Rumors are swirling that SAP may acquire Red Hat. But does it make sense for SAP — the German software giant — to open its wallet and buy Red Hat, which is pushing beyond Linux to promote open source middleware and virtualization? The VAR Guy’s answer: A potential SAP-Red Hat combo makes sense. Here’s why.
First, a disclosure: The VAR Guy owns about $5,000 worth of Red Hat stock. Our resident blogger believes in Red Hat’s long-term business strategy regardless of M&A chatter.
Rumors about Red Hat potentially getting acquired spilled onto Forbes.com yesterday. Barron’s, in turn, spread a rumor from TheFlyOnTheWall.com that SAP was looking to buy Red Hat. But it’s important to note: Red Hat has been a takeover rumor from time to time for most of this decade…
Personally, The VAR Guy would like to see Red Hat remain independent, purely because it would be nice to see a pure-play open source company eventually meet the $1 billion annual revenue figure.
Any Synergies Here?
But back to the question at hand: Would an SAP-Red Hat combination make sense? The answer is absolutely yes. SAP could use Red Hat and…
- Linux to counter Oracle-Sun solutions built atop Sun Solaris.
- JBoss to counter Oracle Fusion Middleware.
- Red Hat Enterprise Virtualization (RHEV) to counter Oracle’s growing virtualization business.
On paper, the SAP-Red Hat combo appears to make strategic sense. And Red Hat already has a relationship with SAP.
But is SAP really ready to pull the trigger on such a deal? The VAR Guy has no idea… He’s just busy repeating rumors (as usual)…
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First, a disclosure: I owns about $2,000 worth of Red Hat stock. I personally believe that this hurts Red Hat’s value. I think that the company has been able to make the moves that they have made and assume a leadership role in the industry due to the corporate culture.
My biggest concern is that the corporate culture and principles on which the company has built strong customer relationships will be lost in a SAP merger.
Red Hat delivers on value, which is not exactly in line with SAP’s current model. I am not open source purist however i think you will see a player like Canonical start to make huge inroads if this happens. I am not saying that the customers will abandon Red Hat that is just FUD, however I am saying that I do not think that it is the smart play for a company that sales software to acquire one that on principle sales vale.
Var Guy I would be curious on your thoughts?
milles21: Maybe if you and The VAR Guy lump together your Red Hat holdings, you can buy the company outright
Kidding aside, here are some thoughts… If the SAP-Red Hat rumor is true, here are the potential winners and losers.
Winners:
1. SAP customers. Red Hat has a strong reputation within CIO circles.
2. IBM: A potential SAP-Red Hat combo does nothing to harm IBM’s ongoing relationships with both SAP and Red Hat…
Potential Losers:
1. Oracle: Oracle on Red Hat is a wildly popular business combo. Would Larry Ellison really allow SAP to acquire Red Hat without Oracle offering a counter-bid? The VAR Guy doubts it.
2. Microsoft: SAP on Windows Server also is pretty popular. SAP certainly wouldn’t abandon those customers. But Red Hat would emerge as the primary platform priority…
3. Novell: Novell has a good relationship with SAP. If SAP acquired Red Hat, Novell SUSE Linux would become a secondary priority for SAP.
Would Red Hat customers head for the exits if SAP acquired Red Hat? The VAR Guy doubts it, assuming, SAP doesn’t mess with Red Hat’s licensing, support and R&D models.
Again, everything above is speculation…
-TVG
You’re pretty right about IBM role on this, in fact if i recall well sometime ago there was a rumor about IBM taking over SAP…
an IBM with Red Hat / SAP on board would be a nice thing to watch.
Oracle + SUN
IBM + Red Hat + SAP
HP + whatever they trying to buy
.
.
.
and Dell
http://www.itjungle.com/tfh/tfh053006-story02.html
the scene seems pretty similar nowadays
My question is how well would the two cultures co-exist?
Oracle and Sun were very different and you can see what is happening there.
If Red Hat can keep their culture, and FOSS-based focus with the liberties they have now (more or less) then a merger may work. If SAP starts pulling Red Hat away from community involvement then that may spell disaster.
Andres: Thanks for the additional color commentary and the link. The VAR Guy is checking it out.
Dragonbite: The VAR Guy thinks you have a point. Culture is everything. But then again, the blog entry is based on unconfirmed rumors. So we’re getting a bit ahead of the situation…
-TVG
Personally, I think SAP would buy SUSE before it buys Red Hat.
Some hedge fund will end up buying Novell and SAP could then get SUSE for cheap. Right now, most of the SAP on Linux installations run on SUSE and the two groups have a tight relationship.
SAP could also put to use all the work done by SUSE in the areas of appliance and continue to turn a lot of their products into appliance-type devices to target the SMB space. They already own the high-end, but the SMB space is up for grabs.
It reminds me of the old story:
A bear comes into a campground and starts tearing a tent apart. The husband and wife climb up a tree to escape. The wife turns to the husband and exclaims “Look at what that bear is doing to OUR tent!”. Then man turns back to his wife and replies “The bear can do whatever he wants… its HIS tent now.”
The moral of the story is:
Don’t expect anything to remain the same after an acquisition!
You are forgetting the fact that SAP has just bought Sybase. The Sybase ASE database is multi platform but from what I understand, Linux is the platform that increases the most for new Sybase ASE installations. Sybase is an innovative company that has products that already are supported on RHEL.
In any case, SAP would have a powerful combination with RHEL + Sybase ASE to counter Oracles Solaris along with Oracle database.
As for culture, take a look at what SAP did with Sybase. They didn’t integrate them at all (why change a winning concept?). The only thing that has changed for Sybase (for us outsiders) is that when you look at their website, it now says “Sybase, an SAP company”.
B2Nav@7: Novell has been entertaining offers for its business in recent months…
Fulko Hew@8: If there was a prize for best reader comment of the day The VAR Guy would hand it to you. Entertaining and educational.
Dave@9: The VAR Guy hasn’t forgotten about SAP-Sybase. But you were wise to raise the point. Our resident blogger thanks you for doing so.
-TVG
SAP buying Redhat will for certain hurt Open Source if buying Redhat at this time. They will not be trusted to maintain the ideals of Open Source. To perform such an aquisition requires that SAP fully certify their entire software stack to work on Redhat and then demonstrate they play nice with the community for some years contributing code back to the community while improving SAP’s stack on Linux. Before that, nobody will trust SAP as owner of Redhat.
1) Contributions to Open Source will likely be reduced: Who will contribute improvements for JBoss if the owner is SAP and the improvements where related with competing products to SAP? – Redhat knows for themselves what happened with their Xen focus after Xen was bought by Citrix… OpenSolaris stopped working in KVM after Redhat changed focus to KVM instead of Xen. (Certainly caused by Sun at the time, not Redhat, as Redhat was a “dangerous” competitor to Sun’s own offerings)
2) Many such providers may become vary to use Redhat as the OS since SAP for certain will push their own solutions on the platform. Today Redhat appears neutral, this will be lost and hurt sales.
3) Unless SAP immediately can certify their entire stack for Redhat, we must expect Microsoft who run almost all SAP solutions today to demand nonsense cross licensing terms ala Novell, else SAP will face the consequences… The result will certainly hurt Open Source and SAP as the short term benefit of being on good terms with Microsoft likely is seen as more important currently as essentially all SAP software run on Microsoft systems today. SAP’s longterm benefits will likely vanish when that happens, and the Redhat developers flee.
SAP cannot at this time expect a market success from merging with Redhat. Before having success with this, they must demonstrate they are serious and contribute to Open Source first.
Today I will certainly buy Redhat for my projects, however, if SAP bought it, I would likely be much more vary for the next few years and likely use alternatives instead weather this is Ubuntu or a BSD solution. Signing a support deal with uncertainty, will for sure not happen.
That is one thing in favor of Red Hat, as opposed to the Oracle/Sun deal; Red Hat is doing well.
Since Red Hat is doing pretty well and can continue to survive for some time without SAP it is in a much better position to make sure they stay “philosophically intact”.