Red Hat enjoys fruit of recession

Red Hat is still looking to expand beyond its traditional market of tech-savvy companies into a more mainstream world nearly a year after the open source vendor first declared its intentions to woo conservative customers away from rivals Microsoft and Oracle.

According to the company's EMEA boss, Werner Knoblich, who spoke to The Register at Red Hat's London office yesterday, the battle to win the hearts and minds of enterprise outfits was slowly but surely starting to pay off.

He said the recession had also helped Red Hat to reach out to customers whose budgets have been squeezed since the economic downturn hit.

"Microsoft was untouchable until recently, but now everything gets considered, which is one of the reasons our results have been pretty strong," he said. "Clearly a downturn is never good generically, it’s a bad thing. But our value proposition resonates pretty well all the same."

Indeed the commercial Linux distributor continues to buck the economic meltdown. In the firm's second quarter it reported sales that were up 11.7 per cent to $183.6m, which were above Red Hat's high end guidance.

Knoblich credits the firm's $350m acquisition of middleware outfit JBoss in 2006 for some of that success.

"In the past on the pure open source side there was just not enough for system integrators to see Red Hat as a strategic business to focus on, so for us they weren’t an important channel in the past, but with middleware that’s all changed," he said.

Red Hat, he admitted, "initially underestimated how much of a different beast middleware was", and as a result the company took a while to reshape its business strategy to accommodate JBoss.

Meanwhile the company has seen its EMEA independent software vendor (ISV) base double since January this year. It now has 863 ISVs on its books in that region alone.

But despite reaching what Knoblich described as "critical mass" with Red Hat salesmen, particularly in the UK, the firm still needs more "scalability" to bring its products to market.

"We have 3,000 people worldwide, we are tiny tiny tiny compared with the thousands of Oracle people and thousands of Microsoft people so we know there's plenty of work to be done," he explained.

Knoblich said Red Hat was continuing to pump resources into the channel in a move to compete with Oracle's juggernaut of a sales team.

Red Hat, like many other open source vendors, is glad Microsoft was forced into a corner over its interoperability game play following a two-pronged attack from regulators and the market.

"I wouldn’t go so far as to describe Microsoft as open source friendly but they played the right way by opening up their standards and interfaces that allows you to write optimised drivers for Windows in a virtualised environment so that you get much better performance," he said. "But they haven’t done this voluntarily."

Cheerily for Red Hat, a year on from the company's CEO Jim Whitehurst declaring a five-year strategic plan to penetrate the mainstream market in the eye of the gloomy economic storm, customers are more serious than ever about an alternative solution to proprietary software.

"Even if the economy recovers, people will now keep adopting open source. The train has left the station, this open source train is moving and no one is stopping it," Knoblich said. "Microsoft will tell you it will slow down, we’ll tell you it will accelerate like crazy, but the truth is it’ll probably stop somewhere in the middle.” ®