Trip Chowdhry, managing director of Global Equities Research, calls Oracle's potential entry into the Linux market "a nonevent for Red Hat." Chowdhry figures that Oracle Linux would be part of a single-purpose appliance linked to the company's database or application software. "People buy an appliance because they do one thing very well." But Linux, he says, is an all-purpose operating system, likely to appeal to smaller businesses, not Red Hat's core enterprise customers.
But Russ Herrold, a principal at CentOS, says building a stable Red Hat competitor would be "very doable; it's not particularly hard." he said on the Goldman call. How long would it take? "Could be done in three months with 15 engineers."
Of course, building the software doesn't guarantee that anybody will be interested in using it.
Red Hat is generally considered to excel at support and service (though some sources within the open source community say the reputation is exaggerated) and is known to be compatible with many flavors of hardware and software. Therefore, few people believe Red Hat would suffer anything approaching a hemorrhage of customers.
But Sherlund, who downgraded Red Hat to underperform in April, worries that competition from Oracle could result in pricing pressures that could hurt Red Hat's margins. "Oracle could easily undercut Red Hat on price, offering a largely similar Linux product for a much reduced price compared to RHEL or even at a nominal cost if bundled with other Oracle products including Oracle 10g database," he wrote. Goldman has or is seeking investment banking relationships with Oracle and Red Hat.
Tom Berquist, CFO of Ingres, an open source database startup and a former Wall Street software analyst, disagrees. "Red Hat is cheap enough so that Oracle would be hard-pressed to undersell them." Moreover, the market's reaction to Ellison's initial comments indicates that the risk of Oracle's entry into the market is largely priced into the stock. "There will be a reaction to the headline when Oracle makes its announcement, but it won't be severe and the stock will bounce back," Berquist predicted.
Although the basic version of Red Hat Linux is free, the company charges for advanced versions, and makes most of its money by selling support and access to its network of developers.
Dismissing any effort by a company as large and savvy as Oracle is always dangerous, but for now, Larry's penguin (the Linux mascot) doesn't look terribly threatening.