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Open Source Software Up the Stack

Dennis Byron

Red Hat Q2 Financial Results Illustrate Convergence of OSS, non-OSS Software Markets

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I have never believed that there were separate open source software (OSS) and non-OSS markets. But as good analyst and taxonomer of software markets, I was always happy to size one and forecast it for clients for a fee. As often as not, the client wanted the metric in order to claim to be the leader in some OSS submarket they perceived existed. The client was most often disappointed to find out IBM was the leader (if the software was infrastructure related) no matter what the OSS submarket, no matter how strained the taxonomy. For example, in the Linux operating software market in which Red Hat competes, IBM ships thousands of systems with Linux and reaps millions in service revenue, the same way Red Hat does. Ditto for the Apache web server built into WebSphere. And the Eclipse toolset. And so forth.

In addition, I also could never come up with a good non-negative descriptor for non-OSS. If the source code is not "open" in the 0-4/1-10 Free Software Foundation (FSF)/Open Source Initiative (OSI) senses of that word, what is it? Closed source? Proprietary? Captive (as in the opposite of “free�)? This is especially an issue when the OSS is bundled into the closed, proprietary, non-free product (see the IBM Apache/WebSphere example above).

Red Hat’s quarterly results for the period ending August 31, 2007 illustrate that the challenges of defining non-OSS and taxonomizing OSS markets are becoming moot. There are now numerical and market-dynamics proof points that there is no difference. Red Hat by its own description of itself is just another software supplier, like Google, IBM, Microsoft, Oracle, and SAP. Red Hat’s apples-to-apples trailing-12-month software revenue growth rate will probably come in around 30% after we backcast for independent Metamatrix results in 2006. (Red Hat's Metamatrix-related revenue is closed-source, proprietary, captive, non-free revenue by the way.) Red Hat’s growth was lower/slower than Google’s, but twice the others’. There was nothing that shouts “Wow, this is really different.� Red Hat revenue grows (and will eventually deflate) the same way the overall software market does.

Red Hat admitted that JBoss revenue was not what they hoped. It was probably not even what they thought it was when they acquired it, by a factor of 2 (a little due diligence problem there?). But just like the other guys, they quoted an IDC statistic and said that was the market they were shooting for, the ones where the other guys already have 80% share. Red Hat management also explained its very real opportunities in the server virtualization and so-called desktop virtualization spaces. Add EMC to my list above and subtract Google and the competitive set and market dynamics are very similar, Nothing about the OSS development model makes them different.

In addition, Red Hat’s revenue is based mostly on replacing existing software, just like the rest of the market. The replacements Red Hat management spoke of were of UNIX, not Windows. So it’s new UNIX (Linux) for old UNIX (OSF/1 and AT&T/Sun), working just like the rest of the software market.

There is no OSS market and non-OSS software market; there is just the real software market.

Dennis Byron’s blog on open source software: A longtime market research analyst follows what “the movement� means to business integration—in applications, infrastructure, as services, as architecture and as functionality.

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