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OpenLogic attacks Red Hat with lower-cost alternative

Source: Infoworld
Date Posted: 12/3/2009

Earlier this week OpenLogic announced commercial support for CentOS [1], a Linux distribution derived from Red Hat Enterprise Linux (RHEL). The CentOS distribution is ostensibly RHEL source code with Red Hat's branding and artwork removed.

Some asked if OpenLogic was "stabbing Red Hat in the back." OpenLogic positioned the move, not unexpectedly, as healthy competition. OpenLogic's Kim Weins explained [2] that OpenLogic customers have been asking OpenLogic to provide Linux support for some time now.

[ Also on InfoWorld: Savio highlights another potential win for OpenLogic in "Government open source projects provide big opportunity for OpenLogic [3]" | Stay up to speed with the open source community via InfoWorld's Technology: Open Source newsletter [4]. ]

"We do have a value-based approach for OSS support -- customers want OSS support, but want it cheaper," Weins said.

How, if at all, will OpenLogic's support for CentOS impact Red Hat's revenue?

Well, Red Hat has already proven itself in the face of Oracle offering a Linux distribution based on RHEL. Novell also offers low-cost RHEL support [5] for up to three years during a migration from RHEL to Novell Suse Linux Enterprise Server. And yet, Red Hat's Linux revenue is growing in the 20 percent year-to-year range -- very respectable, especially in today's economic climate.

For some customers, the OpenLogic CentOS offering becomes a negotiation tactic with Red Hat. But customers already had the option of using Oracle Unbreakable Linux (OUL) during Red Hat negotiations. And, well, Red Hat still sports a 20-plus percent growth rate.

Then there are joint OpenLogic and Red Hat customers. Based solely on Red Hat's market share, I'd guesstimate that a large portion, upward of 70 percent, of joint OpenLogic and Red Hat customers are using RHEL today. These joint customers will begin to think seriously about their RHEL investments. Some will begin by separating their RHEL deployments into "mission critical" and "less than mission critical" categories. RHEL will remain the operating system of choice for the former, while CentOS could begin to displace RHEL in the latter.

The more interesting consideration is how RHEL customers unfamiliar with OpenLogic will react to this news. Some RHEL customers were surely looking to reduce operating system costs by using CentOS over RHEL. Until now, there hasn't been a well-established CentOS support option. For instance, the Commercial Support [6] page on reads: "This Section or Page is coming soon. This page is a holder for Content that is not yet available for publication."

While OpenLogic isn't a market gorilla, it is definitely an established open source support vendor. Additionally, by now, RHEL customers and their management chains are no longer concerned about the "risk of using Linux in the datacenter." As such, the price premium for the enterprise Linux market leader, RHEL, is no longer a sacred cow. Comfort with RHEL and Linux opens up the discussion of moving some workload from RHEL to CentOS in search of lower costs. Matt Asay pointed out [7] that Orbitz and others are running mission-critical applications on CentOS. While these customers are a thorn in Red Hat's side, they represent a very small portion of Red Hat's customer base.

It'll be interesting to check back in with OpenLogic in six months. Who knows -- maybe OpenLogic's success will make it an attractive acquisition target, maybe even for Red Hat?

Follow me on Twitter: SavioRodrigues [8].

p.s.: I should [9] state: "The postings on this site are my own and don't necessarily represent IBM's positions, strategies, or opinions."

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