Topics for this podcast:
*The latest in VC funding for open source
*VMware’s SpringSource buys cloud messenger Rabbit
*Open source monitoring vendors’ key cloud partnershps
*Oracle moves ahead, back on MySQL, OpenSolaris
iTunes or direct download (25:38, 7MB)
One of the first special reports I wrote for 451 Group was an analysis of the open source systems management vendors on the scene — GroundWork, Hyperic, Zenoss, OpenNMS Group, Nagios Enterprises and some others. These named ones are those that made it and while there was some reckoning in the market and there have been changes, it is interesting to see these players still plugging away, pushing into new markets and powering open source for systems, network and application monitoring and management, including cloud computing environments.
When acquired by SpringSource a year ago, there was some question as to the real value of open source systems monitoring and management company Hyperic, which had taken the most pronounced and aggressive move toward the cloud. Flash forward to VMware’s latest SpringSource tc Server release and we see VMware, at the very least, still sees technical and market value in Hyperic, which continues to be its cloud appliation and infrastructure monitoring technology and brand. Hyperic and its acquisition by SpringSource also served as an early milestone in the devops trend.
As for GroundWork Open Source, the company just made an announcement for monitoring private clouds created with Eucalyptus Systems, which continues to gain buzz and attention itself with its recent hiring of former MySQL CEO Marten Mickos. The GroundWork-Eucalyptus joint offering, intended to provide one point of control for datacenters and cloud computing environments both private and public, is also intended for channel partners (which represent about half of GroundWork’s revenue) to offer Eucalyptus-based private clouds with monitoring as well.
Zenoss is another vendor that continues to leverage open source for systems management that is finding continued interest and traction in large part thanks to emergent models and strategies in cloud computing. In its case, Zenoss announced it will provide service assurance monitoring for private and public clouds based on Cisco’s Unified Computing System. The beta service promises enterprises and service providers fast and cost effective deployment of a unified operations console for UCS services, which could include physical, virtual and/or cloud computing environments.
There are also others that are still growing in the enterprise systems monitoring and management space with open source software: Nagios Enterprises and OpenNMS Group in particular. Nagios Enterprises, which shares the same name as the popular open source monitoring project, continues to grow its enterprise and cloud presence despite a fork and check on its development last year.
OpenNMS Group, among the most community and project-oriented of the open source commercial plays in systems management, is part of an interesting effort toward a cloud service broker (CSB), aimed at enabling service providers to connect to various cloud providers, along with British Telecom and others.
Given much of the efficiency and rewards of cloud computing center on driving greater utilization and efficiency, it is not surprising that monitoring is a big part of it. Given the trend toward using open source pieces for cloud computing, particularly as we consider the current wave of investment and building of private cloud infrastructures where open source is very well-suited, it is not surprising to see open source a big part of it, too.
A recent pitch from the folks opposing Oracle’s ownership of MySQL via acquisition of Sun Microsystems got me thinking. The plea, ‘Oracle can have Sun, but not MySQL’ may make sense to some, but to me it speaks to the irony of closing out Oracle or any company or anyone from open source. Upon further reflection and given 2010 is off to a roaring pace of M&A, I also began to wonder what the impact of the ‘Save MySQL’ campaign could be on open source in M&A, particularly if it was to successfully derail the acquisition or somehow decouple MySQL from Sun under Oracle?
What would it mean to carve out the open source projects, components, teams and support from companies involved in mergers and acquisitions over the last few years?
Would Citrix have still bought XenSource if Xen were cut out or somehow separated in any way shape or form from the deal? Would it have paid $500m?
Would Nokia have bought Trolltech and Qt for $153m?
More recently, would VMware have purchsed SpringSource for $420m if some or any of SpringSource’s open source projects, developers or holdings — including its own acquisitions Covalent and Hyperic — were not included?
Oh yeah, would we even be here with MySQL owned by Sun Microsystems if Sun were prevented from fully acquiring the project, code and company despite spending $1 billion two years ago?
Some degree of concern about Oracle’s potential ownership of MySQL or any ownership of open source projects and code is certainly warrented and prudent, but I don’t believe the fear that punctuates the message of the ‘Save MySQL’ campaign makes much sense. This is particularly so in light of the past deals listed here and others where the market has required continued investment and support of open source and provided continued revenue and benefits from open source.
While some of these scenarios may be admittedly implausible, I believe that separating out open source components, parts, projects and subsidiaries from vendors could certainly serve to dull the shine of open source software assets and vendors amid M&A valuations, prospects and strategy.
Today I caught a tweet from Kara Swisher referencing some exclusive news she posted on Boomtown about VMware’s upcoming deal to buy Zimbra from Yahoo! This is would be VMware’s second acquisition of an open source ISV in under a 
year. In August 2009 VMware acquired open source java vendor SpringSource that not only developed the popular Spring framework but had also acquired open source systems management vendor Hyperic (May 2009) and commercial Apache support vendor, Covalent (January 2009).
According to CNET’s Matt Asay, Yahoo!’s Zimbra business unit is still growing and has an impressive customer base:
Lost in the news of Zimbra’s release of version 6.0 of its collaboration suite is the importance of one very big number: 50 million. That’s how many paid mailboxes Zimbra claims now, a number that puts it within spitting distance of IBM Lotus Notes (approximately 145 million paid mailboxes) and Microsoft Exchange (approximately 175 million paid mailboxes). Whatever the truth to rumors that Zimbra is up for sale, Zimbra is an appreciating asset for Yahoo, not a depreciating one.
I also noticed a couple of months ago that VMware started to re-brand getting rid of their old blue logo and moving to a grey logo sans the “virtualization boxes”. According to this post by VMware CMO Rick Jackson:
Now, as we look at our current offerings based on vSphere, and our vision of delivering the infrastructure for unrestrained cloud computing, the image we are portraying to the market has evolved. In fact, our message embodies the notion of freeing IT from the constraints of physical resources.
Makes you wonder in the long-term where VMware might draw the line...
Does this signal the beginning of a broader VMware open source acquisition strategy? Maybe they will complete their java application stack with a database. Barring Larry Ellison offering to sell MySQL to VMware maybe there are some other opportunities. VMware might benefit from picking up EnterpriseDB or maybe become the patron saint for MySQL fork, MariaDB sponsored by MySQL creator Monty Widenius. Beyond the database there are a number of interesting buying opportunities out there for VMware should they have their pocketbook open. For one there is rPath which can build and update Linux virtual machines and provide automated provisioning of systems taking VMware’s management and deployment capabilities one step further.
Another option would be to get deeper in management by picking up one of the open source configuration management vendors like Reductive Labs that produces Puppet or newly funded cloud configuration rival Opscode and their open source project, Chef. They could even go old school and take a look at CFengine which is similar to Chef and Puppet but supports not only Unix-like systems but Windows too. Alternatively, they could acquire commercial open source vendor, Cloudera that provides support for Hadoop, an open source implementation of MapReduce which is ideally suited for cloud deployment.
I guess that’s enough speculation for today. However, it will be curious to see if the deal goes through and if VMware pays a premium over Yahoo!’s acquisition price of $350 million back in 2007. It could as The VarGuy notes it could trigger a reset for how open source companies are valued.
Related Articles
Technorati Tags: Cfengine, Cloudera, Covalent, Hyperic, MapReduce, MariaDB, Open Source, Opscode, Puppet, Reductive Labs, Spring Source, VMware, Zimbra
Topics for this podcast:
*EC pauses Oracle-Sun over MySQL
* Open source licenses debated
* Red Hat growth opportunities and Summit roundup
* Reductive Labs seeking cloud role for Puppet software
* VMware-SpringSource analyzed
iTunes or direct download (26:04, 5.9 MB)
We reported recently on Red Hat’s revenue growth and deferred revenue. One of the things I have been looking at recently is the slowdown in Red Hat’s growth in recent years, and the opportunities that the company has to improve that growth.
For some perspective it is worth noting that while Red Hat’s revenue has been growing steadily:
The rate of growth has been in decline for some time:
We have also noted (451 Group clients only) that the company will in all likelihood have to invest in inorganic growth if it is to meet its ambitious targets (such as 50% of server operating system market share by 2015, and growing to $1bn in revenue over three years - from February 2008).
Unfortunately for Red Hat its opportunities for inorganic growth in its core Linux market are limited since its dominance of the enterprise Linux market means that very few vendors would help it gain serious Linux market share. While there are multiple opportunities for the company to expand into new markets one problem that the company has is that would-be acquisition targets (MySQL, Hyperic) keep getting snapped up by its rivals.
(This isn’t a post about inorganic growth opportunities, but given our suggestion that open source can serve as an on-ramp to the cloud I would suggest that Red Hat could do a lot worse than look at Eucalyptus Systems as a long-term growth opportunity).
Fortunately for Red Hat the two major acquisitions that it has made in recent years (JBoss and Qumranet) both provide the company with opportunities to drive organic growth. Indeed, looking at the company’s business it is interesting to note quite how many opportunities for organic growth are at its disposal:
* JBoss - Red Hat’s middleware business continues to grow faster than the Linux business, albeit still not as a reportable segment of the company’s revenue. The company noted that 30% of its largest deals involved a middleware is fiscal 2009, there is still a lot of opportunity for greater cross-selling. The acquisition of systems integration and consulting firm Amentra was designed to help it deliver better value to JBoss customers. That and the JBoss MASS migration tools should start to deliver.
* The channel - 61% of deals came from the channel in Q1, up from 56% Q4. Red Hat more than doubled channel partners to 4,500 in 2009. Advanced Partners - VARs/SIs - grew from about 100 to about 350 in 09. Additionally the company has noted that while its renewal rates for its biggest accounts are close to 100% (”I think the only one that didn’t in the last couple of years was Oracle itself”, noted Jim Whitehurst in June) renewal rates from channel deals tend to be lower. It has put a program in place to rectify that.
* Increased penetration into existing accounts - Red Hat had 40,000 new customers in FY09. As the Eclipse Foundation’s Donald Smith noted, that means the company has a low revenue per customer. However, it also suggests huge opportunity for increased penetration into existing customers.
* Up-selling to Advanced Platform - traditionally, 70% of Red Hat’s Linux users have been on what was Red Hat Enterprise Linux ES. However, 50% of renewals in FY09 upgraded to the higher price Advanced Platform, rather than going for the standard Enterprise Linux Server.
* Virtualization - One of the drivers for AP is that it includes the advanced virtualization capabilities. Interest in virtualization is not only generating demand for the higher-priced RHEL variant but also helps Red Hat to avoid spending freezes on new hardware by de-coupling RHEL adoption from new hardware spending.
* Free to fee - Matt Asay noted recently that “nonpaid usage of Red Hat’s software that may well pose a bigger risk” to Red Hat than its chief rival Novell. That is something that the company is aware of, and it has been auditing customers to ensure that the amount of RHEL systems they have running is suitable for their subscription level. The company also sees a significant opportunity in converting users of community Linux distributions - such as CentOS or Ubuntu - to RHEL subscribers, and in 4Q09 landed a multi-year, multi-million dollar free-to-paid deal.
Will those be enough to help the company achieve its ambitious goals? Possibly not, and we do believe that Red Hat needs to expand its addressable market, but it is clear that even without acquisitions Red Hat has multiple opportunities for growing revenue in the next couple of years.