Tough choices ahead for Red Hat?

I missed Red Hat’s fiscal 1Q09 release a few weeks ago, so I went back and read the transcript and dug into the numbers a little.

As you can see in the table below, total revenue growth has averaged 31%/quarter since fiscal 1Q08.  Surprisingly though, Sales & Marketing and R&D have grown 32%/quarter and 37%/quarter over the same period.  More evidence to refute the myth that open source doesn’t need sales, marketing or R&D investments.

It is good to see that R&D is growing faster than Sales & marketing.  However, it’s not sustainable for R&D and Sales & Marketing to grow faster than revenue for long periods of time.  It’ll be interesting to see which of these two items get crunched the most in an effort to raise profitability.  (Hint: a 7% profit growth is pretty weak).  On one hand, spending on sales and marketing is required to close deals.  On the other hand, spending on R&D ensures product competitiveness.

BTW, I wanted to ensure that Red Hat wasn’t playing games with deferred revenues in order to make their quarterly revenue targets.  (I’m overly suspicious of SEC filings since finishing my second accounting and finance courses and realizing how easy it is for management to manipulate financial results). It does not appear that this is occurring.

Overall, Red Hat is performing well, but watch for reductions in its cost structure.  Alternatively, if Red Hat could grow revenue significantly they’d be able to maintain the levels of R&D and Sales & Marketing spending.  Fun times ahead…

Anyhow, happy Fourth of July and we’ll catch you next week!

 

Notable no-shows at SourceForge.net Community Choice Award finals

Maybe I shouldn’t be surprised, but not a single project from Microsoft’s Codeplex made it to the finals of the SourceForge.net Community Choice Awards (CCAs).  When Microsoft was announced as a sponsor, the press release highlighted that the CCAs would welcome any project nomination, including projects hosted at Codeplex.  Most of you know that Codeplex is the home for open source projects predominately targeted at Microsoft environments.  Maybe the news of the CCA nomination process didn’t reach the Codeplex user community as this was the first year that the CCAs were opened to projects regardless of their home?

Also, I’m quite surprised that the Spring Framework didn’t make the list of “Most Likely to Be the Next $1B Acquisition”.  Well, the next $0.3B acquisition at least ;-)

Interestingly, Hyperic, a platinum sponsor for the CCAs didn’t make it to the finals of the “Best Tool or Utility for SysAdmins” category.  We’re also missing some top of mind enterprisey OSS selections like JBoss AS, Apache Geronimo, Sun’s GlassFish, MuleSource, WS02, etc.  However, since the nominations were completely open, anyone disagreeing with the finalists has only themselves (and their ability to get the word out) to blame.

The projects with enough nominations to become finalists are:

• Best Project: Drupal, Firebird, FreeMind, KeePass Password Safe, OpenOffice.org, PortableApps.com, Sphinx, XAMPP, XBMC media center, XOOPS Dynamic Web CMS
• Best Project for the Enterprise: Drupal, Elastix, Firebird, LimeSurvey, Magento, OpenOffice.org, PortableApps.com, Sphinx, Zenoss Core, ZK – Simply Ajax and Mobile
• Best Project for Educators: Claroline, Drupal, FreeMind, GeoGebra ,Moodle, OpenOffice.org, PortableApps.com, Stellarium, VMukti, XAMPP,
• Most Likely to Be the Next $1B Acquisition: Amanda Network Backup, Azureus, Firebird, Megneto, phpMyAdmin, PortableApps.com, Sphinx, Talend Open Studio, Zenoss Core, XBMC media center, ZK – Simply Ajax and Mobile
• Best Project for Multimedia: Amarok, Audacity, Inkscape, Irrlicht Engine, MediaCoder, MediaInfo, PortableApps.com, SMPlayer, VLC, XBMC media center
• Best Project for Gamers: AssaultCube, Crystal Space CD SDK, Irrlicht Engine, The Mana World, Mumble, Nexuiz, ScrummVM, OGRE, UFO:Alien Invasion, the Ur-Quan Masters, XBMC media center
• Most Likely to Change the World: Drupal, eyeOS, Firefox, Launchy, Linux, Magento, OpenOffice.org, PortableApps.com, ReactOS, Ubuntu, XBMC media center
• Best New Project: FluxBB, Habari, ImpressCMS, Jensor Java Profiler, Magento, Millennium BSA, MPower, phpMinAdmin, Tine20, Untangle Gateway Platform, WANem
• Most Likely to Be Accused of Patent Violation: 7-Zip, eMule, Mono, Moodle, OpenOffice.org, PortableAps.com, ReactOS, ScummVM, devkitPro, Pidgin, Wine is Not an Emulator
• Most Likely to Get Users Sued: Azureus, DC++, devkitPro, eMule, KeePass Password Safe, Launchy, PortableApps.com, ReactOS, Shareaza, XBMC media center
• Best Tool or Utility for SysAdmins: 7-Zip, Amanda Network Backup, FileZilla, FREESCO rouer, ISP Control Panel, KeePass Password Safe, phpMyAdmin, PortableApps.com, WinSCP, Zenoss Core
• Best Tool or Utility for Developers: Code::Blocks, devkitPro, Krupal, FireZilla, Notepad++, phpMyAdmin, PortableApps.com, WinMerge, XAMPP, ZK – Simply Ajax and Mobile

Head on over to SourceForget.net and vote for your favorites.

 

JBoss plays the choice card

News from Sacha (and covered by InfoWorld) that JBoss Application Server 5.0 is close to GA kicked off a debate at TSS.  Some commented that they were “Suspicious of anything that takes three years to develop”, while others questioned if there was anything new in JBoss AS5 that SpringSource and GlassFish (or for that matter Apache Geronimo) hadn’t already delivered.  Others congratulated JBoss on closing in on JEE5 certification and refactoring their runtime to be more flexible.

What caught my attention is the way that Sacha (JBoss CTO) responded to two comments from Douglas Dooley.

When Douglas suggested that JBoss shouldn’t talk about the new microkernel in JBoss AS5 when the real value is in Java EE5 delivered in JBoss AS5, Sacha replied:

“Again, read my blog: we are perfectly aware that many of our customers are using very different APIs to leverage our AS services. Most of them rely on EE, some of them on Spring, etc. And that’s fine. I don’t really mind which “wrapper API” they are using: we are here to support them in their preferred scenarios. What matters is how flexible our underlying foundation is so we are able support these multiple scenarios.”

When Douglas commented that JBoss should ditch their work on other OSes and focus on Linux, Sacha replied:

“No worries, we are doing more than fine. But we are certainly NOT going to ditch support for other OSes: we have a significant portion of our users going in production on Solaris, Windows, etc. and again, that is a matter of choice - we won’t dictate that.”

Why did these responses catch my attention?  Well, it’s not because of the technology decisions that JBoss appears to have made.  The move towards a flexible app server has been going on for years and it’s where the industry is headed.  For example, we’ve been down the flexible foundation path since WebSphere Application Server 6.1 two years ago (with more to come in the next release of WAS due out later this year).  The reason is because Sacha focused on customer choice. Even though we compete, I have a lot of respect for Sacha. He’s way to smart to let dogma get in the way of meeting customer needs. The internal decisions that led to JBoss AS5 and the messaging around the product appear to be a direct result of Sacha (and team) understanding what customers truly seek and where they want to head (i.e. JEE isn’t the answer for every problem).

I’ve long written about how WebSphere has been able to grow significantly faster than the market because of our focus on customer choice.  At times this focus stretches us a little too far as we try to reach the largest set of customers with whatever makes sense for that customer. This decision is not easy on the internal organization, but it really resonates with customers (as our revenue can attest to).

As a proponent of OSS, I’m very happy to see JBoss moving in this direction.  As an IBMer who competes with JBoss AS, I say bring it on ;-)

 

Integrative Thinking and open source

I just finished the third of four week-long residence weeks for school.  One more to go and I’ll get some semblance of a life back…my wife can’t wait.

“The Opposable Mind” by Roger Martin was one of the books we had to read as prep for the week.  Roger is dean of the Rotman School of Management at the University of Toronto.  Roger is one of the most prominent and prolific supporters of integrative thinking.  What is integrative thinking?

“Integrative Thinking is the ability to constructively face the tensions of opposing models, and instead of choosing one at the expense of the other, generating a creative resolution of the tension in the form of a new model that contains elements of the individual models, but is superior to each.”

I decided to attend Rotman because they were the only school in Canada teaching Integrative Thinking.  I’ve always been drawn to not having to pick A or B, especially when neither A, nor B, truly solve the problem at hand.

I believe that the OSS community needs a healthy dose of Integrative Thinking.  For too long we have chosen “model B” because it was superior to “model A” in aspects that we felt were important.  But few OSS vendors have gone back to reconsider if there are aspects of “model B” holding us back.  Or if aspects of “model A” couldn’t be leveraged in coming up with a hybrid of the two models.  I for one am a believer that “model C”, with aspects of both A & B, will ultimately be the way forward for OSS vendors.

I’d recommend the book to anyone interested in thinking about problems without reverting to choosing between sub-optimal alternatives.  The traditional software business model vs. the open source business model would definitely fit that description.  As an added bonus, Roger profiles Bob Young, of Red Hat fame, in the book.  And since Roger, Bob and I (and Zack) are Canadians; consider it your homage to the maple leaf on Canada Day (i.e. today).

 

Free and Open Symbian to hurt Android

Infoworld is reporting that Nokia is buying the remaining ~52% share of Symbian.  Nokia plans to offer the Symbian operating system royalty-free and open sourcing some portion of the code over the next two years.  Nokia likely hopes that offering Symbian royalty free will bolster the use of Symbian across handset providers and related parties. Also, from a bean counter standpoint, Nokia paid over $250MM in Symbian license fees last year, so paying $410M for the remaining share makes business sense.

The press release states that:

“Nokia, Sony Ericsson, Motorola, NTT DoCoMo, AT&T, LG Electronics, Samsung Electronics, STMicroelectronics, Texas Instruments, and Vodafone Group. All will get access to the Symbian operating system under a royalty-free license.”

So these vendors and anyone else will get Symbian royalty free, but will they continue to use it?

But what is the alternative?  Sure we have the Google-led Android platform, LiMo and Windows Mobile.  But millions of Symbian-based phones have been deployed for years already.  So even if vendors start to experiment with Android for one or two phones in their portfolio, it’s pretty risky to bet the whole product portfolio on Android being successful, or more successful than Symbian.

Since several of the vendors listed as Symbian members are also participating in Android, will this news from Nokia pose another hurdle to Android’s ultimate success?  Especially if Nokia can get the code fully open sourced faster than 2 years?  Part of me even thinks that a royalty free (but not open) Symbian operating system by itself will put a dent in Android’s ultimate success.

What do you think?

 

RMS & Clipperz offer freedom in the cloud

I previously wrote about Clipperz because I really think Marco and team at Clipperz have a great idea.  To summarize, Clipperz has technology for “zero-knowledge web applications” which they have applied to an online password manager as a proof of concept.  Marco writes:

“We simply meant that Clipperz knows nothing about its users and their data!

…

As a consequence of the “learn nothing” mantra, every zero-knowledge application should be completely anonymous, or at least it should make it impossible to relate the real name or email of a user to his data”

It seems that Richard Stallman agrees that Clipperz technology could be very useful in the cloud-based computing world that awaits us.

The guys at Clipperz and RMS have been talking about how Clipperz’s technology could provide freedom and privacy in the cloud.  To that end, they suggest (summarized from here):

1. Choose AGPL: If your services are based on software with an AGPL license, you have to make the source code available to anyone that uses the service
2. Add zero-knowledge sauce: The server hosting the web app could know nothing of its users, not even their usernames
3. Build a smarter brower: We still need to provide users of web apps with an even more flexible and secure environment.

To expand on #3, Marco writes:

“Stallman suggests adding a feature to the browser allowing a user to say: “When you get URL X, use the Javascript from URL Y as if it came from URL X.” If the user does invoke this feature, he can run his copy of the Javascript and still being able to exchange data with the server hosting the web application.

A browser with such capabilities could also easily verify if the Javascript from URL X is different from the alternative Javascript stored at URL Y. If the user trusts the present release of the Javascript code from URL X, he could make a copy of it at URL Y and be alerted if any change occurs.

This solution protects the user from malicious code that could be unknowingly executed by his browser, stealing his data and destroying the whole zero-knowledge architecture. “

Personally, I think #2 and #3 are great ideas.  I’m having trouble with #1, the AGPL requirement.  From an academic standpoint, I can agree with it.  But if we’re asking Google, Amazon, Microsoft, IBM, Sun, HP, etc. to use AGPL’d code, it could become an uphill battle.

Using the AGPL’d widget (from Clipperz in this case) that enables a “zero knowledge web application” is not the problem.  However, the viral nature of the AGPL would be a concern for any vendor who intends to drive revenue from their proprietary code/application delivered via a SaaS from a Cloud.  I guess that these vendors could always license the Clipperz technology…

Thoughts?

 

Reddit goes open source

When a PR contact from Reddit contacted us about “exciting news”, a mixture of workload and getting sent press releases not remotely related to open source led me to ignore the request to meet with Reddit.

My bad.  The news is that Reddit has decided to open source the code behind reddit.com.  The Reddit blog states:

“There are only five of us who work on reddit; we couldn’t have made this site if it weren’t for a great community of developers. In no particular order, here’s a quick list of the open source products that reddit is built and runs upon:

Debian, lighttpd, HAProxy, PostgreSQL, Slony-I, various python libraries, Psychopg, pylons, Solr, Tomcat, Ganglia, Mercurial, Git, gettext (translation), daemontools, and memcached.”

The code is licensed under CPAL, (i.e. a Mozilla license with a badgeware requirement).

I can’t immediately understand why users or companies would run this code themselves, except for very specialized purposes. But open code could attract attention from Reddit users who also have developer skills.

What do you think?

 

Is open source only good for undermining competitors?

I usually try very hard to not write about IBM. But the following from Matt Asay requires a reply.

Regardless, IBM isn’t in the habit of open sourcing technology in which it has a lead or at least a strong position, such as it does with DB2. IBM strategically invests in open source to undermine the margins of its competitors, not its own.

Really? Take a look into OSGi, SCA, Apache HTTP Server or the countless other open source projects that IBM has open sourced technology into. This technology didn’t undermine competitors; it helped customers and competitors alike (and let’s not forget that competitor contributions helped IBM).

Take OSGi for example; virtually every application server is going to be built on OSGi technology. We helped found the OSGi Alliance and contributed a significant amount of the code for various OSGi implementations since Release 1.

IBM did this because the open standard (OSGi in this case) delivered customer benefits. Like all standards, they’re only useful if they are widely supported. What better way to convince other vendors and competitors alike to support and contribute to a standard, than through the use of open source around an open community?

The attention that OSGi technology is generating today is helping to raise all boats, especially IBM WebSphere, the first application server built on OSGi technology over 2 years ago.

Was the move to open source OSGi technology strategic for IBM? Absolutely. Did it undermine competitors? Not that I know of (but hey, I don’t know everything).

IBM (and all smart vendors) strategically invests in open source. But strategic doesn’t have to mean “undermine competitors”.

 

Standalone OSS revenue to reach $4.8B by 2012

Dave reports that IDC’s latest report “Worldwide Standalone Open Source Software 2008–2012 Forecast: A Preliminary View” estimates that the standalone OSS market will grow from $1.73B in 2007 to $4.83B in 2012. That’s a 23% annual growth rate to 2012 vs. 7.7% annual growth for the overall software market.

Interesting to note that $4.8B represents 1.3% of the overall software market. The previous version of the IDC data suggested that standalone OSS spending would come in at 1.8% of the total 2011 market spending. (Don’t try to reconcile the two figures as forecasting is difficult and usually +/- a wide margin).

But as the report’s author, IDC’s Matt Lawton highlights:

“However, we need to also provide some context. Standalone open source software is an important but small segment of open source software. Large vendors are realizing significant revenues indirectly from their activities with and support of embedded and complementary open source software. In addition, unpaid open source software adoption is significant but not included in our revenue estimates.”

Matt Lawton is a very bright guy and “gets it” when open source is the topic of discussion.

Good to see that the data continues to support the idea of OSS becoming an aspect of the software market, rather than “the beginning of the end” as some had predicted.

 

The Open Source Census gets a shot in the arm from Microsoft

I was pretty excited when OpenLogic announced the Open Source Census. A key aspect of the census was a tool that scanned respondents’ servers to determine which open source products/packages were actually being used. Anonymous data from these individual scans was going to be shared with the public in order to revolutionize our understanding of OSS usage. This would be very important for companies whose IT leaders don’t know that they are using OSS.

However, to date, only ~1300 machines have been scanned.

News from InfoWorld today that Microsoft has also sponsored the Open Source Census is great as this will attract attention to the Census.

If you’re reading this and have not participated in the Open Source Census, why not? What will it take to change your (and your company’s) mind?