
Why There Will Never Be Another Red Hat: The Economics of Open Source (2014) - jadk157
https://a16z.com/2014/02/14/why-there-will-never-be-another-redhat-the-economics-of-open-source/
======
cyphar
> Red Hat is a fantastic company, and a pioneer in successfully
> commercializing open source. However, beyond Red Hat the effort has largely
> been a failure from a business standpoint.

SUSE started around a year before RedHat, in 1992. Sure, we haven't had the
same success and growth, but I would disagree that RedHat pioneered the model.
I wouldn't even argue SUSE pioneered it (arguably it was Cygnus in 1989 --
though it was eventually acquired by RedHat in 2000). And even earlier you
could argue that RMS pioneered it with his distribution of GNU Emacs in the
early 80s (which had a description of the business model as the final chapter
in the manual).

[I work at SUSE and am obviously biased, but it is a little bit annoying that
people always ignore that we still exist...]

~~~
freehunter
Purely anecdotal and I've never worked for or on a team whose main
responsibility was Linux administration, but at two places I worked in the
past, our Linux guys didn't like SUSE. It wasn't a technical problem, and more
marketing could probably help fix the problem.

I have a SUSE Linux certification, and at two companies folks from the Linux
team commented that SUSE makes them uncomfortable because they're unsure of
how to pronounce the name. It's like GIF or Porsche but worse. Half of them
pronounced it Suzy, like the person's name. Some pronounced it closer to Zeus
with a -e at the end. Some pronounced it "Soos" like it has a silent -e. They
preferred Red Hat or Ubuntu not because of technical superiority but because
they were embarrassed to attempt pronouncing SUSE. It's likely the only time
they heard it pronounced was from coworkers who didn't know how to pronounce
it either.

~~~
cyphar
There was a video explaining how to pronounce SUSE several years ago (both
funny and a little worrying that such a video was necessary)[1]. It is
pronounced strangely since it was a German name and so you have to put on your
best German impression to get the "s" sound right.

All jokes aside, I think most folks would agree that SUSE's marketing really
needs to be reworked very significantly.

[1]: [https://www.youtube.com/watch?v=N4lFHP-
UxTk](https://www.youtube.com/watch?v=N4lFHP-UxTk)

~~~
taejo
The German pronunciation would be pretty close to "zooza", so the
pronunciation in that video isn't German, and a German accent would hinder you
from pronouncing it that way (in German you can't have the /s/ sound at the
beginning of a word followed by a vowel). Either way, "sooza" and "zooza" are
not exactly hard for English speakers: they're just completely non-inferrable
from the "SUSE" spelling.

~~~
cyphar
Yeah, most of my German colleagues say "zooza" \-- but saying it this way
makes it difficult for English speakers to infer what you're talking about. So
I say it as "sooza" even if it's _slightly_ incorrect.

------
smackay
The article touts the business model as the underlying failure of Open Source.
However I think this is missing the forest for the trees. If you add up all
the value that Open Source delivered by giving millions, yes, let's go for
millions, of developers access to high quality tools that previously were only
available as expensive, proprietary products then clearly the model has been a
runaway success. The only lament would appear to be that the value was not
captured by a single corporation.

I think the pendulum is now swinging back to the pre-PC days of large
corporations, centralized control of technologies where only groups with large
resources can participate. However that will only be a temporary phase until
the next generation of mammals are able to come up with the tools to create
competition once more and the whole cycle will repeat.

~~~
dragandj
The article /does/ discuss that, and mentions that Open Source in the sense of
software technology has been a huge success, but also that as a /business
model/ is far, far, behind the proprietary models. It also mentions that there
are another OS-based models that are successful, such as SaaS, cloud, etc.

~~~
pjmlp
Basically models where having partial access to the source code still doesn't
provide a way to clone a product at zero cost.

------
rumcajz
The article argues that Red Hat's business model was selling a "slightly
better version of Linux".

IMO they were rather in the business of being a professional scapegoat.
Someone to blame when that scary open source thing goes wrong.

~~~
organsnyder
That's how they were used at my last employer. Yes, their OpenShift platform
is very good, and they have a lot of good products in their ecosystem, but the
biggest value they provided was a vendor to blame if things went south.

Maybe Red Hat and IBM aren't as different as we like to think.

~~~
freehunter
Exactly. The best reason to hire IBM is so you have a company who is big
enough to sue when something goes wrong.

~~~
raverbashing
Funnily enough, nobody sues IBM when their product is an obscenely expensive
barely functional mount of manure

Even more funny, those who propose the acquisitions of said tools are not held
responsible when things go south for their complete inadequacy for their job.

~~~
dragandj
And even more funny would be to find someone who has enough power to sue IBM,
which probably has more lawyers in its legal department than the plaintiff has
total employees.

------
jondubois
>> We had made the product so easy to use and so important, that we had out-
engineered ourselves. Great for the open source community, not so great for
us.

I can relate to this. The other sad truth is that if you do not 'out-engineer
yourself', then your open source project will likely not even be able to get
any users to begin with; it's extremely competitive. It took me over 5 years
of work; constantly refining my project in order to reach almost 5000 stars on
GitHub and 50K downloads per week. Those are pretty big numbers for a
framework targeted entirely at developers but in terms of monetization, it's
barely enough to cover a single salary and my project is one of the lucky ones
because it's back-end and it's somewhat more opinionated.

Front end frameworks and non-opinionated back end tools (e.g. the ones that
just implement existing standards/protocols) have near zero monetization
opportunities. For front end frameworks, you need a huge success like Vue.js
or React in order to monetize at all. It seems that Evan You from Vue.js gets
enough money to cover his salary - But Vue has over 100K stars on GitHub and
is one of the top 10 repos in the world. If Evan was a musician or an actor,
he'd have a multi-million dollar salary for sure.

------
BenoitEssiambre
The problem of investment in the world of open source software is a difficult
one. What company wants to pay for improvements when they know competitors are
going to get all the benefits of these investments too. It's one of these bad
equilibrium, prisoner's dilemma, kind of situation.

In practice, the funding often comes from those people or companies that more
urgently need the improvements or those that are pushed by end users who are
willing to pay a premium to avoid lock-in. There is a longer tail of users who
free ride and pay nothing for improvements.

Even businesses that support open source, at any moment in the future, have
strong incentives to use network effects to steer their customers into more
subjugated positions and adopt proprietary non standard or non open systems,
or to sell themselves to businesses that will do that.

The coagulation of tech companies in a few large players is a sign that this
may be happening right now.

I wonder if there are ways to promote wider investment in open source and open
standards technology that benefit more people and get us into better economic
Nash equilibria.

------
nimblegorilla
Seems weird to claim Red Hat failed. Even if their revenue is tiny compared to
Microsoft or Amazon they are still on a chart measuring market cap by billions
of dollars.

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laurentb
an interesting, yet somewhat unrelated thing that came through this article
was the market cap's graph of some big names like Microsoft, Amazon,Oracle,
VMware and Red Hat.
([https://a16zpeter.files.wordpress.com/2014/02/peterlevine1.p...](https://a16zpeter.files.wordpress.com/2014/02/peterlevine1.png?w=600&h=424))

it mentions in 2014, their Market cap was: \- Microsoft: ~$300B \- Amazon:
~$160B \- Oracle: $160B \- VMware: $40B \- Red Hat: $10B

I'm not sure how true this was back in 2014, but the current market cap 4
years later for these companies is as follows:

\- Microsoft: ~$833B (177% increase) \- Amazon: ~$803B (400%) \- Oracle: $181B
(13%) \- VMware: $60B (50%) \- Red Hat: $30B (200%)

it's incredible to see in the same period of time just how massive both
Microsoft and Amazon have been able to perform (market wise at least) and
specifically the hockey stick market cap of Amazon in that time frame...

~~~
mixmastamyk
A portion is investment in the stock market in general.

------
nostrademons
I see Red Hat's business model as a product of the times - there was this
cheap, underutilized, but difficult-to-use competitor to the OS they really
wanted to use, and a lot of corporations that really wanted to spin-up big IT
departments and web services quickly. They filled the market need that existed
in the late 1990s; it's unclear if this model fills any major market needs
that exist now, when turnkey SaaS solutions exist for a lot.

This doesn't mean there won't be other successful open-source companies. It
seems like each generation of open-source projects fills a different economic
need, all specific to the business landscape at the time:

In the early-mid 2000s we had open-source as a retention bonus for good
engineers and PR campaign for the companies involved (Hadoop, Nutch,
Protobufs, Snappy, and other Google open-source projects, Cassandra, HBase,
Hive, HipHop, and other Facebook open-source projects).

We also saw open-source as a means of securing cooperation between different
corporate interests (WebKit) or securing critical partnerships & goodwill by
assuring the source code would be available (Chromium, Android).

Starting in the early 2010s, we saw companies releasing an open-source product
and then making money off a hosted version of it (Elastic, Datastax).

Nowadays in the crypto world we see organizations releasing an open-source
software system, reserving some of the currency for the development team, and
profiting off the capital appreciation of the currency. (Ethereum etc.)

------
dredmorbius
It's worth nting that the exemplar of the prorietary shrinkwrap consumer
softare market is also a one-off: Microssoft.

There is _no_ other pure-play software company of comparable market success.

The consumer personal-computing operating system market resisted incursions by
CPM, other DOS vendors, other GUI alternatives, x86 commercial unices, Linux,
FreeeBSD (and others), and BeOS. Apple's share remains a scant fraction.

Likewise, the Office applications, and small-business server market remains
dominated by Microsoft, especially file, print, mail, and directory services
(AD).

Contenders in the software space tend to be small, heavily reliant on
professional services (IBM, Oracle, Salesforce, consulting firms), specialised
(Adobe, AutoDesk)<, or hardware-integrated (Apple, also Sun/Oracle and some
others).

The SaaS market has impinged somewhat; Gmail, Google Docs, etc., but still
only marginally.

This from someone whose watched and criticised Microsoft for decades, and
strongly prefers Linux. I've not had a Microsoft desktop personally _or_
professsionally since the mid-2000s, and even then it was under protest and
largely avoided.

------
bryanrasmussen
[https://medium.com/@alexfclayton/elastic-
ipo-s-1-breakdown-1...](https://medium.com/@alexfclayton/elastic-
ipo-s-1-breakdown-1b475bb8d70f)

------
zackbloom
That article never actually explained why Red Hat was successful where others
weren't. It got lost on showing how _not_ successful they were, even as it
said how exceptional their results were.

~~~
robla
Agreed. My theory: the market will only sustain a finite amount of revenue by
open source software creators. That amount grows 20-30% per year as competing
business models collapse and as customers learn the value proposition, but
there is a ceiling. Red Hat has been brilliant about identifying the market
segments that were ripe for an open source player, and entering those markets
(often via acquisition).

There might be room for another Red Hat now that Red Hat will no longer be
independent. IBM may have just legitimized Red Hat as a top-tier player.

That is, of course, if IBM still has the clout and capitalization to be
considered a top-tier player. 20 years ago, it would have been considered
funny to say "IBM is great and all, but they're no Apple". My oh my have times
changed.

------
apatters
I think this is a great article with a provocative title. I don't know whether
there will ever be another Red Hat or not, it's a meaningless question. But if
you want to build a business on open source, this is a critical article to
read because Red Hat's model is a hard way to do it and there are other models
out there.

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patmcguire
Elastic, Mongodb, and Docker all have this business model. I guess the
difference is in their case they developed it first and then open sourced -
they've got a much more credible claim to superior support.

~~~
tschellenbach
How is Docker doing?

Elastic and MongoDB also offer cloud hosted versions of their tech.

------
geraldbauer
Just a reminder: Never say never. Of course, there will never be another
Amadeus Mozart too (in that sense of the word). Greetings from Austria.

------
koolhead17
Reading his post makes me feel for Docker. :(

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de_watcher
(2014)

------
yuhong
A good example of some of the problems of the debt-based economy is
Sun/Oracle.

