Thursday, June 06, 2013

Red Hat's Competition Is From...Amazon

I was talking to a colleague about Red Hat yesterday, and it struck me that a new competitor has emerged that threatens Red Hat's business model in a fundamental way.

Red Hat has two main lines of business, Linux and JBoss. Yes, they also have a cloud platform called Redshift, but I'm guessing it's not yet of the scale of the other two.

Both Linux and JBoss are Open Source, so the revenues to Red Hat are through support subscriptions. Put very bluntly, Red Hat's business model is based on fear, rather like that of insurance companies. Customer organisations are generally afraid to run unsupported software in their data centres, so they will gladly pay the insurance premiums to ensure that someone stands behind the software they run.

But consider this subtle change in the model of reliability that comes about when we move to a cloud-based platform like Amazon. Reliability is achieved not so much by keeping servers running and getting them back online when there's a problem. The new model of reliability is to simply spin up new instances to replace failed servers. We can create images (AMIs) of our entire software stack, and spin up new instances either in response to increased volumes, or to replace instances that have died. This is actually done automatically, as part of the "elasticity" that cloud platforms deliver.

Mind you, Amazon itself suffers in adoption right now because of its own version of the fear factor.  The thought of placing one's business-critical data and processes in the cloud keeps many CIOs awake at night. But that fear is gradually easing as more and more organisations are seen to be migrating to that cloud platform with no adverse effects.

When Amazon becomes the norm for production infrastructure, the requirement for supported versions of operating systems may well reduce. The main difference between Red Hat Enterprise Linux and Centos (a RHEL clone) is that the former comes with paid support. If the reliability problem can be automatically addressed through elasticity, then Centos will do just as well.

That's why I think Red Hat needs to be afraid of Amazon.


sh710 said...


This is an interesting article. One thing I want to raise however is that the support subscription offered by the likes of Redhat and Suse is not only about availability though that is one key component. The other aspect of having a support subscription is the timely delivery of security patches and bug fixes. High availability can indeed be achieved by software and multi-instances, however, what happen if a bug is discovered at the OS level ? It's true that many companies chose the Linux path without the support but that means a reliance on community support and/or increased internal skills/resource - both of which don't usually sit comfortably with enterprise customers.

Simon He

rcg said...

Agreed. But the fear factor isn't merely about support/reliability, but also indemnification. I'm not too sure how it would play out in the end if there were a significant and crippling patent infringement case against the OS, but in principle Red Hat (and Oracle) take the (potential) legal worries out of the equation.

Is this issue any different if you spin CentOS on Amazon's cloud platform? If you see value in indemnification, you may choose to deploy RHEL on Amazon.