Open Source with a catch (Red Hat Network and SuSE YAST)

Experience has shown that working with a completely open business model has proved tricky for many Linux companies. As previously explained, the clients of a Linux company are free to demand the best and cheapest service, and to switch to other providers who may offer a better service. This puts Linux companies on the spot and many of them have tried to make things easier for themselves by including some sort of catch in their service agreements, something that will keep customers loyal despite the openness. We'll now take a look at two examples of this.

Red Hat is the best-known company selling the Linux OS and services, so in many ways it is fitting for this review of Linux companies to start with them. As a company Red Hat has always been strongly behind the Free Software ideology, and from the start they published all their own products under the same open GPL (General Public Licence) under which Linux is published. Despite this, there are some catches to be found in the company history.

Until the year 2003, Red Hat's best-known and most important product was the Linux operating system itself. Most users copied it freely from the Internet, but there were also a lot of other people who bought Red Hat Linux CDs from the stores. Even so, for a long time now Red Hat has worked to increase its revenue by providing services. And because the company employs some of the most talented programmers, or hackers, of the Linux world, the company's consultancy services have a certain credibility. The well-known Internet store Amazon, for one, trusted Red Hat consultants when porting its Web servers to a Linux platform.

Despite their hard work to improve their income from selling services, Red Hat's biggest revenue-generator in its first years of business was from selling Linux on CDs. But because it was also possible to download the same content directly from the Internet for free, many users acquired their Linux OS that way.

Inherent in the logistics of CD production is a certain difficulty in the selling of CDs, which was financially unfavourable to Red Hat. Once the contents of a CD have been compiled - i.e. Linux and other compatible programs - they can be published in digital form on the Internet the very next day. However, for the physical CD-ROM the journey to the retail outlets would only then be getting started. The time-consuming business of manufacturing the CDs, printing the covers, and transporting the finished product to the shops meant that by the time the CDs were available for sale they were often a month or even two months behind the identical software already spreading via the Internet. With such a long delay even those Red Hat users who would have preferred to buy a CD ended up downloading Red Hat Linux from the Internet for free because they didn't want to wait.

At one point, Red Hat tried to bypass this problem by delaying the Internet release of its latest versions. The new versions were distributed only after the physical CDs had been in retail stores for a couple of weeks. Although we can appreciate the logic behind this artificial delay, it did provoke some criticism. After all, it could be considered mean-spirited. Also, it may well have been an unprofitable tactic for Red Hat itself. Since Linux was then developing at an amazing pace, a delay of up to two months was quite a long time. Holding back the new version meant that their product was already out of date by the time it was published. The tactic also gave an edge to other Linux distributors, who released their own versions on the Internet without delay. After a while, even Red Hat seemed unable to believe in its own plan, and so gave it up.

In the Internet era, the most important task of any operating system provider has become the quick finding and fixing of bugs in their system. Flaws in programs can be used to break into computers, which is why it is important to fix them quickly and efficiently. In the past few years, almost all the viruses that have spread in the Windows world have made use of bugs either in Windows itself or in the e-mail application Outlook. Linux has proved more reliable than Windows in this, and has therefore not had the same kind of viral epidemics, but in theory all operating systems are similarly at risk. That makes the fixing of faults as soon as they're found one of the mainstays of computer security. In practice, this responsibility falls on the supplier of the OS, whether the company in question is Red Hat, Microsoft, or anyone else.

The flawlessness of the Red Hat system is based on the use of the up2date program and subscribing to the corresponding Red Hat Network service. For a client who has joined the Red Hat Network all the available updates are just a click or two away.

Red Hat's business is now wholly based on the sale of annual subscription fees for joining the Red Hat Network. The operating system sold by Red Hat is no longer even itemized as a separate product; getting the OS and a year's worth of updates is always a package deal. Pricing is also based on an annual fee, not on the one-off purchase of a CD. Today, Red Hat focuses entirely on its Enterprise products, which are seriously pricey. The annual fee per computer varies from the cheapest versions at $179 to $349 dollars to big computer server versions at $1,499 to $18,000. In addition to consultancy deals with big clients, the most important source of revenue for Red Hat is the up2date program and the Red Hat Network subscription fees.

The up2date program is closely tied to the Red Hat Network and its annual fees. Many other Linux distributions and the correspondingly simple update programs allow installation and updates through a third party. This benefits consumers, because it allows them easy installation and upkeep of the more exotic software which doesn't come with the Linux distribution itself. And that really is what Open Source is all about: for the consumer to have the freedom to build their computer from whatever programs best suit their needs. But this would mean that Red Hat's customers could update their entire operating system from some third party, and thereby do away with the need for the expensive Red Hat Network contract. Of course you can update Red Hat Linux without the up2date program, but all the alternatives require some amount of computer skill. The only way officially sanctioned by Red Hat is to use their Red Hat Network.

By forcing users of its up2date program to pay expensive annual fees Red Hat has, surprisingly enough, elected to get its revenue from a rather aggressive and very much un-open catch. Although the source code for the up2date program itself is open and follows the principles of Open Source, its use is surprisingly closed, considering the history and principles of Red Hat. It's not just about money - any business needs to make a profit - it's more about the mean-spirited limiting of choices. In order to make a profit, Red Hat has tied the up2date program to its own servers and thereby excluded the rest of the Internet and all the potential on offer there. Which means a Red Hat user is forced to make a choice that is disadvantageous to them. If you use Red Hat, you must get all your software through Red Hat. If you need programs that Red Hat doesn't offer, you have to make do without them. Naturally, it's possible to install programs from other sources than Red Hat Network, but because the up2date software doesn't support them, the installation and upkeep will cause unnecessary hassle.1

For the sake of comparison, we'll give all the companies presented in this part of the book a brief evaluation. Or perhaps verdict would be a better word. So what's the verdict for Red Hat? Among Linux companies, Red Hat is one of the strongest proponents of the Free Software ideology. All Red Hat's own software is also published under the GPL licence. Red Hat Network's closed nature is somewhat in conflict with hacker ethics, but is acceptable - barely.
Switching to a service-oriented business model and corporate products has been a financially viable strategy. In the fall of 2003, Red Hat published its first ever profit result and has stayed clearly in the black ever since. In the autumn of 2004, the company generated a profit of $12 million, which is a lot considering the turnover is only $46 million. After a strong growth, Red Hat has made a hit with its Red Hat Network, and has taken its place in the world of grown-up companies, where you don't get along on fancy technology alone, you also have to run a profitable business.

Verdict: Financially successful company whose actions can stand a hacker-ethical inspection, but there's still room to improve.

SuSE LINUX is a Linux company with strong German roots. Its history is as long and venerable as that of Red Hat, and it is generally considered to be number two in the competition between Linux distributions. At the beginning of the millennium, SuSE equalled Red Hat in turnover and number of employees, but then had some financial problems and almost halved its staff. The company stayed afloat, thanks to support from IBM.

Today, SuSE is seen as IBM's foremost Linux partner, and IBM's database and mainframe architectures are usually first to be supported by SuSE products. SuSE Linux is also supported by all the other big software companies, such as database manufacturer Oracle and super computer manufacturers Cray and SGI. With this in mind, it's easy to believe that SuSE, like Red Hat, employs some of the best Linux programmers in the world.

It made quite a splash in the Linux world when, in the autumn of 2003, the old IT giant Novell announced they had bought SuSE for $210 million. Novell is known for its NetWare operating system, which in the early nineties was the most popular OS for company intranet file and print servers. Although the company still has a large and loyal customer base, it has lost market share to Microsoft since the late nineties when many people saw Novell as something of an historic remnant in the IT business. However, in 2003 Novell decided to go with Linux and bought in top knowledge by first acquiring Ximian (more of which later) then a couple of months later the number two Linux distribution SuSE. IBM stayed in the equation, because part of the SuSE deal was that the company made a $50 million investment in Novell. Overnight, SuSE LINUX had become the product of an established, venerable and, importantly, a financially stable IT company, and once again Novell became a hot name in supplying netowrk servers.

The story of SuSE's survival teaches a lesson that has wider application. If you're a talented professional, you'll always land on your feet. In this instance, SuSE had become such an important expert partner for IBM, that Big Blue simply couldn't afford to let the company sink. IBM needed SuSE to realize its own Linux strategy and with IBM's support, the company survived its other less than profitable experiments.

The Novell deal was basically about the same thing. Because Linux is an operating system that is both open and free, there's no reason to pay hundreds of millions of dollars just to have your own Linux version. That wasn't what it was about: it was about Novell paying for and getting top-notch knowledge of Linux - and, if you want to know my opinion, they got it cheap.
As with Red Hat, the two most important sources of revenue for SuSE have been consultancy and the sale of CDs. Unlike Red Hat, SuSE continued to sell the packages suitable for the ordinary consumer.

The strategy SuSE originally chose for its CD sales has been severely criticized. In addition to the freely distributable open Linux programs, SuSE Linux comes with an installation and administration program created by SuSE and known as YAST, the licensing terms of which don't fall under the definition of Open Source. The installation program, and therefore the entire CD, can be copied freely, but you mustn't sell it. That is how SuSE prevents cheap clones being made of its Linux, something that always eats up some of the profits in other Linux companies. Furthermore, and unusually for a Linux distribution, SuSE CDs cannot be copied from the Internet, which means more users of SuSE have been forced to buy CDs to get what they want than have those using other Linux distributions.

Though SuSE has the full and legal right to define the licensing terms of its own programs as strictly as it pleases, I think it is reasonable to ask how they can justify putting in such restrictions when the rest of the contents on their CDs is Open Source and therefore freely available and free for the company to use. Where is reciprocity? And should we understand the SuSE strategy to mean that the second-largest Linux distributor doesn't think Open Source programs can really be used for profitable business?

Despite the well-earned criticism, SuSE has got off rather lightly and has always been a respected member of the Open Source community. Caldera, for instance, met with far harder resistance when they tried a similar strategy, and that company has since disowned its Linux enterprises entirely, having already burnt all the bridges behind it. The reason the SuSE strategy was received so much more kindly is that SuSE is actively involved in the development of the Linux kernel, the KDE windowing environment, and several other important Open Source projects. These weigh more on the good side of the scales than stepping away from the Open Source principle in one instance.

After Novell bought SuSE, the company published the above-mentioned YAST program under the same GPL licence as Linux, which means the SuSE catch is now history and we can forget all about the little flaw that once existed in an otherwise excellent Linux distribution. In this review, we've been looking at the old SuSE, with the catch still in place, and the verdict is therefore based on that. Novell's solutions are the SuSE of the future and will have to be evaluated by others.

Verdict: After surviving its financial troubles SuSE is building its business as a consultancy with excellent know-how, particularly in exotic mainframe environments. As a company SuSE shows how a skilled professional will always have work. The company's Linux distribution is popular, but the realization of the whole package (prior to the Novell buy-out) unfortunately failed our ethical criteria. Whereas the Red Hat catch barely scraped through, the SuSE catch, just as barely, fails it.

  1. 1. To clarify, in the free Fedora Core Linux which Red Hat has published since 2003 mostly for hobby and test use, the up2date program has been changed so that users can freely add other websites from which software can be installed and updated. At the time of writing, all actual Red Hat products aimed at businesses are still tied to the Red Hat Network service.

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