When analyzing stocks in a new area like cloud computing, it's important to compare apples with apples, and not pomegranates
A public cloud player like Amazon.com (NASDAQ:AMZN) is nothing like a software-only player like Red Hat (NYSE:RHT), and while both get lumped in as "cloud" companies that's a big mistake, Even taking Amazon's commerce and content out of the equation, what Amazon is doing with cloud is nothing like what Red Hat is doing. Amazon is providing services, at a huge discount to most of the market, while Red Hat is providing software tools enterprises can use to build their own clouds.
Red Hat is far more comparable to VMware (NYSE:VMW). VMware has actually been beating Red Hat badly in the "pre-cloud" market, as its vSphere is a far more popular system for virtualization than Red Hat's KVM. Red Had has also suffered from the perception that it's an operating system company - cloud is all about having choices for in application operating systems, that's what virtualization is all about.
VMware was partly spun-out of parent EMC because it is a software play - EMC builds data storage - making the two companies even more comparable. And, over the last six months, VMW has outperformed RHT on the stock market.
But this has changed recently. Over the last month RHT is up 11%, VMW just 2%. While VMW has been making extensive executive changes, moving former CEO Paul Maritz back into the parent company, then into a new spin-off dubbed the Pivotal Initiative, which will bring a true VMware cloud to market, with big data and a complete cloud platform, RHT has been engaged in blocking-and-tackling.
It recently tackled Tim Fox from VMware. He had been heading vert.x, an open source application development framework that runs on a Java Virtual Machine, since 2011. A better development framework is important to the cloud, because it lets programmers use a variety of tools to develop programs for the cloud.
VMW responded by firing Fox from the project and as The H observed, staking an ownership claim on the software. Usually, no big deal, but this is an open source project, "a community project sponsored by VMware". It wasn't owned by VMware, but VMware now acts as though it is.
This is the kind of open source inside baseball that seldom bothers investors unless it hits the major media, but in this case it's important. Fox's Vert.x knowledge gives Red Hat a leg-up on the code. Red Hat could, legally, simply "fork" the code and continue with it under its own aegis. A Google Groups discussion among the developers indicates a fork could be in the process of happening.
Red Hat has a lot more experience dealing with the egos, contracts, and hassles of an open source project like this than VMware. It's more trusted in the open source community. And if, as many think, the enterprise private cloud market is moving toward an open source platform like Open Stack, this has to count as a big win for Red Hat, and a big challenge for Maritz and VMware.
Disclosure: I am long RHT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.