For more than 20 years, Unix played the role of the 800 pound gorilla in the server space, especially in enterprise, scientific, government and academic environments. But traditional Unix vendors have faced increasing competition on two fronts. Microsoft Windows Server products have made significant inroads, particularly in the business back-end. To a lesser extent, but cutting closer to the bone, is competition from Linux.
While Microsoft servers represent a wholesale platform shift from Unix options, luring customers to Linux is less of a sea of change. Since it first began as a hobby project in 1991, Linux was inspired as a free alternative to proprietary Unix implementations. Although Linux is closely modeled after popular Unix systems in both form and function, its code is freely available and open source, without derivation from protected Unix code.
There is no single platform or product that singularly represents Linux. Because it is essentially an open source kernel surrounded by a set of open source tools, Linux has been packaged, customized and distributed by enthusiasts in a wide variety of shapes and sizes. Some distributions are optimized for end-user desktop use, some for lightweight servers, some for embedded applications, some for general purpose use, and so on.
While the motivation behind the original Linux development was driven without interest in the marketplace, its free nature has left open the possibility for vendors to build and sell their own Linux-based platforms. However, any doubts as to the credibility and viability of Linux, developed as it has been by volunteers during the past 15 years, vanished as blue-chip companies like IBM and Sun embraced Linux alongside their proprietary Unix platforms. Increasingly, both established and start-up companies are investing in Linux development. IBM alone is investing $1 billion of its $5 billion R&D budget in Linux.
Although revenue for Linux servers weighs in at less than one-third that of Unix servers $5.3 billion vs. $17.5 billion the two markets are trending in opposite directions. The Unix market has seen relatively steady year-to-year declines since its peak during the late '90s, while the Linux market is ascending. Research firm IDC projects that Linux-based servers will reach $11 billion by 2008, nearly halving the gap against Unix.
A key factor driving Linux growth, particularly in the enterprise, is hardware flexibility. The major Unix platforms that IBM, HP and Sun sell have traditionally been closely bound to these vendors' hardware solutions. Because Linux is adaptable to a variety of hardware, buyers can avoid long-term lock-in.
Enterprise Linux platforms are an evolving market segment, but the field remains largely lopsided. Red Hat and Novell/SUSE have long dominated the enterprise Linux space. Recent moves from Sun, Oracle, and even Microsoft are setting the stage for changes in this long-standing duopoly.
For many in IT, Red Hat and enterprise Linux are nearly synonymous, which is good news for the company and daunting news to its competitors. To date, Red Hat has maintained the longest running enterprise Linux product in the United States. The company's current flagship, Enterprise Linux 4, has enjoyed widespread adoption. Rolled out in early 2005, RHEL 4 boosted the company's revenue 58 percent compared to 2004, to $196.5 million.
In contrast to hardware-bound Unix platforms, Red Hat touts its flexibility by certifying RHEL on more than 750 systems, ranging from 32-bit x86 to 64-bit Xeon, Itanium, to IBM S/390 and POWERz processors.
Likewise, because Red Hat is so well established, it has deep-rooted support among OEMs, including Dell and IBM. Buyers can either pick up RHEL "off the shelf" for a variety of systems or purchase turnkey bundles along with hardware from OEM vendors.
Two notable challenges facing Red Hat into the future are global expansion and increased competition. Red Hat's market remains primarily in the United States, while competitor SUSE, although now owned by Novell, still enjoys greater recognition overseas, particularly in Europe where it was founded.
In addition, some argue that Red Hat's huge market share is in part the result of limited competition in the enterprise Linux space. But that space is becoming a little more crowded, and it remains to be seen how Red Hat will fare in a more competitive environment.
In late 2003, Novell acquired the German enterprise Linux outfit SUSE for $210 million. Backed by Novell's large corporate resources, the venture was seen as heralding the first major competitor to Red Hat.
To compete, Novell's SUSE Linux, now in version 10, was positioned to compete on value against Red Hat. For example, SUSE was first out of the gate with support for Xen virtualization, technology that allows multiple operating systems to run simultaneously side-by-side. In fact, Novell announced official support for users running RHEL inside Xen on the SUSE Linux platform. In contrast, Red Hat has yet to release a Xen-based virtualization solutions but plans to do so with its upcoming version 5 release.
Both Novell and Red Hat build their enterprise Linux platforms with a mixture of open source and proprietary components. But each follows a different recipe. Red Hat's OS is built entirely on an open source foundation, which is then supplemented at the enterprise level with proprietary and subscription services. Novell, on the other hand, blends the two kinds of software more liberally throughout its architecture potentially offering functionality unavailable with open source components, but at the cost of locking down more components of the OS.
Novell has found competing with well-established Red Hat to be an uphill battle. In the first quarter of 2005, Novell racked up just $15 million in SUSE Enterprise Linux sales, less than 25 percent of RHEL dollars.
In an apparent attempt to boost its standing, Novell took the Linux world by surprise last November when it announced a partnership with none other than Microsoft. The arrangement provided up-front cash to Novell and, in the long run, potential royalty payments to Microsoft. By supporting the Linux development, Microsoft is, in effect, acknowledging the viability of the platform. The agreement provides legal cover for Novell to incorporate Microsoft-owned technologies into Linux solutions, increasing their interoperability with widely deployed Microsoft systems. At the same time, Novell's exclusive access to proprietary Microsoft technologies could boost SUSE, particularly in organizations with existing Microsoft infrastructures. For Microsoft, in addition royalties, the deal provides an opportunity to influence development of an established Linux brand.
Sun and Oracle A Gathering Storm?
The enterprise Linux market has grown plump enough to attract interest from non-traditional parties. Sun, which has struggled with its proprietary hardware and Solaris software solutions since its peak during the dot-com bubble, recently released the latest version of Solaris under an open source license.
Sun's latest OS runs on hardware from competing vendors and, in a nod to the influence of Linux, is compatible with Linux software. Solaris' so-called "containers" enable Linux binaries to run without modification, a move Sun hopes can slow defections and attract newcomers drawn to particular Linux-based applications.
Oracle recently announced its intention to throw its hat into the Linux market, with a direct attack on Red Hat. Because RHEL is based on an open source foundation, several enthusiast projects, such as CentOS and White Box Enterprise Linux have emerged. They build on this free layer to build "clones" of the enterprise OS.
This is considered to be in the spirit of open source.
Seemingly inspired, Oracle is taking this enthusiast approach to the commercial level. The company's "Unbreakable Linux" is built on the free RHEL foundation, with Oracle-developed extensions. Wielding the RHEL platform against its parent, Oracle intends to support its Linux at a significantly reduced price to customers than Red Hat's own.
In its defense, Red Hat argues that Oracle's modifications will invalidate certifications for systems running Unbreakable Linux, and users should not expect compatibility between software certified for "genuine" RHEL and Oracle's spin-off.
Survival of the Fittest
Although most enterprise Linux customers continue to invest in Red Hat, the field is clearly widening. For the first time, Red Hat may have to compete against several threats. For customers in the enterprise Linux market, this can only be a good thing.