Red Hat, facing fresh challenges from Oracle, Microsoft, and Novell, needs to move beyond its Linux support business. It's trying to put itself at the center of a market for open source, service-oriented apps.
At its user group conference last week, Red Hat launched an online marketplace for open source apps that it had promised in March. Red Hat Exchange lets companies access open source software from 14 companies so far--including MySQL AB database, Alfresco content management, Zimbra collaboration tools, and SugarCRM--in versions certified to work with the Red Hat Linux operating system and JBoss middleware. Red Hat also will sell technical support through annual fees, which is the core of its Linux business. It will share revenue with the app vendors.
Red Hat is trying to spur the development--and cash in on--applications based on Linux and delivered as a service. The exchange will help with that, as would a messaging layer that Red Hat is working on, CTO Brian Stevens said.
The goal of the messaging layer is to offer a product-neutral means for online apps or those built on service-oriented architectures to communicate, in order to deliver software as a networked service. Stevens doesn't expect the messaging layer's release before late 2007 or 2008. Such a messaging layer would compete against proprietary messaging software, such as Microsoft's MSMQ and IBM's WebSphereMQ.
As it tries to encourage emerging app developers such as Zimbra, Red Hat made it clear that it would stay out of the market for desktop applications vying against Microsoft Office and Exchange. "We've made a decision not to replicate the existing desktop applications space," Matthew Szulik, Red Hat's chairman and president, said at the conference.
But it hasn't given up on desktop Linux. It's teaming with Intel to offer emerging markets low-cost computers running a Linux desktop--dubbed Global Desktop--at prices from $175 for a laptop to $500 for a small server. Someday it may do the same thing for Europe and North America, according to Scott Crenshaw, Red Hat's VP of enterprise Linux.
As far as Red Hat Exchange, it sounds a lot like Salesforce.com's AppExchange, a marketplace for vendors to sell software as services. It will appeal to some Red Hat customers. "I'm looking to get started with Zimbra mail to bridge my Windows and Linux users," says Laurent Rochette, platform technologies manager for Mentor Graphics, an electronics design company.
"Why not buy it from there?" Steve Pomush, director of IT at St. Jude Medical, is interested in MySQL as a secondary database to Oracle. For him, the exchange's tech support will make or break its value.
The marketplace has well-known companies like MySQL and Zimbra, plus small vendors that can't afford much of a sales force. "One coast-to-coast flight by a sales guy, and there goes my margin," says Chander Kant, founder and CTO of Zmanda, which sells support for open source MySQL database and network backup and recovery systems.
Szulik painted Red Hat as calmly weathering its growing competitive threats. Microsoft's November pact with Novell promised better interoperability between Windows and SUSE Linux, plus cross-marketing.
"There are guys in this room who continue to talk to Microsoft," said Szulik, referring to engineers who work on interoperability with Windows. Oracle launched a cut-rate Linux support offer last fall, but 24 of Red Hat's top 25 support customers renewed contracts--Oracle itself being the only one that didn't.
Szulik said Red Hat added 42,000 customers in fiscal 2007, while annual revenue rose 44% to $401 million. He knows Red Hat must learn some new tricks to keep up that rate of growth.