Defining the Linux Enterpriseby Tom Adelstein, coauthor of Exploring the JDS Linux Desktop
Much discussion exists concerning the presence of GNU/Linux and open source software in the enterprise. Linux users often call into question decisions by major vendors who increase innovation on servers at the expense of the desktop. In this article, we define the market and discuss the business reasons Linux companies pursue the enterprise market while limiting their initiatives for consumers. We also examine possible ways enterprise advances and the community can benefit consumer products.
Characteristics of Enterprise and Consumer Markets
Many of us consider the R&D money spent on enterprise applications unfair when compared to that spent on the desktops we use at home. You may recall the uproar that occurred when Red Hat discontinued its retail product in favor of Red Hat Enterprise Linux (RHEL). Many of us, as consumers, felt cheated. We wanted everything Microsoft offered on their desktops and we wanted an alternative.
Red Hat probably made a reasonable decision, even though it displeased many Linux advocates. Consider that the enterprise market represents approximately $200 billion per year in potential revenue compared to half of that for the consumer market. Additionally, enterprises provide a plethora of revenue opportunities, ranging from service offerings and consulting to intricate application and infrastructure products with higher profit margins. Red Hat needed to position itself where it had smaller competitors and more ways to make money.
Approximately 10,000 vendors exist in the complex enterprise market, with multiple opportunities for large sales requiring less people involved in the marketing cycle. In the retail market, very few vendors exist; revenue opportunities focus in narrow product lines where profit margins remain slim. New business entries have fewer chances of success in the retail market, where competition for similar products remain stout.
To those unfamiliar with the enterprise market, it often does not make much sense looking in from the outside. Independent Software Vendors (ISVs) often mistakenly define the market in terms of Enterprise Application Software (EAS) such as Oracle, SAP, and PeopleSoft (the big three). The enterprise market has many dynamics that make defining it in terms of EAS dated.
A consensus of market analysts defines enterprise software as applications used by a corporation, government agency, school, not-for-profit, or other organizations, regardless of size. Such software does not include entertainment, personal, or productivity software including games, word processors, spreadsheets, and accessories. Organizations provide fairly rigid enterprise applications that come programmed and ready to use.
In this view, enterprise software consists of accounting, customer relationship management (CRM), e-commerce, enterprise resource planning (ERP), supply chain management (SCM), and human resources (HR). You would not open a word processor, you'd open an application template delivered to your desktop.
One would not include email, game, personal finance, spreadsheet, word processing, or Internet-browser software in the enterprise class. This definition does not limit itself to Oracle, SAP, and PeopleSoft.
While market analysts and industry groups create a compelling case for their definition of the enterprise market, a different point of view persists. ISVs and large organizations prefer to gauge their status in terms of how the big three regard them. If SAP considers a company large enough to afford their EAS, some executives use that as a justification to elevate their status.
Based on a definition where the enterprise market consists of just three industry vendors, thousands of vendors who do not fit in the consumer market do not fit in the enterprise. Such a definition might hamper someone with the title of director of enterprise architecture (DEA) in executive meetings.
You can imagine a conversation where the DEA says, "We have concluded that Salesforce.com provides the best CRM solution for our organization." Someone at the other end of the conference table replies, "That doesn't fit the policy we adopted authorizing the use of SAP and their partners for all our enterprise needs."
Toward a Formal Definition of the Enterprise Market
To further confuse the issue of defining the enterprise market, the Department of Justice sued Oracle for attempting to corner what they defined as the high-function enterprise market. The DOJ's lawsuit considered Oracle, PeopleSoft, and SAP as a market unto themselves with control of the enterprise space. The DOJ's definition confused even the judge in the case and left out important player Salesforce.com.
Yet, for their own purposes in enforcing anti-trust laws, the DOJ has made an argument for a tiered market with the term enterprise at the top. In contrast to a market made of three players, the "industry" sees extensive competition for their high-function applications from an ever-changing and -growing number of vendors, and offerings including outsourcers and system integration solutions where software becomes a service offering.
Regardless of how the industry defines an enterprise, the DOJ stayed with their definition of EAS in the Oracle trial. To complicate the matter, Oracle brought into evidence confidential documents showing Microsoft's sentiment about the enterprise. The document discussed Microsoft's desire to merge with SAP a year earlier.
Microsoft originally supported the DOJ's case against Oracle by declaring that Microsoft wasn't in the enterprise market. Of course, Microsoft has much to lose if Oracle prevails.
The Enterprise Platform
During the DOJ trial, Oracle surprised everyone by introducing confidential documents related to Microsoft. The document, which can be found at news.com.com/pdf/ne/2004/msftsap.pdf, indicated considerable concern by Microsoft.
The Microsoft document viewed the combination of the Oracle database running PeopleSoft and J.D. Edwards applications on Linux as posing a threat to SQL Server, which runs only on the Windows platform. A bigger Oracle "being pro Linux, pro Oracle database would drive those SQL numbers to Zero if they controlled those applications," according to the document.
Microsoft worried that it would lose ground in the database software market if Oracle acquired PeopleSoft, and that fear spurred Microsoft to discuss a merger with SAP last year, according to testimony in federal court.
Microsoft also briefly pondered taking a minority stake in PeopleSoft to help it fend off Oracle. "Thinking about this PeopleSoft bid by Oracle made me wonder if we should approach them and suggest a minority investment to bolster their independence in return for a modest platform commitment," Microsoft Chairman Bill Gates said in an email to CEO Steve Ballmer the day after Oracle announced its PeopleSoft bid.
Regardless of what transpired during the attempt to keep Oracle from acquiring PeopleSoft, understanding the enterprise becomes clearer. Microsoft considers both Windows and its database as part of the enterprise market. They also don't count themselves as members of the 10,000 vendors selling enterprise software. Microsoft considers themselves an integral part of the big three much the way they consider themselves the dominant player in the consumer desktop market.
Sun Microsystems seems to recognize these distinctions, since they once owned the enterprise platform themselves. They saw a play for the enterprise desktop with Linux. Together with their open source communities, they have grabbed a global piece of the enterprise desktop and still have a significant presence in the market as an Oracle partner. All Linux vendors could use Sun's distinctions in the market to find a niche. Sell to the enterprise, organize communities to build desktops that could eventually be used by consumers, and help those communities by providing paid employees as integral parts of open source project teams.
If you look carefully, you'll see Red Hat using Fedora to provide a consumer-oriented desktop while selling an enterprise desktop that uses older versions of its products hardened for stability. Novell does the same with its SUSE division, selling an enterprise desktop and a popular Linux desktop.
The enterprise market consists of software applications used by corporations, government agencies, schools, not-for-profits, or other organizations, regardless of size. The software differs from that used by consumers. You will not likely find an integrated judicial case management system on the shelves of your local computer store next to the games, for example.
When the major Linux companies decided to pursue the enterprise instead of the consumer, they didn't leave the desktop behind. They left the consumer behind and hopefully, someday, Microsoft.
Tom Adelstein became an author in 1985 and has published and written non-fiction books, journalistic investigative reports, novels and screen plays prolifically ever since.
In September 2004, O'Reilly Media, Inc., released Exploring the JDS Linux Desktop.
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