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Red Hat: Where recessions are good news

Economic downturn antidote

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Open...and Shut While Silicon Valley is still bubbling like it's 1999, tech investor Mark Suster thinks the flailing job market and imploding stock market is a warning to entrepreneurs: raise what money you can as fast as you can, because life is about to get much harder, even for web companies.

But at least one company must be looking at the impending doom and smiling ear to ear: Red Hat. Quarter after quarter, through good times and bad, Red Hat delivers excellent performance.

In fact, Red Hat is one of those rare companies that may well do better, the worse the economy gets. The reason is that Red Hat offers what few companies can: better solutions at a markedly better price. Red Hat CFO Charlie Peters notes that the company changes its marketing message "ever so slightly" based on the economic climate: "When times are good, the company stresses the value of its software. In a down cycle, it talks about the cost savings, a message that resonates with customers whose budgets have been slashed."

Either way, Red Hat and its customers win.

In fact, Red Hat's customers are not only sticking with it, but they're pushing more and more of their budgets to the open source giant. Hence, in Red Hat's latest quarter its top-25 customers all renewed, and at 130-per cent of contract value. Each quarter, the company announces more deals in excess of $1 million. This last quarter it had 14 of them, while last year in the same quarter it had 11.

Open source, rightly or wrongly, has come to imply "lower prices," even as it increasingly suggests security, flexibility, and innovation. Red Hat, center of the Linux universe, benefits handsomely from these adjectival associations, even as it helps to drive the open-source ecosystem. This week saw Red Hat announce the introduction of Java EE 6 into its cloud offering, while June saw Red Hat up the ante against VMware in virtualization. Red Hat is becoming a serious cloud competitor, an area (along with virtualization) that should continue to rise even despite the downturn.

Or because of it. Just like Red Hat.

Red Hat has the right formula for a recessionary economy, wherein CIOs must figure out how to do more with less. It still has plenty of hurdles to overcome. Its success in virtualization and cloud is by no means assured, and there's also the risk that the more computing moves to the cloud, the less companies will be interested in Red Hat's bread-and-butter Linux-and-JBoss businesses.

But for now, while I doubt Red Hatters are gauche enough to celebrate a recession, they're almost certainly going to clean up because of it.

Matt Asay is senior vice president of business development at Strobe, a startup that offers an open source framework for building mobile apps. He was formerly chief operating officer of Ubuntu commercial operation Canonical. With more than a decade spent in open source, Asay served as Alfresco's general manager for the Americas and vice president of business development, and he helped put Novell on its open source track. Asay is an emeritus board member of the Open Source Initiative (OSI). His column, Open...and Shut, appears twice a week on The Register.

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