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No worries, the giant squid is here to help June 23, 2008

Posted by Sacha in JBoss.
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ORCL, the giang squid is here to helpWhen describing the value of Red Hat’s business model, I usually explain that it is based on two pillars:

  1. Quality software
  2. Quality subscriptions

If we didn’t deliver any quality software, we would not exist – easy. That’s trivial to understand and hopefully applies to all software vendors, not just open source. But that is where the comparison ends:when open source vendors provide great software, they still don’t make any money.

The monetization takes place through our subscriptions offering. And here, the bar is set very high: not only do we have to deliver great value but “every year is an election year”: our customers can decide – on a yearly basis – if they want to renew or not the subscription they have with Red Hat. (Hint: for our business model to be sound, we have to make sure our renewal rate is as high as possible i.e. we have to make sure that we consistently deliver value to our customers.)

What’s great is that these constraints are part of our business model: it is not because we are Nice Guys(TM) (we are), it is really *by design* of our business model. Open Source is one of these rare paradigm shifts which displaced most of the value and decision power in the hands of the end-customers, not in the hands of the vendors.

Obviously, this model is a bit simplistic. In reality, specific contexts apply to each vendor/customer relationship and the end-result is probably a continuum of different relationships, ranging from “provides real value” to “provides real lock-in“, with most open source vendors aggregated at the left of this continuum.

Now, if we were to look at the extreme right of this range, I would not be surprised to see ORCL sailing there. Many companies rely on ORCL DB today to drive their business. This is usually not an easy decision to make given that the ability to migrate from one database to the other is very very limited in practice (database business is known to be very “sticky”). Which means that once a DB vendor “owns” your data, it can pretty much play with you like a cat would play with a mouse. Consequently, it came at no surprise that ORCL just increased their prices by 15-20%. The Giant Squid owns your infrastructure, why not leverage that position in sales? Easy.

Now, if you have too much IT budget and don’t know what to do with it for the next 5 years or so, you should really consider buying some BEA WebLogic licenses. Not only you would have no visibility in what this product will become in the next few years, but you can further lock-in your infrastructure; wouldn’t that be great? Hence, not only would ORCL own your data, but they would also own your business applications. Delicious.

Onward,

Sacha

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