Why did Citrix not become the “new Red Hat” in the virtualization market? Part 2
In the last post, I promised that I would write my opinion on why Citrix did not become a “new Red Hat” in the virtualization market. I keep my promise - this article, in fact, will be a great commentary on the translation, which I published earlier . And yes, if you disagree with my arguments - let us know in the survey after the post , well, or write comments, discuss. ;-)
I want to start with the fact that Peter Levine (Peter Levine), of course, has a very large and good experience in terms of managing IT companies and, of course, he knows better than me about the business on Open Source. But on the other hand, maybe I can look at the problem “from my bell tower”. And, by the way, if it seems to someone that everything I write here essentially confirms the words of Peter Levine - the way it is. ;-)
On the business model of open source.
The key idea of Peter is that the “basic business model” of selling technical support for Open Source software does not allow making money. Indeed, if you read about the ways of earning on open source software, then getting money for technical support will be the main idea. (And in a broader sense - “receiving money from anything but the code itself”, we will return to this thesis a little later).
But let's think about whether the “support model” is really specific to OpenSource companies? Not. Any IT company operating in the corporate market must have “extended technical support” or something like that. In order not to go far for examples, here is the news a week ago (we’ll need it later) - NTT Data announced the purchase of a Dell division that provides IT services (Dell Services).
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Citrix, like other players in the corporate software market, provides various IT services , among which are technical support for XenServer , i.e. open source software.
Thus, proprietary software developers can use not only the business model of selling software licenses and additional services, but also earn money on services related to open source software. Yes, you understood everything correctly - developers of proprietary software also sell technical support and other services, like the company's OpenSource , but as an additional profit to the main income from the sale of software licenses.
Peter Levine writes that Microsoft, Oracle and VMware revenues are many times greater than Red Hat's revenue, but is it correct to compare the amounts received from the sale of Red Hat services with all the money (not just services) that proprietary software developers receive? Of course not.
How successful is Red Hat?
But if the comparison of Red Hat with Microsoft, Oracle and VMware is not correct, then with what to compare? Maybe with companies that provide only IT services? Do you know large, international companies providing only IT services? The companies that are engaged in consulting and system integration seem to be the closest ones by occupation. But there is no comparable “breadth of coverage” with Red Hat.
Simplify a little task. Take some "service" division of a large IT company. Of course, such a comparison would not be quite correct, because The sale of services from software and hardware vendors is an additional (non-mainstream) direction and is sold by the “trailer” to the main product. And if you are a provider of IT services, then buyers should see the value in the IT services themselves.
By the way, the news about Dell Services, which I wrote about above. NTT Data buys this division of Dell for $ 3.05 billion, and it was created on the basis of Perot Systems , which Dell swallowed up in 2009 for $ 3.9 billion. And, to quote :
Peter Levine writes that “the success of Red Hat does not look so impressive,” but against the background of Dell Services, Red Hat has a capitalization of $ 13.5 billion and a constantly growing turnover reaching $ 2 billion, everything is not so bad.
It turns out that whether an open source company is successful or not depends on what to compare with - with software manufacturers or with companies providing services.
Red Hat is NOT a software maker.
Like any other "real" OpenSource-company (which has all the source code of products open), Red Hat is not a software manufacturer . I surprised you? We return to the effectiveness of the business model, namely, to the phrase “receiving money from anything but the code itself”.
If you look at the Open Source-company from the outside, then everything does not look very logical - imagine that you are professionally engaged in the cultivation of apples. And it is your apples that are of value to the consumer, but you distribute them to everyone for free, and you are trying to make money on the service and related services. For example, on the transportation of apples to the house of those who were given them.
Not surprisingly, this model is less profitable than selling software licenses.
With Red Hat, things are a little different (than with XenSource) - they initially packaged and accompanied already existing open source software. Shifting to the above analogy, “pick apples from wild apple trees and care for some trees.” According to various estimates, the proportion of “its own lines of code” contained in Red Hat products does not exceed 20%. But even with this approach, Red Hat repeatedly talked about the complexity of the OpenSource business :
By the way, about Red Hat's income of $ 2 billion , in 2011 I wrote that in Red Hat
Where to get resources for the development of OpenSource?
And here we come to what Peter Levine calls the main “weak link”:
In his article, he offers several ways to get rid of this weak link, but all of them somehow lead to the fact that companies are forced to move away from the "real" Open Source and leave some of the technologies closed. In fact, we are talking about the production of proprietary products and the sale of licenses.
Honestly, I don’t like this idea at all. And in my personal opinion, the other way out is that non-OpenSource companies become proprietary software manufacturers, but, on the contrary, proprietary software manufacturers support open platforms and free software with their products and resources.
That is why I liked the idea of the platform about which Peter Levine writes and about which I heard on the Citrix Tech Exchange . Citrix does not compete with open source software, but rather invests in its development (as is the case with Xen, OpenDaylight, Open vSwitch), and collaborates with the developers of OpenStack and Apache CloudStack.
So why didn't Citrix become the “new Red Hat” in the virtualization market?
The short answer to this question will sound like this - because then Citrix would have to abandon part of the profits (giving up its place to other proprietary companies) and convert from a software development company to an IT services company. What entails a complete overhaul of the business to a less profitable and worse scalable business model.
Peter writes that Red Hat needs to think about becoming a “new Amazon” (meaning Amazon Web Services ), but I disagree with that. I'm sure that Red Hat needs to remain Red Hat, and Citrix needs to remain Citrix. Indeed, for the OpenSource community, not only Red Hats are needed, but also Citrix's - manufacturers of proprietary products that do not compete with open source software, but rather provide open platforms with their support and fund the development of Open Source.
I want to start with the fact that Peter Levine (Peter Levine), of course, has a very large and good experience in terms of managing IT companies and, of course, he knows better than me about the business on Open Source. But on the other hand, maybe I can look at the problem “from my bell tower”. And, by the way, if it seems to someone that everything I write here essentially confirms the words of Peter Levine - the way it is. ;-)
On the business model of open source.
The key idea of Peter is that the “basic business model” of selling technical support for Open Source software does not allow making money. Indeed, if you read about the ways of earning on open source software, then getting money for technical support will be the main idea. (And in a broader sense - “receiving money from anything but the code itself”, we will return to this thesis a little later).
But let's think about whether the “support model” is really specific to OpenSource companies? Not. Any IT company operating in the corporate market must have “extended technical support” or something like that. In order not to go far for examples, here is the news a week ago (we’ll need it later) - NTT Data announced the purchase of a Dell division that provides IT services (Dell Services).
')
Citrix, like other players in the corporate software market, provides various IT services , among which are technical support for XenServer , i.e. open source software.
Thus, proprietary software developers can use not only the business model of selling software licenses and additional services, but also earn money on services related to open source software. Yes, you understood everything correctly - developers of proprietary software also sell technical support and other services, like the company's OpenSource , but as an additional profit to the main income from the sale of software licenses.
Peter Levine writes that Microsoft, Oracle and VMware revenues are many times greater than Red Hat's revenue, but is it correct to compare the amounts received from the sale of Red Hat services with all the money (not just services) that proprietary software developers receive? Of course not.
How successful is Red Hat?
But if the comparison of Red Hat with Microsoft, Oracle and VMware is not correct, then with what to compare? Maybe with companies that provide only IT services? Do you know large, international companies providing only IT services? The companies that are engaged in consulting and system integration seem to be the closest ones by occupation. But there is no comparable “breadth of coverage” with Red Hat.
Simplify a little task. Take some "service" division of a large IT company. Of course, such a comparison would not be quite correct, because The sale of services from software and hardware vendors is an additional (non-mainstream) direction and is sold by the “trailer” to the main product. And if you are a provider of IT services, then buyers should see the value in the IT services themselves.By the way, the news about Dell Services, which I wrote about above. NTT Data buys this division of Dell for $ 3.05 billion, and it was created on the basis of Perot Systems , which Dell swallowed up in 2009 for $ 3.9 billion. And, to quote :
If you believe the document submitted by the state commission, the revenues from the Dell service business last year fell by 5%, with a decline in all areas of Dell Services.Thus, the cost of Dell Services fell by almost a quarter (!!!) in a few years and its profitability decreases. But Perot Systems was considered the market leader in consulting and IT services in the United States. Granted, Dell wouldn't sell “the goose that laid the golden eggs” ...?
Peter Levine writes that “the success of Red Hat does not look so impressive,” but against the background of Dell Services, Red Hat has a capitalization of $ 13.5 billion and a constantly growing turnover reaching $ 2 billion, everything is not so bad.
It turns out that whether an open source company is successful or not depends on what to compare with - with software manufacturers or with companies providing services.
Red Hat is NOT a software maker.
Like any other "real" OpenSource-company (which has all the source code of products open), Red Hat is not a software manufacturer . I surprised you? We return to the effectiveness of the business model, namely, to the phrase “receiving money from anything but the code itself”.
If you look at the Open Source-company from the outside, then everything does not look very logical - imagine that you are professionally engaged in the cultivation of apples. And it is your apples that are of value to the consumer, but you distribute them to everyone for free, and you are trying to make money on the service and related services. For example, on the transportation of apples to the house of those who were given them.
Not surprisingly, this model is less profitable than selling software licenses.
With Red Hat, things are a little different (than with XenSource) - they initially packaged and accompanied already existing open source software. Shifting to the above analogy, “pick apples from wild apple trees and care for some trees.” According to various estimates, the proportion of “its own lines of code” contained in Red Hat products does not exceed 20%. But even with this approach, Red Hat repeatedly talked about the complexity of the OpenSource business :
Of all this, there is another very important consequence, on which Whitehurst stopped several times. With these words, he even began his presentation: "selling free software is difficult." For a company, open source software is much more difficult, ten times, he said, to achieve a certain level of income than for a proprietary company of a comparable type.And further:
when does Red Hat plan to reach this level of $ 5 billion and why doesn’t it take so long? He gave me a good answer. He said that he really believes that sooner or later Red Hat will reach $ 5 billion, but this will have to "replace $ 50 billion in revenues" of other computer companies.
By the way, about Red Hat's income of $ 2 billion , in 2011 I wrote that in Red Hat
set themselves a new goal - to triple sales in the next five years and earn up to 3 billion dollars annually!As we can see, for 5 years sales have not been able to triple, and the “shortfall” of $ 1 billion (or 33%) of the planned result is a very substantial amount. For comparison, Citrix had an income of $ 2 billion already then, in 2011 . (Who cares about Citrix's financial results for 2015, you can find them here .)
Where to get resources for the development of OpenSource?
And here we come to what Peter Levine calls the main “weak link”:
There are many reasons why the Red Hat model does not work, but the main “weak link” of this business model is that there is no way to invest enough in long-term development.
In his article, he offers several ways to get rid of this weak link, but all of them somehow lead to the fact that companies are forced to move away from the "real" Open Source and leave some of the technologies closed. In fact, we are talking about the production of proprietary products and the sale of licenses.
Honestly, I don’t like this idea at all. And in my personal opinion, the other way out is that non-OpenSource companies become proprietary software manufacturers, but, on the contrary, proprietary software manufacturers support open platforms and free software with their products and resources.
That is why I liked the idea of the platform about which Peter Levine writes and about which I heard on the Citrix Tech Exchange . Citrix does not compete with open source software, but rather invests in its development (as is the case with Xen, OpenDaylight, Open vSwitch), and collaborates with the developers of OpenStack and Apache CloudStack.
So why didn't Citrix become the “new Red Hat” in the virtualization market?
The short answer to this question will sound like this - because then Citrix would have to abandon part of the profits (giving up its place to other proprietary companies) and convert from a software development company to an IT services company. What entails a complete overhaul of the business to a less profitable and worse scalable business model.
Peter writes that Red Hat needs to think about becoming a “new Amazon” (meaning Amazon Web Services ), but I disagree with that. I'm sure that Red Hat needs to remain Red Hat, and Citrix needs to remain Citrix. Indeed, for the OpenSource community, not only Red Hats are needed, but also Citrix's - manufacturers of proprietary products that do not compete with open source software, but rather provide open platforms with their support and fund the development of Open Source.
Source: https://habr.com/ru/post/281376/
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