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The RedHat Enterprise Linux monopoly?

If people refer to the 85% margin on Windows as proof of "monopoly pricing", then what to make of the 93% margin RedHat posts on RedHat Enterprise Linux?

Source http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001157523%2D04%2D005771%2Etxt&FilePath=%5C2004%5C06%5C17%5C&CoName=RED+HAT+INC&FormType=8%2DK&RcvdDate=6%2F17%2F2004&pdf=

Just me (Sir to you)
Monday, June 21, 2004


Silly rabbit! Monopolies are only for Microsoft!

Open Source advocates are automatically immune from any criticisms because, after all, they are doing it everything in the name of freedom.

<insert flag waving here>

Spare me
Monday, June 21, 2004

"then what to make of the 93% margin RedHat posts on RedHat Enterprise Linux?"

They must be doing something right because they have plenty of competition!

Nice Troll, BTW.

Almost Anonymous
Monday, June 21, 2004

and when you look at their filing, you can see why they want to move from the desktop distros whose primary distribution method is the retail channel.

Tapiwa
Monday, June 21, 2004


"They must be doing something right because they have plenty of competition!"

When you have 93% of the market calling them competitors seem a little intellectually dishonest, don't you think? They may have 4 billion competitors, but when you have that large of a market share, you effectively own that market.

So I think the OP's question is valid and not a troll. Microsoft has competition from Linux. We've seen Munich ditching them and just recently France has joined the fracas by openly pushing to ditch MS.

Huh?
Monday, June 21, 2004

And before more Trolling goes on, the 93% GROSS margin is on "Enterprise subscription technologies".

Last time I checked, RedHat had a few products in this category. Their Content Server springs to mind....

It's  not just their Linux Distro.

Case in point, look at the APLAWS project that is based on the RedHat Content Server, which they acquired when they took over ArsDigita.

http://aplaws.org/project/

It is funded by her Majesty's government. Open sourced, but RH is funded to develop it. If  you search hard enough, you will find pages with the budgets involved. I can't remember off the top of my head but the figures ran into millions of ££. The RH cut of that, translated into US$$ would be pretty sizeable.

Tapiwa
Monday, June 21, 2004

To Huh...  he said 93% *margin* not market...  RedHat does not have 93% of the market, that was my point.

Nobody can read these days...

Almost Anonymous
Monday, June 21, 2004

Given that I've referenced the 85% on here several times, I feel bound to reply.

Firstly, Redhat is primarily a service company, not a software company -- when an organization buys Redhat Linux subscriptions, they're signing up for Redhat services, not really specialized code (so the comparison with a software product is moot from the beginning). Furthermore such service contracts are effectively a form of insurance -- much like signing up for the extended warranty on that electric razor, they can yield huge profits because few will need it, but many want to ameliorate the possibility that they might. This is absolutely nothing like developing and selling a software product.

Secondly, when discussing the monopoly pricing of Windows, how can you possibly bring up Redhat? The former is monopoly pricing (you know, monopoly - a market condition that the court decided Microsoft enjoyed) -- there is (or perhaps _was_) limited competitive pressure on pricing - for most of Microsoft's customers the only "competitive" choice is between a legal copy of Windows or piracy. It is impossible for a non-monopoly contender to have monopoly pricing by definition.

Of course we know that the tide is turning a bit, and Microsoft is facing severe pricing pressure, particularly with cash crunched public agencies (and as more firms migrate to web apps, which many fortune 500 have been at an accelerated rate, the client decoupling puts them in a great negotiating position as well). Due to these financial challenges Microsoft is starting to undertake a couple of desperate maneuvers, such as Longhorn being a breaking change (gotta stop those laggards that refuse to accept their current system as adequate), software assurance plans, patents such as FAT and double-click, etc.

Hopefully when Microsoft rightsizes and stops its addiction to unsustainable Windows profits, they'll be a competitive, innovative, healthy company, but it's going to be a rough road between here and there.

Dennis Forbes
Monday, June 21, 2004

"Hopefully when Microsoft rightsizes and stops its addiction to unsustainable Windows profits, they'll be a competitive, innovative, healthy company, but it's going to be a rough road between here and there."

Then Scoble will have to reference it's 15,000 employees.

Mike
Monday, June 21, 2004

Oh please.  Those of you who know the rabid anti-M$ basher, ask them what version of Linux they use. Invariably it is Redhat (which imho sucks).  Redhat is the M$ of linux and certainly NOT because it's better but for the FUD. Marketing makes Redhat.  I don't use it (except where I am forced to use it at work where I am also forced to use Windows). On my personal servers and workstations I use debian distros and windows (some apps/games only come for windows like AOE).

About using courts as some sort of arbiter of reality. Honestly, courts make mistakes. You should mention the arguments they used. Do you think Dred Scott believe in courts as arbiter's of reality? Not, the law certainly within a time span,  but certainly not reality (as in truth).

All of this leads, imho, that you can neither blame M$ or Redhat. People make choices. Blame the people whose choices you do not like.  Do not use force to impose your sense of reality on me please.

me
Monday, June 21, 2004

"Those of you who know the rabid anti-M$ basher, ask them what version of Linux they use. Invariably it is Redhat (which imho sucks).  Redhat is the M$ of linux and certainly NOT because it's better but for the FUD. Marketing makes Redhat. "

About how much of Redhat's profits do you think those Linux zealots account for? I'll put in my guess of close to 0% (this is ignoring the fact that rabid Linux users _seldom_ use Redhat as it's too mainstream, and usually parade the fact that they use an alternative like Debian. Hey, what do you know--that's exactly what you did!). BTW: The S is just to the right of the A on a standard Qwerty keyboard. Looks like someone must have stolen yours.

Redhat makes its money off of the Citibanks and Fords of the world, not the "rabid anti-M$". The Citibanks and Fords are business driven, not emotionally driven, and they want a support partner in Redhat.

Dennis Forbes
Monday, June 21, 2004

Redhat makes money off of Linux, the nerve of them!
MS makes money off of Windows, how dare they!
Joel makes money off of FogBUGZ!  What a monster!

Corporations make money.  They turn a profit.  It's what they do (unless you're Sun Microsystems).  In fact, it's a good thing that they do.  If a corporation can't make money, it can't pay its employees.  You like having a paycheck, don't you?

For people who are angry about the markup on software, look at the markup on jewelry, or bottled water.  At what point can you say "this company enjoys too much of a gross margin"?  And furthermore, who are you to make that decision?

I'm not attacking to origional poster.  I agree that there's a lot of people angry at Microsoft for have such a large gross margin on Windows, but ignoring the gross margin from the "solutions" that IBM and Redhat offer.

I'm just raising a point.  A corporation makes money.  Being angry at a company simply because it makes money is foolish.  If you want to be angry at a company, be angry because it lies/cheats/steals to make a profit (which neither Redhat nor MS do).

Myron A. Semack
Monday, June 21, 2004

> then what to make of the 93% margin RedHat posts on RedHat Enterprise Linux?

Justme,

You can comment on nearly everything, so what are *your own* conclusions?

Martin A. Boegelund
Monday, June 21, 2004

No one is getting angry because a company makes money (and the OP wasn't angry about it, and you're not refuting them - they were taking a jab at prior comments about Microsoft's profit margin on Windows), and that's ultimately what everyone wants - healthy companies yielding well-deserved profits for innovation and excellence, and serving customer needs.

How would you feel, though, if it's 1985, before cell phones were a credible alternative, and the monopoly phone company, say BS&S, your _only_ choice short of moving 1000 km or falling to telegram, charged so much that you found out that they made a 85% _NET_ profit margin (this is after they've subtracted all of their salaries, bonuses, executive lunches, trips to conventions in Fiji, hookers, etc). Take that further and imagine that you're in the pineapple business, bitching about those damn phone rates, and you've been carefully building your business, getting a clientelle, and you're scraping by, and suddenly BS&S decides that you might represent a threat far in the future (pineapples could be strung together in a communication network!) so they launch a huge initiative, using your own money that you had no choice but to give them, to give pineappes for free, or "bundled" with another product (buy call-display and you get free pineapples for life!). THAT is what people get angry about. I'll let you decide if Microsoft engages in that sort of behaviour (it's debatable), but in the general marketplace that sort of behaviour destroys innovation, has a massive destructive force on employment (instead of a 100 robust companies, you have one fat one and a couple of strugglers). It's also detrimental to customer choice and economic goodwill.

As I said previously, though, I think we're out of the narrows and we're not in a situation where Microsoft can dictate.

Dennis Forbes
Monday, June 21, 2004

"About how much of Redhat's profits do you think those Linux zealots account for? I'll put in my guess of close to 0% (this is ignoring the fact that rabid Linux users _seldom_ use Redhat as it's too mainstream, and usually parade the fact that they use an alternative like Debian. Hey, what do you know--that's exactly what you did!)."

This is an every timer from the zealot.  If it isn't Debian it's Gentoo.  I give the Debian users a little credit, the Gentoo users are to far gone to be saved.

" BTW: The S is just to the right of the A on a standard Qwerty keyboard. Looks like someone must have stolen yours."

I love that.  I'm gonna try it out on the local LUG mailing list.

infidel
Monday, June 21, 2004

The difference is that Micrsosoft pays its developers, whereas Red Hat doesn't. (For most of them, not talking about the few pet programmers they have on staff.)


Monday, June 21, 2004

The gross margins are irrelevant.  You would have to know what goes into calculating them.  Profit is a much better measure and the ability to charge monopoly rents better still.  I really hate to flame but your argument is so ignorant that it has to be a troll or you have to be a dope.

name withheld out of cowardice
Monday, June 21, 2004

I was not trolling, merely questioning a point that has been brought forward a few times.

What do I think of these numbers? I believe that in innovation driven markets the margins on the few hit products need to be wide to support the R&D, and the inevitable high product failure rates, but let’s get a few things out of the way first.

Call a cat a cat. If all that is on offer is a bundle, trying to pinpoint prices for subsets of the bundle that are not available separately is irrelevant. The argument of “it’s not software, it’s a service” doesn’t fly when the service and software are inseparable. It is a moot point.

Second: The markup on RHEL may seem serious, but they are operating in the UNIX market, where steep pricing is the norm. They enjoy the benefits of riding on the back of the Intel/AMD war and the whole ultra-competitive south-east Asian hardware scene. Unlike traditional UNIX they don’t carry expensive hardware R&D and big ticket salesforces.

Third: It is interesting that in what one would think is a fairly competitive market (Linux distros), they can get away with this. This bares closer examination. Isn’t this the commodity game it is always portrayed to be?

Here is my >wild guess<: Big ticket Linux isn’t sold by RedHat or Novell/SuSe. It is sold through IBM Global Services. Software is an almost negligible item in a complete service and care package. In that way IBM GS can almost freely control RedHat or Novell/SuSe margins. Why then not penny pinch them? The current setup is better business for IBM. They can milk the “underdog hero” political scoring points for the public sector, while in the backroom the old boys network carries on selling the traditional IBM way. Everything old is new again.
At the same time they make the selected distro suppliers fully dependant on IBM GS sales, and up the ante in the distro market.

"Will you walk into my parlor?" said the spider to the fly …

Just me (Sir to you)
Tuesday, June 22, 2004

That gross margins aren't the whole story is one of the points here, but I would argue that certainly profits don't tell you more, especially in a highly dynamic market.

Just me (Sir to you)
Tuesday, June 22, 2004

> If all that is on offer is a bundle, trying to pinpoint prices for subsets of the bundle that are not available separately is irrelevant. The argument of “it’s not software, it’s a service” doesn’t fly when the service and software are inseparable. It is a moot point.

That's the thing with Open Source (OSI definition) - at least the software part can be extracted from the RHEL bundle (see for example http://leapster.org/linux/redhat/rhel/ ).

So anybody who wishes can
1) Offer the software part RHEL, as long as they don't call it RHEL, and respect all the other trademark stuff.
2) Offer Service and support related to the software part of RHEL, again respecting the RHEL brand.

So the reason for RedHat to make big money off Open Source isn't really based on a classic monopoly situation. This is the thing that is called monopolistic competetion: RedHat has been able to establish a strong Linux server brand in a competetive market, just the way Coca Cola has been able to establish a strong soft drink brand - anybody can make cola, but only Coke can make you feel like a young, cool surfer type with no worries at all.

Martin A. Bøgelund
Tuesday, June 22, 2004

Martin,

the idea here was that not even the >real< RedHat can sell its produce, and is dependant on IBM GS to peddle its wares (IBM btw. reports an 86,5% gross profit on its software sales). I'd say even WINE poses more competition in the Windows market than any "Paul "It's a work in progress, because I haven't actually finished building it yet" Dwerryhouse (no disrespect intended)leached RHEL distro.
As for the actual making of a successful company based on a rebranded clutter of RHEL rpms, I guess we would be in for some interesting litigation if someone actually ever came close.

Just me (Sir to you)
Tuesday, June 22, 2004

That's kind of like saying:

"Not even Microsoft can sell Windows, they're dependant on Dell to shift systems for them..."

Katie Lucas
Tuesday, June 22, 2004

JustMe,

Maybe you ought to expand your personal definition of "selling". "Selling" is not just having a great and active sales force, selling can also be "making such a great product that IBM desperately wants to sell it".

And for the unfinished RHEL build instructions - the important thing on that page was the link to the (open) sources.

Martin A. Bøgelund
Tuesday, June 22, 2004

Katie,

it is not like Dell has the exclusive in with the bigco's and public sector clients, and the customer will take whatever OS Dell is pushing. In the IBM GS/RedHat/Novell universe, I do not think many customers really care wether their IBM GS deal goes with RedHat or Novell.

Just me (Sir to you)
Tuesday, June 22, 2004

Is there so much between the RedHat and Novell distro's that IBM "desperatly" wants to go woth one or the other?

Just me (Sir to you)
Tuesday, June 22, 2004

Regarding Linux distributions, and why RHEL is currently the dominant choice.  As other posters have said, it's a matter of marketing and partnering.  RH has done a great job of presenting themselves to corporations like IBM and Oracle.  However, the RHEL foundations are dated.  RedHat was the first "second-generation" distribution: one that was designed to pull in people who had never seen Unix before.  ("First-generation" being Slackware, SLS, etc.).  The unfortunate consequence is that even though many people who wrote Linux software packaged them in RedHat's RPM format, many of these people had little or no "real-world" software experience.  There was also very little "policy" around packaging, and many vendors ignored what little policy there was.  As a result, the quality of packages fluctuates wildly.  Packages don't work very well together.

This is where systems like Debian and Gentoo come into play, with a more rigorous policy standard.  They have learned from the shortcomings of RedHat, and have built advanced package tracking and automated test systems- requirements for any serious, "eneterprise-level" systems.
As a result, software packges from disparate authors for Debian and Gentoo work well together, because they all play by the well-established rules.

My recommendations are generally Debian (or *BSD) for servers, Gentoo on the desktop.  Gentoo on the server, too, if you're a little more daring.  Certainly never Windows on the server, though it has been getting better over the past few years- maybe Longhorn will work well, but I'm not keeping my hopes up.

But I'm just a raving Gentoo maniac, so what do I know...

joev
Tuesday, June 22, 2004

So ultimately your point is "Microsoft might make boatloads of money on Windows, but so do a couple of other carefully picked examples to prove my case". But wait, Corel perpetually loses money on software, as do hundreds of other software companies.  Indeed, Microsoft themselves lose a significant amount of money on a large number of their software products. What's the point? There is none and it's just a bunch of nonsensical facts contrasted in absurd ways.

Dennis Forbes
Tuesday, June 22, 2004

I wouldn't call the facts "nonsensical" or "contrasted in absurd ways". Not everyone seems as clever as you Dennis. Certain members of the press and the IT community have been waving the "85% margin on Windows" as a sort of proof of "monopolistic" abusive pricing practices. It is only fair to point out that that line of reasoning is either flawed, or that there are a whole lot more "monopolies" we should point out at the same time.

Just me (Sir to you)
Tuesday, June 22, 2004

I was referring to my `facts', that some software products and companies lose money, as nonsensical -- they don't mean that Microsoft should be losing money on Windows just because Corel is losing money on CorelDraw, for instance.

Dennis Forbes
Tuesday, June 22, 2004

The monopoly issue is only related to Windows' dominance on the desktop. The problem is not that MS has the biggest share of the market but that they are using it to drive sales in other markets and lock out competition. That is, they use Windows dominance to drive sales of desktop apps.

This is nothing like Redhat.

Jeff Kotula
Tuesday, June 22, 2004

But in any event, why would anyone use RedHat. It is the M$ of the linux world.

me
Tuesday, June 22, 2004

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