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04Nov
How badly is CentOS hurting Red Hat?
November 4, 2007 
Why does Red Hat tolerate CentOS? The Community ENTerprise Operating System is an identical binary clone of Red Hat Enterprise Linux (minus the trademarks), compiled from the source code RPMs that Red Hat conveniently provides on its FTP site. It is also completely free, as in beer. CentOS provides no paid support, but it does track Red Hat updates and patches closely, and usually makes them available within a few hours or at most a few days of the upstream provider, which it refers to for legal reasons as "a prominent North American Enterprise Linux vendor." Free support for CentOS can be found in numerous places around the web, and a few third parties offer modestly priced paid support for those who want it.
It's easy to understand what CentOS is. The question is, how much business is it really taking away from Red Hat? The answer: probably more than you think. For a hint about what's going on, check out this amazing comparative chart on Google Trends.
I used to think most CentOS users were either just fooling around and not really running production servers, or else were using it in small IT shops populated by Linux geeks with a do-it-yourself culture. But a recent conversation with a friend set me straight. (I published part of this conversation here.) My friend runs the web site of a big city daily newspaper. Although it's not in the same league as the Wall Street Journal or the New York Times, it serves tens of millions of page views per month and pumps a big time advertising revenue stream into the coffers of the media conglomerate that owns it. The site is managed by a small in-house team and runs on several dozen dual and quad Intel servers with a classic LAMP stack that includes Apache, Perl, MySQL and of course Linux.
Until fairly recently they ran this web site on an old version of Red Hat with essentially no outside support. But they found that the up-to-date versions of the applications in their stack didn't run so well on Red Hat 7.3, so they decided they needed to upgrade to something more recent. Naturally the first thing they looked at was RHEL 4 (this started a while back), and then RHEL 5. But they freaked out when they saw Red Hat's prices. $1,299 per year for 24x7 support on the two socket version of RHEL 5, or $2,499 for the unlimited socket version. True, if you cut back to 12x5 support those prices come down, dropping to $799 and $1499 respectively. But even if they run RHEL on a mix of two and four socket machines, they're still looking at $50K per year minimum for the privilege of sticking the little red logo on their servers.
Bottom line? They decided to go with CentOS 5, which they are now rolling out to their production servers.
It's not that my friend's organization doesn't appreciate Red Hat's contribution to Linux. They do. They understand perfectly well who does the heavy lifting to put the RHEL distribution together. They see clearly that CentOS does not add value in its own right. They know that the engineering effort at Red Hat costs serious money and that someone has to pay for it. And if circumstances were different my friend would certainly be willing to throw a little something Red Hat's way. But not $50K per year. It's just too much. He just doesn't see the value proposition that Red Hat is pitching him, and he feels – like many others – that what CentOS is doing is not only legal (of that there can be no dispute) but perfectly moral. After all, the vast majority of the packages in RHEL were not created by Red Hat, and they are all governed by the GPL, which is absolutely clear about the obligation to redistribute code.
Although I don't have data to prove it, I'm convinced my friend's company is much more than an isolated example. No one can say for sure, but I'm willing to bet that there are thousands of IT shops out there running serious production applications on CentOS, and they are not all small shops run by geeks who write kernel code in their spare time (or wish they could).
My friend and his staff are Unix veterans, but they are not Linux geeks and they are definitely not the kind to muck around in the innards of their server OS just for the fun of it. On the contrary, they are prudent and conservative business people who want to spend as little time as possible fiddling with the lower reaches of their stack. Their major concern is to get a stable OS image set up, automate the entire shop around that image, and then cross their fingers and hope they don't have to touch it again for a couple of years. They don't want to pay for gold-plated support from Red Hat or anyone else because they know they are not going to need it. When incidents do occur, they know they are going to be able to work through the issues themselves, aided by the online CentOS community. All they want from Red Hat are the bits, and that's what CentOS is giving them.
So if Red Hat is losing so much business to CentOS, why don't they act more worried about it? When CentOS 5 hit the street last April less than a month after RHEL 5, Red Hat's spokesman seemed strangely and almost serenely unconcerned, offering all kinds of vague touchy-feely assertions about the uniqueness of his employer's value proposition.
"We certainly get CentOS customers who will see the value of the Red Hat model when what they are deploying becomes more and more critical to their infrastructure... That's not to say that what CentOS offers to customers isn't of great value to customers... It's just not the same as what Red Hat is offering."This is polite obfuscation. The truth is Red Hat doesn't give a flying fubar about most of the people who choose to run CentOS. Oh, the headgear crew are glad these users chose to run a RHEL clone instead of some other free Linux such as, say, OpenSUSE or a Debian variant like Ubuntu. The clones are a good way to suck the oxygen out of the competitors' ecosystems, at least on the server. But ultimately the only customers Red Hat is really interested in are the ones who can fork over big bucks for a premium-branded product without even thinking about it, like the bulge-bracket Wall Street financial firms or the big telcos who run thousands or even tens of thousands of paid-up copies of RHEL in their data centers. In short, if you have to ask the price, you probably can't afford it, and Red Hat is not exactly trying to make a secret about that either.
Now some idealistic RHEL fans plaintively ask why the company doesn't just offer a stripped down version for all the less fortunate folk out there who love the distro but can't pay the freight. For example, why won't Red Hat just sell an update only version without support for, say, $99 bucks a year? (Actually Oracle does this, but there have been complaints about the quality of their distro, which some say is a less perfect clone of RHEL than CentOS.)
The reason Red Hat is not interested in offering you a cut-price version of RHEL is the same reason any luxury brand refuses to cannibalize its high-end sales and muddy its prestige by making its top-of-the-line product accessible to the hoi polloi. Think transoceanic airline seats. Either you're riding in the front of the plane sipping champagne in a reclinable bed while clutching a ticket that cost as much as a small motor vehicle, or else you're back in steerage crammed into a dirt-cheap seat that feels like it could fit in a small motor vehicle's trunk. The price difference between the two seats is much greater than the difference in what it costs to provide them. Yet the airlines obstinately refuse to split the difference by offering a half-way comfortable seat at a half-way affordable price, because it's not in their economic interest do so. That's exactly what Red Hat is doing too.
So the answer to the question in the title of this piece is: CentOS stings Red Hat just a little, but it doesn't hurt them badly enough to make them want to change the way they do business. Even better, it helps them hold the heads of the competing Linux server distros under water. The real victims of the roaring success of CentOS are Novell's SLES, Ubuntu Server and Larry Ellison's own RHEL-cloned Unbreakable Linux.
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Reader Comments (65)
In my previous gig we ran ~10,000 RH7.3 servers. Like the author's colleagues, we got to the point where we needed to upgrade. We were amazed that RedHat refused to give us a break on cost; they wouldn't shave off a single dollar. On 10k licenses, mind you!
So, we waved goodbye to RH & migrated the whole thing to Debian. Much less headaches & drama.
Because they are obliged to? Let's not forget that the majority of what Red Hat distributes is written by other people, and licensed under the GPL.
Why is it that no mention is made of the basic subscription, which only costs $349 per year?
It's a funny question to ask, "why does RH tolerate CentOS" -- it's the license of course. RH has no choice in the matter. Obviously CentOS can't use anything that is RH's copyright material (unless permission is granted through the license) -- but for all the GPL stuff, RH has no choice but to tolerate CentOS or any other distro that repackages the source code. Remember, much of the code RH uses isn't owned by RH at all, it's just used by RH under an opensource license.
That's like asking why I "tolerate" the speed limit, or why I tolerate my bank demanding I pay my mortgage after signing the contract to do so (okay, so those are kind of crappy examples). Their product is licensed such that CentOS can and (I must say I am very grateful for) does make use of the source code. What's the problem? It's not as though RedHat has any say in the matter. The article even points out; "After all, the vast majority of the packages in RHEL were not created by Red Hat, and they are all governed by the GPL, which is absolutely clear about the obligation to redistribute code." Well duh! Someone could just as easily claim that MySQL is losing money because distro XYZ includes it when the end user could be paying MySQL for installation and configuration support. And so on. The article is basically drivel IMO by someone who comprehends what the GPL is, but doesn't "get it" or the real value it represents.
I use CentOS for the flexibility it offers me but I pay for matching RHEL license so that I have paid commercial support and so that the folks doing the heavy lifting can continue to afford to be able to do it.
Rindeee, gren and strags - try reading the article. The author's point is that Red Hat is effectively 'tolerating' CentOS by not offering a low-priced version of its software. He is not contending that they could somehow stop CentOS from being made.
If they try to shutdown CentOS they know that they'll lose a lot of potential customers. Those that are using CentOS may jump to something like Ubuntu. I'm already noticing some of my colleagues jumping from Fedora to Ubuntu due to dissatisfaction.
CentOS is taking away market share from OTHER free Linux distros, NOT the commercial distros. Remember, RedHat used-to have low priced commercial server and desktop systems, but they decided they would make more money selling only the high-end, and leaving the rest for others to pickup the pieces and put together.
I agree with strags. Red Hat tolerated CentOS because red hat is still on open source vendor. They have no choice but to allow this or close the source. which would be near impossible for them now. But I highly doubt red hat is losing much money over this. this article is just FUD
Actually, a common practice is to pay for one license/support contract, and run it on one server parallel to your production servers, which all have identical software installed. Any time you encounter a problem, shift it over to the supported server, use RH support, and migrate the solution over to production. This is also legal.
Thank God for Centos. I dont think the author really knows the full scope of centos use. Most hosting servers are centos now and its used for many other things as well. As far as a company using centos, why not? What kind of support would you need to justify redhats high prices? I cannot think of any unless they had a bunch of unskilled technicians.
You can pretty much find any info you need in docs and by googling. I would say it is hurting redhat though and without redhat there is no centos. SO all centos users need to be thankful of that, we don't want to see redhat fail cause without it centos will be gone too.
Simple: GPL
Second: CentOS cuts the grass under the competitor's feet and sooner or later bring customers to RedHat
CENTOS is not taking market share away from RHEL. People and organizations who use CENTOS would not be able to afford RHEL licensing. If CENTOS didn't exist, another distribution would be used. With CENTOS, organizations can easily switch to RHEL. CENTOS use promotes dependency on Redhat; therefore its beneficial to Redhat.
What I'd like to know is how often large corps buy just one
RHEL license, install that one RHEL box but then run the
majority of their hosts as the matching Centos version so if a
problem happens on a Centos box, they then get Red Hat's help
as if it was on the RH host with license. That would be
the real risk to Red Hat of losing money from Centos.
From the article the author's friend chose CentOS with out any support. They could have bought one license from Redhat and use the same software in as many systems as they want. There are no restriction on any number of servers you can install RHEL OS software. The money Redhat charges is for the support and updates. If they are happy with CentOS without any support, they could have select any other distro. That does not really show how CentOS is hurting Redhat but all other distors are hurting Redhat.
I have to say, you come across as very ignorant when you ask why redhat 'tolerates' CentOS. The GPL leaves them no option. Plain and simple.
You kinda missed the point. CentOS is good for Red Hat, because in some companies they can start with CentOS (as opposed to Debian, Suse, Solaris or Linux), and as business requirements become more stringent, they can add a support contract to the machines that are the most critical and/or problematic. This basically ensures that a Red Hat-like distro is used in many more places without any obligations on both sides. I know clients that moved from CentOS to RHEL as the business grew, because the company officers created pressure regarding support contracts in case of a problem.
From a RedHat perspective CentOS really is a Win situation, because the reach of RHEL is far greater than that of it's direct competitors. Even though it's not correct to call CentOS RHEL, they are both the same thing when compared to the competition.
Sun is also doing the same thing with Solaris, because it gives Solaris away for free. Having a bigger user base, means more contracts in the end.
Furthermore, having a bigger user base, means receiving more feedback regarding the quality of the product.
Uh, I don't think Centos is hurting Ubuntu at all...
http://www.google.com/trends?q=rhel%2C+centos%2C+ubuntu
The view that every install of CentOS is lost revenue for Red Hat is much too simple. Red Hat has approximately enough business that they can handle. For those that need it, Red Hat's main product is support, and what they offer is clearly popular with their market segment. You can even take the view that CentOS is providing a valuable service to Red Hat by seeding the market with their technology. I believe Red Hat has the required understanding of their market to further grow their business. Whether this will require a change to their pricing structure will remain to be seen.