RedHat RHEV3 – Alternative Virtualisation And Ecosystem

RedHat RHEV3 Highlights

• Launches RHEV3
• Has an Open Source approach – going against the tide of vertical integration
• Offers lower-cost alternatives in the virtualisation market
• It is not the hub of an ecosystem in the way Vmware, Microsoft and Citrix are
• Is now a billion dollar software company
• Has strong opportunities as users turn to KVM and Linux in database and Cloud Computing areas

A Shift From Linux Distribution To Enterprise Virtualisation

RedHat has launched its RedHat Enterprise Virtualisation Version 3 (RHEV3) this week, which is free to download and assess. It describes its benefits as:

• “Enterprise-grade, centralized management and hypervisor for server and desktop virtualization
• Industry leading performance, scalability, and security infrastructure
• An ecosystem of thousands of hardware and software vendors
• 50–70 percent lower cost compared to other solutions”

Rather than talk about its product advantages, we thought you would be interested in our analysis of where the company stands in terms of the development of virtualisation and what makes its approach different from its competitors.
We’ve been well briefed by RedHat, going up to London to talk to Phil Andrews and being briefed on a number of calls over the last few months and weeks.

RedHat is on line to make the magic $1 billion annual revenues. Early on it was a Linux distribution vendor – I remember well installing an early version of its operating system on a spare PC at home. At that time most thought its major competitor was SuSe, which was stronger in EMEA, but fell away somewhat following its acquisition by Novell (which of course was recently acquired itself). RedHat Linux was also positioned as low-cost alternative to Windows on PCs. Looking back with the advantage of hindsight you can see how Apple – Microsoft’s strongest competitor – has succeeded through a proprietary approach, even Mac OS is based on FreeBSD Unix. Linux had much stronger credibility as a server operating system of course, not least because of its derivation from Unix, which lent it many of the attributes needed for corporate computing.
Figure 1 shows the growth of the x86 server market by operating system between 2003 and 2011. It demonstrates the fact that Linux, Windows and the total x86 server market has been in lock-step over the period: Sun’s Solaris makes up the Unix line, which has declined significantly since Oracle’s acquisition. Linux represents around 7% of the $43 billion x86 server market – the big winner is Windows, which accounts for around 89%. However, despite its relatively small size, Linux has moved from being a community-sponsored alternative to being widely used in larger organisations, where it has advantages in performance – especially for Cloud Computing and databases.

VMware Is RedHat’s Biggest Competitor

RedHat’s move upstream into enterprise computing put it into competition with VMware, which created virtualised servers by putting its ESX hypervisor on top of the operating system. VMware has been triumphant, reducing users spending on server hardware significantly, shifting its focus from hypervisor to management over time and, in so doing, creating one of the most important ecosystems in the IT industry today. Although ESX is relatively agnostic in terms of the operating system it attached to, it is much more widely used on Windows – taking advantage of its greater market presence. By comparison RedHat is more strongly tied to the Linux market. It believes there will be a strong move by Linux teams to virtualise their servers – akin to that by Windows teams some time back.
This week’s announcement was full of price comparisons with Vmware offerings: RedHat recognises it has a strong chance to win business by proposing itself as a lower-cost alternative, especially as 80% of its customers also use VMware. In our research we’ve come upon a number of companies – Marriott International, Virtustream and Dutch Cloud for instance – who are developing KVM-based alternatives for advanced virtualisation. RedHat’s challenge is to make sure it gests some revenues from them through offering valuable services and pre-integrated features.
A view of the leading x86 infrastructure and services suppliers is shown in Figure 2. Here we’ve combined infrastructure and associated services together, which account for the total revenues of Citrix, VMware and RedHat, but only part of Microsoft’s and Novell’s. Citrix has been doing well, beyond just the virtualisation software based on the Xen server hypervisor. In our analysis, much of the company’s growth has been based on addressing desktop virtualisation and through acquisition of relevant software companies . RedHat has also been doing well, with its growth outstripping Novell, but somewhat behind VMware’s.

KVM – A Relatively Young Server Hypervisor

We’ve spent some time here talking about the potential for storage hypervisors and the approach IBM, Virsto and others are taking. We note that KVM has not drawn as much attention as Hyper-V, ESX and Xen as the basis of attachment, although IBM, HP, Intel and Cisco were prominent in their endorsements of both RHEV and KVM at this week’s launch. One reason for the lack of attention is the relative youth of KVM, which is illustrated in Figure 3. We believe it lags behind ESX, Xen and Hyper-V in terms of the revenues from virtualised servers in the annual period to the end of Q3 2011.

Open Source Software And Subscription Pricing

RedHat has always been an Open Source software vendor, charging subscriptions for support and adding pre-integrated features to community developments. This gives it an advantage in terms of focus, with its developers building just 13% of the code used in its offerings. It also makes it different from many other software vendors in having to compete against other companies who can sell similar products freely. It charges annual subscriptions for support on top of software which is largely free. We note that this approach failed significantly in the last 2 years of Sun’s independence, when it failed to persuade an adequate number of Solaris, Java and other software users to add support. The big difference is that RedHat has always lived on subscriptions, while Sun was trying to fit this as a new business into its existing software sales. We also note that it is a significant challenge for any IT vendor to shift its business from one-off sales to a subscription model in which revenues are recognised on a monthly basis – it takes time for the trickle of the new to make up for the on-time hit of the old money. Much has been written about the need for users to move from Cap Ex to Op Ex, but not much about the consequences for the supplier.

Up Next – Cloud Forms And Gluster

During 2012 RedHat will turn its focus to new offerings. It will introduce new offerings in the Cloud Computing area under the name ‘Cloud Forms’. We also expect it to do more with its Gluster acquisition in the storage area. Although this is not currently a ‘storage hypervisor’ approach, it will be interesting to see how it proceeds to offer reductions in storage spending through tiering and the use of low-cost Tier 3 disks.

Some Conclusions – A Different Sort Of Ecosystem

It is unlikely that RedHat will establish a powerful ecosystem of partners and other software suppliers around RHEV, challenging VMware and Microsoft. As an Open Source supplier it is part of a community, which by definition is unlikely to coagulate around a single vendor. Citrix also has strong ties to the Open Source community with Xen, although most of its offerings have richer commercial additions than RedHat’s. RedHat has an advantage in being able to leverage other Open Source developments – witness its participation in oVirt for instance. It isn’t living the difficulties of shifting from one-off sales to something more fluid, as it has always had a subscription model. In this respect it will be able to point to cost advantages every time a competitor changes its pricing model – as against VMware in its recent announcements.
It’s growing in importance as an Enterprise player, especially in the server hypervisor area where KVM is seen as an easier-to-implement solution than Xen by many. It is doing a good job of offering valuable support through annual subscriptions, which will help users to implement virtualisation – usually at a cheaper cost.
It’s refreshing to see a commercial player still strongly attached to Open Source software at a time when other software companies are becoming more vertically integrated and using common developments more for lowering development costs than offering Open products. It is well positioned in the current downturn as a supplier of lower-cost and relatively risk-free solutions.