valued as a growth company. Microsoft is a mature software company that is valued as a value company. RHAT MSFT would inherit the value perspective and not bring along their stock performance as part of MSFT.
This has little to do with OSS vs. Traditional. You can find similar examples in hard goods start-ups vs. established manufacturers.
07.25.07 at 6:43 pm
M$ wouldn’t dare buy Red Hat: the second they did someone would file a complaint with the DOJ. M$ reputation for buying competitors then snuffing them out is legendary. Second Red Hat is Open Source, and falls under the GPL. Under those terms M$ would be *required* to offer a competing OS for *FREE* that would compete with M$’s cash cow Windows. No if M$ bought Red Hat it would be for one reason, and one reason only: KILL A COMPETITOR!!! Linux is poison as far as M$ goes: touch it and M$ will be thrown right back into a DOJ lawsuit. As it is M$’s patent deals with Novell, Linspire, Xandros are about as far as M$ can go and they had best watch their footing. As it M$ still has not complied with all the terms of the DOJ settlement, I sincerely doubt they want to call more attention to themselves by trying to buy out their chief competitor.
07.25.07 at 6:59 pm
[…] Why Microsoft Should buy Red Hat Some background: […]
07.25.07 at 7:34 pm
MICRO$OFT makes their money from companies who do not want to educate IT and force them to upgrade their equipment in order to run Vista! Not only that, they don’t want you to play games on other OSes nor purchase 99 cent tunes a la carte, it’s Windoze or NOTHING! Only Idiots buy into that “peer pressure!” Wake up, this is a multi-OS world, it is time to make a choice!
Waste money on a failed OS – Windoze or invest money into the potentials of MAC and Linux. Make the right choice!
I abandoned Steve Ballmer and his BS a long time ago. My money is on Steve Jobs, MAC OS X, AND the Independent Linux Companies!!! Penquin AND MAC Power to the People! Stop wasting money on Micro$oft and the failed Windoze chaos!!!
Mark McLaughlin – linuxglobe.wordpress.com
07.26.07 at 12:09 am
I am sorry, but this is nothing more of a rehash of previous nonsensical articles that fails to understand the inner workings of Microsoft.
Evidently, you see Microsoft as a company that gives spit about technology and true innovation. The developers and software engineers at MS are capable enough, but the company discourages true innovation, unless there is a profit line involved in such innovation.
Let’s take your precious DOT.NET. What was DOT.NET invented for in the first place? DOT NET is MS’ attack against Java. MS became terrified of Java early on, with its promise of write once, run anywhere mantra (while still a vision back then it is now a 90% a reality). MS was seeing former hard core Windows developers embracing Java and it terrified MS. Although most Java developers at that time, were writing and running Java code on Windows, Microsoft rightfully saw that Java=no dependence on MS, nor MS operating systems and Java paved the way for a competing OS, platform, and OS agnostic applications.
Therefore MS, first tried to license Java, make it MS only (through Visual J++), which, of course violated the Sun license agreement. Sun’s righteous response was to sue for license violations and totally prevailed.
So MS’ next step was try and disable Java or ship a non standard Java which was based on MS Java. Of course Sun sued and won again.
Now if MS was a really concerned with true technological advances, MS could have strove to make Windows the best environment to run Java on (without violating the license agreement, of course). Instead, MS response was NET.
NET meant that developers who wanted a Java like environment would once again remarry the profit center whore where they were condemned to a marriage of non bliss for the rest of their software applications lifespans.
Has MS been successful? Yes to a degree, their NET efforts have stemmed the tide from a mass migration to Java. SO NET’s trickery has been somewhat successful, at least until naive developers and CIO finally discover they have been screwed again.
With this factual short history lesson, why would you assume MS wants anything to do with Java? Java is now even more a threat to MS than it was originally, since Java is now Open Source and there is no way MS will ever control it. Plus by being Open Source, the Open Source community welcomes it. Even with Novell/Mono’s best efforts the Open Source community is not embracing Mono.NET and never will because they see it for what it is; an MS attempt to lure developers into a MS standard that will change the model once enough developers are hooked.
MS embracing Java diminishes the marketing hype of NET, puts Java equal with NET for the Windows developers and in so doing means that applications developed with Java can be free of lock in; something MS was and is terrified of.
Anyone should easily observe this is not what MS wants or desires, since they have done everything in their power to ensure this doesn’t happen. Such a musing is diametrically opposed to the efforts and attitude of MS toward Java since the beginning (MS is now attempting to do with Python and Ruby what they tried with Java even today).
To summarize, Java applications=freedom of choice, something MS hates and fears.
Now lets look at MS owning RedHat. Once again, you assume that MS is a technology company for technologies sake. Linux in general, is a superior OS to Windows, anyone who has used both in mission critical environments can attest to this. Keep you Windows only experts opinions to themselves. I have never, ever, met a equally astute System Admin or Developer who knows both Unix/Linux and Windows (unless their incomes are tied to MS or MS applications) who prefers Windows, not one. I have met Windows only developers and admins who wouldn’t even know how to begin to write a shell script or know what the /proc directory is for, who will swear Windows is better. In their ignorance, they can claim expert knowledge.
If RedHat were purchased by MS and MS abides by the GPL, it would be to the detriment of Mcirosoft’s Windows empire. Then companies could choose Open Source Solutions instead of MS SQL Server, Business Server, Exchange Server, Office, and Sharepoint. This would dissolve their revenue stream. MS knows full well that there are open Source applications that perform similar or the same operations as these MS Enterprise breadwinners and they are not about to help the competition ease their choice to choose the Open Source and free solution over the costly and proprietary solution. So a MS RedHat is definitely a no go for the MS money train.
07.26.07 at 7:38 am
Also they can already offer this two tiered Proprietary/Linux under Novell. If they don’t want to ship new coupons because of GPL 3, well whose fault is that?
07.26.07 at 12:22 pm
Microsoft buy RedHat? How about Microsoft stop being so proprietary and start sharing with the community without taking peoples money all the time?
Did we forget when they launched new OS (top secure Vista), their goal for “secure Desktop” was to charge for extra package called OneLive? Charge the consumer for securing their negligence’s?
How come Windows is the only OS to carry adware that screws all your system? Why not charge me for the Adware Package, I’ll buy it and install it ahead of time.
This is their philosophy; screw the people for as much money as possible.
Linux and open source? Granted, they have bugs but at least they work on them, if not, knowledge is widely available…and for free???
Yeah, I run Windows XP, Vista, MAC, Centos and Ubuntu. Problems I find?
XP – Reboot constantly, new update every time I login…patches that does not apply, still gets installed, adware galore, pay to keep secure. (I am my wife’s personal tech support for it)
Vista – every time I sneeze, “will you allow” pops-up, resource hog, learn a new OS, still not completely secure
Mac – very nice interface, only reboot when updates come in, still a bit too proprietary, they killed openDarwin
Ubuntu – I am what I am because of who we all are (Windows – I am broke because of who Microsoft is)
Centos – Very strong OS based on RedHat server…love it
Linux in general -When was the last time you were allowed to change the NT kernel, or repackage any applications to your liking or download what you want for free besides Office templates?
In a RedHat world, I have a lot of respect for them. They have come a long way in the OS environment and still remember when there was the RedHat, WhiteHat environment. They were very smart to launch an OS and just charge for support which brought them to the enterprise environment in which they also have come on top.
Microsoft’s objective is always to crush the competition by purchasing them and killing what they have struggled to become. More of a crime is the fact the owners of such good products before Microsoft steps in…takes the paycheck without blinking. Prime example was Connectix aka VirtualPC. Very awesome product, Microsoft buys them and strips out support for all other OS’es. Think about it, did anyone actually buy such product to virtualize Windows on a Windows computer? Years later they discover the truth and adds back the other OS support…”We have Windows and want to run Linux!”…LOL.
I cannot imagine what they would do to such fantastic environment such as RedHat Enterprise. And why not (again) give back to the community that has been supporting their profits? We do see how IBM, HP, Intel and opensource comes together…where is the big giant? Even Dell is trying to look the other way. What I fear and seems sickening is that they take so much advantage of the ignorant, innocent consumers…and they try to keep it that way.
(No offense to the “Windows” guys out there…but wake up!!!)
07.26.07 at 4:30 pm
[…] Red Hat” Posted by Savio Rodrigues under Red Hat , IT , linux Earlier this week I wrote a “what if” post suggesting that Microsoft buy Red Hat. The comments here and on Open […]
07.30.07 at 9:34 am
[…] Why Microsoft Should buy Red Hat – by Savio Rodrigues. […]
09.11.07 at 10:02 am
Good Day. I am Kristel, a researcher from the Philippines. I am doing a study on software enterprise of the IT industry. I have read some of the things that you wrote for some of the key players in this industry and I think that you have very good insights about this industry. Well basically, aside from the things that I have read from other analysts and journalists, I would like to clarify some of the things which are vague someone who’s not really an IT person like me. So, what is your take on the software enterprise industry in general? So, are you familiar with the key players in this industry? In your own opinion, which company is leading in the software enterprise? Do you have any idea why these companies have maintaiuned strong revenue for the past years? I’ve heard that JBoss/Red Hat would be offering their latest product called JBoss Application Platform. Have you heard about this? Can you give me an idea on what is this all about?
Also, I’ve read that this will be formally offered through the PowerEdge servers that Dell will be offering in the market. Do you think that it is a good idea to bundle it with the PowerEdge servers of Dell? Why or why not?
What do you think would be the advantage of having this with the PowerEdge servers?
Can you see any potential for this product? What do you think is the advantage of this platform with the other existing platforms?
Are there any companies offering the same product? If none, do you think that there will be other companies who’ll be interested in offering the same kind of application platform?
Red Hat this week announced a series of SOA-focused bundles of open source products and associated services, as well as the acquisition of enterprise information integration (EII) vendor MetaMatrix for an undisclosed fee.
i will appreciate if you email your answers back. thank you ang have a nice day.:)
09.12.07 at 7:45 am
Hi Kristel
I do know about the RH/JBoss offerings, but since I work at a competitor (i.e. IBM), I should probably not be the person that describes them to you. Try Shaun from JBoss at http://connollyshaun.blogspot.com/
cheers,
Savio
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04.30.08 at 7:09 am
[…] getting closer to OSS (SpikeSource certifies OSS on Windows), but I really doubt they are going to buy Red Hat. While I believe that Savio’s analysis is lucid and intriguing, I am afraid that […]
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