Innovation and Consolidation: Strange Bedfellows

Matthew Szulik, the chairman, CEO and president of Red Hat Inc., began his talk this morning at Ziff Davis Media’s CIO Summit with a video poking fun at some of the many famous technology predictions that went badly wrong. They included Thomas Edison’s conviction that the phonograph had no commercial potential, and that radio was a passing fad, Orville Wright’s 1901 prediction that man wouldn’t fly for another 50 years, and Bill Gates’s statement in 1999 that Linux was little more than a complicated toy.

That, of course, led straight into his speech on the critical importance of the Linux operating system as a source of IT innovation around the world. It’s a convincing argument: interest in Linux in fast-growing countries such as China and India is strong, in part because it’s free, and in part because the way the operating system is developed appeals strongly to the collaborative culture in so many developing economies. As he put it, under the open source development process, “the community owns the technology roadmap.” That’s an attractive proposition if, like many of these countries, you don’t yet have a technology roadmap. Innovation becomes not just a goal, but a necessity.

That’s a point of view he also expressed for Red Hat itself: “If you have no historical lock-in to your economic model, you are forced to innovate.” Red Hat’s model depends on providing the services offerings necessary to support companies looking to open source to run larger and larger portions of their IT activities.

Contrast Red Hat’s vision of innovation to that of Oracle Corp. In a stirring defense of Oracle’s strategy of acquisition, Doug Kehring, an Oracle senior vice president, spoke to both the supply-side and the demand-side trends underlying the strategy. On the supply side, he noted, the many tech bubbles in a variety of software areas have left behind lots of companies with best-of-breed point features, but not end-to-end solutions; Oracle’s plan is to integrate them. On the demand side, companies are looking to reduce complexity, lower costs, and find the proverbial “one throat to choke.” So Oracle is working to bring in critical software components, drive down services costs, and provide its customers with the presumed optimization benefits that should result from the modular functionality Oracle hopes to offer.

Yet in a fast-globalizing world where the race is to the swift and innovative, there is risk in Oracle’s strategy. Certainly the company has its finger on the pulse of what corporations are looking to from their IT vendors: modularity, soup-to-nuts systems, and lower costs. But does Oracle’s business model allow for the energetic innovation so necessary now and in the future? I hope so, because its go-to-market strategy, being all things to all IT departments, makes sense from the customer’s point of view. Of course, once that strategy is built, it still needs to develop and grow. And there are plenty of competitors out there who are looking to put together a very similar set of offerings.