But for Linux to continue its encroachment on the corporate data centre, the new Linux stewards will have to deal with the issues that have surfaced as they try to create a lucrative commercial environment. Recent announcements from one of those Linux stalwarts have many companies wondering if the movement can sustain its drive toward commercialisation.
Red Hat is red-faced looking for green backs
Red Hat, the largest distributor of Linux, recently made some significant changes to its licensing and support policies that have forced many large Linux customers to reconsider their options. According to Netcraft, in just the top three hosting companies (rackshack.net, Rackspace, and Interland), Red Hat servers host over 250,000 sites and 460,000 host names. This doesn’t count other hosting companies, corporations, and other Linux professionals that host their sites using Red Hat versions of Linux. Unfortunately, the market share that Red Hat enjoys hasn’t led to significant profitability. The cost of maintaining and supporting both its base distributions and the enhancements that have made Red Hat the dominant Linux distributor also make the red ink flow freely on Red Hat’s income statement. If Red Hat is to survive as an independent Linux distributor, it has to generate sufficient revenues to be profitable. Without additional licensing revenues, it has no other place to turn. It has limited consulting capacity to generate revenue and certainly can’t compete with other companies that provide Linux consulting services, like IBM Global Services.
Red Hat’s announcement adds considerable cost to both its core distribution and to the annual support fees. These key hosting companies are able to provide hosted Red Hat Linux servers for around $1,000 (£604) per year, for which they generate roughly $200 to $300 in gross margin. This includes about $50 per server in Red Hat licensing and support fees. With Red Hat’s new licensing plan, that $50 becomes a $350 support bill, effectively making Linux hosting on the Red Hat distribution unprofitable. Certainly, Red Hat will do some volume discounting to allow the largest hosting companies to generate higher margins, but it still stands to lose one-third to two-thirds of its profits based on these licensing changes alone.
