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How Red Hat Lost Friends And Gained New Enemies

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Linux

Red Hat, once the little company that could, for years could do no wrong. It rode the rising popularity of Linux to become a $280 million-a-year company with a market cap as high as $6 billion, claiming 80% of the market for Linux-based enterprise servers. Other Linux-friendly vendors loved Red Hat, since it gave them and their customers a viable alternative to Windows. Even Microsoft, while openly anti-Linux, didn't treat Red Hat as too much of a threat.

But Red Hat's success is starting to breed envy and unease, and now partners and competitors alike--particularly Oracle, Microsoft, and Novell--are trying to wipe the grin off the commercial face of Linux.

Two of the software industry's behemoths, which agree on little else, seem like-minded that something needs to be done to slow down Red Hat. First, Oracle chief Larry Ellison said his company was entering the Linux support business, an area that yielded almost a fifth of Red Hat's revenue last fiscal year. Then, Microsoft struck a $442 million pact with Novell that covers product integration, patent protection, and marketing, giving aid and comfort to the only other mainstream Linux option businesses have.

It's a new reality for Red Hat. With fiscal 2006 sales up an impressive 42%, and net income up 75%, it's making serious money with little competition. The company's April acquisition of JBoss, maker of the open source Java application server and other middleware, for $350 million revealed its resources and ambitions to move beyond the Linux operating system. The Red Hat that big vendors once viewed as something of a raw material supplier--serving up the Linux shops for Oracle's databases and IBM's middleware--now looks more imposing.

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