Red Hat released Red Hat Enterprise Linux (RHEL) 6 earlier this week. The new operating system, filled with technical innovations, performance enhancements and customer-requested improvements, has met with positive press, customer and partner response. However, how it’s being marketed could be much more important – to customers and to open source vendors in general.
Leading with lower cost
According to IDC market share figures, Red Hat is the undisputed leader in the enterprise Linux market. Red Hat achieved this position, with the help of partners such as Dell, IBM and HP, largely on a simple message of “lower cost”.
In the past, RHEL was not as feature rich as Unix variants or even Microsoft’s Windows NT, and Windows Server product line. Yet, the “lower cost” message was powerful enough to encourage customers to adopt RHEL in areas where its features, or lack thereof, didn’t impact the operating system selection process.
In October 2008, Red Hat’s CEO, Jim Whitehurst told Computerworld:
I’ve had a couple of conversations with CIOs who said “we’re a Microsoft shop and we don’t use any open source whatsoever, but we’re already getting pressure to reduce our operating costs and we need you to help put together a plan for us to help us use open source to reduce our costs.
The low cost glass ceiling
In response to this quote, I wrote that the focus on low cost risked unnecessarily limiting the growth of open source businesses.
I also wrote about Red Hat’s revenue glass ceiling as being directly attributed to its primary focus on “lower cost”. In the post, I wrote:
Yet, Red Hat’s business model, which focuses on low cost, has trained its customer base to fixate more on the price of Red Hat products than the value these products deliver. It encourages customers to trade RHEL for cheaper options.
A renewed focus on high value
It seems Red Hat has learned that “lower cost” is important, but “higher value” is much more important to customers. I’d like to say, “I told you so”, but that wouldn’t be very Canadian of me.
Look at RHEL’s marketing today, the title reads: “More reliable. More open. More comprehensive.” A search for the term “cost” returns zero hits on the RHEL for Servers marketing page.
Look at how Red Hat compares itself versus Microsoft, Oracle and VMware: “More reliable than Microsoft.” More open than Oracle” and “More comprehensive than VMware”. Not as single mention of cost.
Red Hat has also been much more vocal and upfront about technical benefits in RHEL 6. For instance, virtualized guests can achieve 85 percent to 90 percent of the performance of running on native hardware. Additionally, comparing the maximum memory or logical CPUs supported by RHEL 6 versus, for instance, Microsoft Windows Server 2008 R2, shows a wide gap in Red Hat’s favor. Specifically, 2 TB to 64 TB versus 2 TB and 32 to 4096 CPUs versus 4 to 64 CPUs, when comparing RHEL 6 versus Windows Server 2008R2 respectively.
Counter to Whitehurst’s prior suggestion that open source products do not face feature bloat risk, RHEL 6 includes 2,058 packages, and 85 percent increase over RHEL 5. This represents a significant increase in features that RHEL customers can beneit from.
What IT decision makers can expect with high value OSS
The shift from an emphasis on low cost to high value will surely become a growing trend in open source vendor marketing. This will be a positive, and important shift in the ongoing evolution of open source software vendor business models.
IT decision makers are likely to face a moderately more complex task when comparing offerings and features from competing vendors. Higher value is much more subjective than deciding between two products primarily on costs.
This shift could also result in open source vendors requiring additional professional sales resources, beyond today’s inside sales teams. IT decision makers can expect more direct sales interactions going forward than in the past.
Last, but not least, IT decision makers should plan for potential subscription cost increases as open source products begin to focus on value delivered, and price for it accordingly.