Economics of IT

Redhat’s data integration move and the steady march of pricing disruption

By Brij ⋅ May 3, 2007 ⋅  Email This Post ⋅  Print This Post ⋅ Post a comment

Redhat is by far the only big pure-play open source success story out there. They have perfected their subscription based revenue model and now it seems they are intent on putting more and more components to add incremental revenue. Complete SOA stack strategy is designed to shift enterprise budget from licensing model to the subscription model.

They are marching up the stack. This became clear when they announced the acquisition of MetaMatrix, a proprietary integration framework which acts as a data glue between business applications and different data sources. Sort of like Tibco for data. MetaMatrix competes with big companies as well as innovative startups such as Composite Software.

This acquisition has a potential to cause lot of disruption among existing integration players. People have already started talking about “shorting” Tibco and BEAs of this world. Ashlee Vance recently reported about seismic changes taking place in the mid-market enterprise software segment. Ray Lane of Oracle fame making  a chilling prediction of carnage coming in the mid-market. Companies will loose lot of their pricing power when caught between three giant forces changing the economics of software industry - consolidation at the very top, move towards software as a service and popularity of open source model.

Redhat is ideally positioned to scale out their subscription model with more and more interesting components in the mix. They will make more acquisitions to expand vertically.

[Cross posted on OpenAppDotOrg]