Oracle's New Disruptive Strategy: An Open Source Attack on Microsoft

Open Source software from companies like MySQL and Ingres is the emerging disruptive innovation in the database business, challenging dominant supplier Oracle. The pitch to customers, 80-90% of the functionality of Oracle for 90%  lower price, is attracting increased attention among corporate customers.

Today, Oracle announced it would use the same open source strategy to enter the operating system market.  While most see this as a move against Red Hat, it's actually a more significant threat to long time rivals Microsoft and possibly IBM.  Oracle will be giving away Red Hat's Linux operating system, stripping out Red Hat trademarks, fixing bugs and selling it for half the price, as low as $99 a year.

Red Hat is considered the disruptor of the operating system business and until a few months ago was among the most richly valued tech companies on Nasdaq because of its steady 22% profit margin and 13% ROE.  Red Hat shareholders are getting a quick lesson in the fleeting nature of valuation and perhaps the fleeting nature of open source business models: The stock is down 15% after hours, continuing a steady decline since May.

**Update: RHAT down 27% in morning trading**

Oracle CEO Ellison told the Wall Street Journal it just wants to speed the adoption of Linux. "I don't think Red Hat is going to be killed."

I'm in Silicon Valley for a few days on business, and Oracle's move is on the minds of people in the software sector.  As one sharp observer put it today, the disruptor is being disrupted.

Another view, from Dave Dargo, Ingres's CTO, is that Oracle is locking in customers on the $160,000 database while price cutting on the chump-change for the O/S, to demonstrate that customers are not well served by the  development.

But all that Silicon Valley gamesmanship and Sun Tzu theory obscures some important issues that software companies should consider:

• Why have these major software platforms all overshot customer needs: Microsoft Office, Microsoft Windows, Oracle, SAP and Business Intelligence apps?
• To differentiate in known products, disruptors typically offer increased customization, flexibility, simplicity or lower prices.  Why is it that the open source software industry has focused only on playing the price card?
• Who is really serving the needs of customers in all this?

** Other Views **
Michael Dell does a (bizarre) song and dance (literally) about open source at this week's Oracle World conference in San Francisco.

The office database business was listed as one of four industries now facing disruption in Clayton Christensen & Innosight's newsletter, Strategy & Innovation, in a guest column by Michael Urlocker, CEO of The Disruption Group.

Archive of The Disruption Group in the news.