4 ms·

I agree with Levine's conclusions, but the reason Red Hat is successful in spite of "selling a slightly better road" is simple. (The car analogy really helps th

by sounds 13y ago

I agree with Levine's conclusions, but the reason Red Hat is successful in spite of "selling a slightly better road" is simple. (The car analogy really helps this.) Unlike the other open source efforts Levine lists, Red Hat sells Free Software. Now, hang on just a second and hear this out: it's not that Red Hat is _evangelizing_ like the FSF does. Red Hat has simply capitalized on the model that GPL Linux is better than _any_ proprietary server OS. I know I've never seen anything come close to it. Feel free to point out a server OS that competes successfully with Linux – gratis! Red Hat can't charge for the razors but they make up for it by charging for blades: stuff your company _shouldn't_ be doing in-house. You can outsource it all to Red Hat: installation, maintenance, QA, everything. They're basically an early freemium model. Levine is correct that the market potential has not exploded for Red Hat (yet) but he concludes that nobody else should try what they're doing. I think he doesn't understand exactly what Red Hat is doing. Due to the unique pricing structure caused by Free Software, a "differentiated service on top of the platform" model would fail. For Red Hat, that would be something like selling proprietary system management software on top of Linux, and assuming it was sufficient. If Red Hat were evangelizing Free Software they might be content with a sub-par product "because freedom!" Take laptops, for example: System76, ZaReason, and laclinux.com remain small. Their product does not represent a tier 1 product, even though they make a differentiated laptop on top of the same base of laptop ODMs. Levine correctly concludes that Red Hat will not grow as rapidly as a Google or Amazon. It's not an apples-to-apples comparison. Instead, compare Red Hat to Microsoft, CA, or Oracle who compete directly in the "razors & blades" market of enterprise IT support. (Those companies do have other markets as well.)

nl 13y ago
Levine clearly understand's RedHat's business model: Most of their money comes from support contracts. He also understands that selling support isn't as profitable as selling software, simply because the businesses scale differently. With software your costs are basically fixed (you sell the same thing many times), while with support your costs grow as the business grows (you need to hire more & more people). Instead, compare Red Hat to Microsoft, CA, or Oracle who compete directly in the "razors & blades" market of enterprise IT support. (Those companies do have other markets as well.) The numbers on those businesses make a good example. Microsoft makes almost all it's money from selling products, not support. Oracle has a very aggressive service division, and yet still makes more than 50% of it's money from selling software (and now hardware).
- mindcrime 13y ago
  Most of their money comes from support contracts. In my experience that's true of proprietary vendors as well. They just usually call it "maintenance" instead of "support". He also understands that selling support isn't as profitable as selling software, simply because the businesses scale differently. With software your costs are basically fixed (you sell the same thing many times), while with support your costs grow as the business grows (you need to hire more & more people). That dichotomy is nowhere near as clear cut as you're making it seem. You think proprietary software vendors aren't also selling support? And don't need to hire more people as they grow? Bunk... I've worked for a few proprietary ISV's and from what I've seen, what they are doing is almost exactly the same thing as what Red Hat are doing. With Red Hat you pay for a "subscription" and with most other companies you pay for a license + "maintenance"... and the maintenance bit is, in essence, exactly what Red Hat are selling. The structure is just a bit different in that you don't, for example, pay for version upgrades in the RH model. Nonetheless, even a proprietary vendor has their costs go up as they acquire more customers unless they refuse to support their software at all, in which case I doubt they are getting a lot of customers.
  - nl 13y ago
    In my experience that's true of proprietary vendors as well. They just usually call it "maintenance" instead of "support". Of course. This isn't an open source vs proprietary thing, and every company has to include a certain amount of support in the software they sell. That dichotomy is nowhere near as clear cut as you're making it seem. Agreed - I didn't mean to make is seem an "either/or" thing. Nonetheless, even a proprietary vendor has their costs go up as they acquire more customers Yes. But if your business is selling software your support costs (hopefully!) don't increase as quickly as your revenue. Eg, I don't know how many people Microsoft has as support staff, but I'll bet that number didn't increase linearly as revenue grew. In the support business you will almost alway have a fixed number of people per license - or at least per customer.

by sounds 13y ago

nl 13y ago

Levine clearly understand's RedHat's business model: Most of their money comes from support contracts. He also understands that selling support isn't as profitable as selling software, simply because the businesses scale differently. With software your costs are basically fixed (you sell the same thing many times), while with support your costs grow as the business grows (you need to hire more & more people). Instead, compare Red Hat to Microsoft, CA, or Oracle who compete directly in the "razors & blades" market of enterprise IT support. (Those companies do have other markets as well.) The numbers on those businesses make a good example. Microsoft makes almost all it's money from selling products, not support. Oracle has a very aggressive service division, and yet still makes more than 50% of it's money from selling software (and now hardware).

mindcrime 13y ago
Most of their money comes from support contracts. In my experience that's true of proprietary vendors as well. They just usually call it "maintenance" instead of "support". He also understands that selling support isn't as profitable as selling software, simply because the businesses scale differently. With software your costs are basically fixed (you sell the same thing many times), while with support your costs grow as the business grows (you need to hire more & more people). That dichotomy is nowhere near as clear cut as you're making it seem. You think proprietary software vendors aren't also selling support? And don't need to hire more people as they grow? Bunk... I've worked for a few proprietary ISV's and from what I've seen, what they are doing is almost exactly the same thing as what Red Hat are doing. With Red Hat you pay for a "subscription" and with most other companies you pay for a license + "maintenance"... and the maintenance bit is, in essence, exactly what Red Hat are selling. The structure is just a bit different in that you don't, for example, pay for version upgrades in the RH model. Nonetheless, even a proprietary vendor has their costs go up as they acquire more customers unless they refuse to support their software at all, in which case I doubt they are getting a lot of customers.
- nl 13y ago
  In my experience that's true of proprietary vendors as well. They just usually call it "maintenance" instead of "support". Of course. This isn't an open source vs proprietary thing, and every company has to include a certain amount of support in the software they sell. That dichotomy is nowhere near as clear cut as you're making it seem. Agreed - I didn't mean to make is seem an "either/or" thing. Nonetheless, even a proprietary vendor has their costs go up as they acquire more customers Yes. But if your business is selling software your support costs (hopefully!) don't increase as quickly as your revenue. Eg, I don't know how many people Microsoft has as support staff, but I'll bet that number didn't increase linearly as revenue grew. In the support business you will almost alway have a fixed number of people per license - or at least per customer.