Source: Oliver Dixon
Two very different vendors — Oracle and Red Hat — once again reported very impressive quarterly earnings in the past week. But how can two companies seemingly diametrically opposed on the idea of openness both be raking in money hand over fist? Perhaps it’s because we’re at an inflection point, where legacy IT meets a new paradigm. And I have a prediction: As cloud computing really starts to take hold over the next few years, Red Hat will see even bigger growth, while Oracle — unless it changes its tune — will see revenues plummet.
Let’s begin with a look both companies latest earnings reports, just to see what we’re dealing with. And, yes, that’s billions with a b for Oracle, and millions with an m for Red Hat (I didn’t say they were equals).
As Om reported last week, Oracle had a 47 percent year-over-year increase in revenue, with $8.6 billion. Of that, $2.6 billion was profits. CEO Larry Ellison claims a $2 billion pipeline for sales of Exadata — the company’s very expensive data warehouse and OLTP appliance — and expects that number to grow significantly during the company’s fiscal third quarter. Oracle even made Sun profitable, as Sun hardware sales contributed $1.8 billion to Oracle’s total revenue, and profit margins on those sales were up 53 percent.
Red Hat, for its part, saw year-over-year revenues raise 21 percent to $235.6 million, while non-GAAP income rose 16.7 percent to $39.1 million. GAAP operating income spiked 92 percent to $38 million. As expected, the majority of Red Hat’s revenue — $198.8 million, a 21 percent increase — came from subscriptions of its Linux operating system, JBoss application platform, KVM hypervisor and various management tools.
What’s on the Horizon?
Unless Oracle gets its act together with regard to cloud computing and the very related concept of openness, it seems likely we’ll see its earnings start to converge with Red Hat’s earnings. The reason is because Oracle is pushing vertically — and tightly — integrated stacks of hardware, middleware, applications and databases, which require customers to, essentially, go all-Oracle or go elsewhere. Oracle has some great products, and it might be able to squeeze out a few more quarters of significant growth as its existing customers seek out tried and true solutions to their Big Data needs and emerging cloud computing ambitions, but that can’t last forever.
It can’t last forever because competitors such as Red Hat are taking public-company cloud computing to the next level. Red Hat, in particular, has built a sturdy foundation of cloud components that push openness and interoperability as the goal — including into the public cloud — and it’s not done building yet. As CEO Jim Whitehurst told me earlier this week, Red Hat’s cloud computing portfolio isn’t directly contributing to revenue today, but it is bringing in new customers that recognize Red Hat provide them a robust — and open — onramp to the cloud when the time comes.
Notably, Oracle and Red Hat compete directly in the application-platform space, where Oracle pushes WebLogic and Red Hat pushes JBoss. If getting cloud-like performance and flexibility with WebLogic requires using all-Oracle up and down the stack, JBoss might start looking mighty appealing. After all, with its recent acquisition of PaaS startup Makara, Red Hat gives JBoss users the ability to run applications, Java or otherwise, across a wide variety of private and public cloud resources. And, as new resources, be they virtual servers or databases, on-premise or in the cloud, become more enterprise-friendly, it’s no longer necessary to stick with stalwart providers like Oracle (or Sun). Whitehurst says that’s the strategy — to chip away legacy-vendor market share as customers demand new cost and performance benefits for new workloads. New database-market entrants like EMC (with Greenplum) and Clustrix likely feel the same.
Oracle has heard this all before, of course, and it hasn’t changed its course yet (just look what it’s doing to Java). One can hardly blame it for riding its maximum-profit strategy for as long as possible, but assuming it does feel compelled to change its course at some point, will customers trust Oracle has their best interests in mind?