Linux.SYS-CON.com Analysis: Red Hat Sales - How Do They Do It?

Jul. 26, 2004 12:00 AM

On June 17, 2004, Red Hat announced what I would call a good a good 1Q05 (the quarter ended on May 31, 2004). The revenue for the quarter was $41.6M - a 53% year over year increase. That number will likely change with Red Hat's re-statement of its revenue after PricewaterhouseCoopers found a "flaw" in their accounting for subscriptions. Red Hat will now start recognizing subscription revenue on a daily basis over each contract term. My understanding is that PricewaterhouseCoopers uncovered the flaw on June 16, 2004, the day before the 1Q05 earnings were announced and well after Kevin Thompson privately told Red Hat that he was stepping down as Red Hat CFO. PricewaterhouseCoopers is the new auditor of record as part of the required rotation of audit partners every five years.

Following the 1Q05 announcement, Red Hat's stock prices dropped several dollars per share even though the quarter produced very good numbers. The thing that I find interesting in the quarter's announcement (I'm a little late to be talking about a quarter announcement that took place a month ago, but bear with me) is the growth rate in the number of subscriptions. Sales of subscriptions reached 98,000 for the quarter with 75,000 subscriptions sold into the enterprise market and 23,000 subscriptions sold into the high performance computing and hosting markets. In addition, the renewal rate for subscriptions sold in previous years was about 85%.

The question of interest is isHow does Red Hat reach sales of 98,000 subscriptions in one quarter?

Having great high brand recognition and more than 450 ISVs certified to run on RHEL is part of the answer, but there is more to it than that. Red Hat has several ways that it sells:

Direct sales to big customers.
Sales through IHV (and Premier Alliance) partners such as Dell, HP, IBM, and others. Dell and IBM now pre-load RHEL, if requested.
Sales with other Premier Alliance partners such as BEA, BMC, Oracle, Veritas, and Wind River.
Distributors such as Avnet, Ingram Micro, KeyLink Systems, and others.
Inside sales to customers, usually small customers, through lead generation.
Web sales via the Red Hat Store for RHEL AS, ES, WS, Red Hat Desktop, etc.
Sales that result from relationships with over 450 ISVs.
Sales to Fedora users who move up to RHEL.

Some sales result from customers just calling Red Hat because of their high brand recognition. Red Hat generates these sales with just over 50 sales staff. There is nothing magical about how Red Hat sells so many subscriptions. Having many of the large ISVs certified to run on RHEL, great brand recognition, good focus on targeted markets, and hard work is making Red Hat successful.

Published Jul. 26, 2004— Reads 5,381
Copyright © 2004 SYS-CON Media, Inc. — All Rights Reserved.
Syndicated stories and blog feeds, all rights reserved by the author.

About Bill Claybrook
Bill Claybrook is President of New River Marketing Research, a marketing research firm that focuses on Linux, open source software, and commercial grid computing. He performs primary research and helps marketing organizations plan for new product offerings and develop go-to-market strategies, as well as develop marketing analysis content. Prior to entering commercial computing and marketing research, he was Associate Professor of Computer Science at Virginia Tech and the University of Connecticut, as well as Professor of Software Engineering at the Wang Institute of Software Engineering.

Enterprise Open Source Magazine Latest Stories . . .

Oracle Tries Caesar’s Divide & Conquer Tactic

By Maureen O'Gara

Oracle seems to have divided the open source ranks over the MySQL delay it’s having closing its acquisition of Sun. Eben Moglin, the GPL’s most ardent defender and delineator, the lawyer who has worked hand in glove for years with the Free Software Foundation’s founder Richard Stallman...

Cloud Expo New York Call for Papers Deadline December 15

By Jeremy Geelan

Cloud computing is a game changer. The cloud is disrupting traditional software and hardware business models by disrupting how IT service gets delivered. Entrepreneurial opportunities abound as this classic disruptive technology begins to proliferate, so it is no surprise that SYS-CON'...

Oracle Faces Growing Price for MySQL

By Dana Gardner

The irony is that Oracle has advanced MySQL, lost money in the process, and helped its competitors - all at the same time. When Oracle buys Sun and controls MySQL the gift (other than to Microsoft SQL Server) keeps on giving as the existential threat to RDBs is managed by Redwood Shore...

Extending SOA to Cloud Computing

By Liz McMillan

WSO2, the open source SOA company, today announced the launch of the WSO2 Cloud Platform. Available today, the new WSO2 Cloud Platform features a family of WSO2 Cloud Virtual Machines; WSO2 Cloud Connectors for enabling fast, secure cloud services; and the multi-tenant WSO2 Governance-...

Thunderbird Connector for Open-Xchange Now Available

By Glenn Rossman

Now, the open source Mozilla Thunderbird client software can be used with Open-Xchange collaboration software. The "Community OXtender for Thunderbird" software connector gives users full access to appointments and contacts stored in the Open-Xchange Server and enables them to use Thun...

Morph Labs Announces Private Cloud Trial Kit

By Liz McMillan

Morph Labs, a leading provider of enterprise cloud computing technology, today announced an introductory trial of the Morph CloudServer, an open, standards-based server IT organizations can use to rapidly model and evaluate their cloud implementations. A miniature "Cloud Environment in...