Q&A: Red Hat CEO Matthew Szulik

At Red Hat Summit on Thursday, CRN Senior Writer Paula Rooney met with Red Hat CEO Matthew Szulik to discuss the company's channel, services strategy, product and market plans. This is the first installment of a two-part series that focuses on questions about Red Hat's channel plans.

Szulik took exception to a CRN article on Thursday which posed that the lack of a channel program is hurting Red Hat's business. Red Hat has signed up more than 140 systems integrators and is committed to launching a channel program when the company and the market are ready. Below are excerpts from the discussion.

CRN: Last year, CRN talked to Red Hat Vice President of Partner Development Mike Evans and he said Red Hat would launch a channel program. Will Red Hat still have its own program or will it use OEM channels and business partners of those OEMs?

Szulik: No [it won't be outsourced] I think the approach companies often take is they run out with a channel program and Red Hat has matured to the point where we want to make sure we understand about delivery of services to customers and we work with partners to see the readiness of the channel and address certification, demand creation and margins, as compared to running out with 'great' channel program that's not economically not viable, or not executed well, or margins are bad or there conflicts with sales. But we are making great strides that perhaps are not visible.

CRN: So the development of the Red Hat channel is still in process? Absolutely. Don't get on the wrong side about out channel strategy. We've told investors that 70 percent of the business will be indirect. What we're trying to do is make sure we understand what we'll do on a sustained basis.

CRN: What is the status of the development of the Red Hat channel?

Szulik: Yes, we've been doing training and education of the partner channel. All of our business is indirect in Europe, Asia and federal government is all through resellers. I don't think we should do something reckless by making bold announcement when we need to be patient and take it day by day, and identify resellers in each vertical. Like Landmark Graphics in the oil and gas industry. I want to make sure we have technically qualified partners and we deliver value. It's an evolution.

CRN:Where do you see the most growth?

Szulik: The next wave of markets we're witnessing growth are in regulated markets, because of the [compliance] pressures, banking, pharmaceuticals, government.

CRN: So Red Hat is expanding footprint into verticals. Can you talk about SMB?

Szulik: It's happening naturally, a technical labor force is available and reseller network and ISV community and IBM HP ecosystem and third party application availability continues to improve. It's evolutionary.

CRN: How many customers to you have in SMB market? Szulik: We generated 10,000 new customers in the last quarter. SMB is a growing presence. I was surprised about the number of smaller business [in that number].

CRN:How are these customers being served?

Szulik: Through IBM's channel, HP's channel, Dell, through Tech Data and Ingram, two-tiered distribution network. While all this is going on we have to train, educate and have resellers now selling SCO, or HP UX or Solaris, educate them and demystify Linux and open source. That takes time. We've been in the process for 18 months. It's not like you can snap your fingers and 40 of most productive resellers show up in North Carolina. It's about making it economically viable for them.

CRN:What is the biggest challenge involved?

Szulik: The biggest challenge is education, demystifying open source, and we have to see if they can make a financial commitment. IBM and HP have been great. They bring together 5,000 resellers we have begun to educate. Intel also had a number of channel relationships we can educate.

CRN:How many systems integration partners do you have now? Earlier a Red Hat spokeswoman said more than 140.

Szulik: I don't know but she knows the number.

CRN: Does the Red Hat channel include any large systems integrators?

Szulik:: There is interest there. I have not sensed to date. They are a large financial community. It has nothing to do with Red Hat but whether [these firms] see economic opportunity.

CRN: Many enterprise customers here at the summit say they have large internal IT staffs. Do you think as Linux moves downstream we'll start to see development of channel?

Szulik: We just rolled out the Red Hat Directory Server yesterday and you're starting to see we have all the critical components the OS, global file system and directory ..that now gives us the credibility to go to regional integrators and regional resellers with a robust a robust set of offerings beyond the Linux OS on which they can build value add. What we're trying to do is make sure we understand what we'll do on a sustained basis. Guys talk about having a great channel strategy and then you write about how poorly implemented it is, conflicts with direct.

CRN: But there have been successful channel models Red Hat can mimic. How about Microsoft's channel model?

Szulik: It's a different society. It's a different world. It's a Web based world and we need a new set of services. We're not selling products where they can make margins.

CRN: What has Red Hat learned about the emerging open source model to date?

Szulik: It's young and immature. It will look different and it will be electronic, not physical installation of product. We don't want to corrode or get in the way third party partners. I'd say Rackspace is a third-party reseller, and it is an all online service. IBM's IGS. That's a pretty good partner, I think. I just think new models will be different and we want to make sure we come out with a channel umbrella where we don't do anything to contaminate the integrity of these relationships.

CRN: We've seen cottage service industries spring up around top open source projects such as Apache and Mozilla. What do you think of these?

Szulik: You've got to get financing. All of this is expensive. In Q4, our expense rate was 38 and 40 million. How do those firms get capitalized to create an infrastructure for services. Venture funding is opening up.

CRN: But you do believe a channel model is viable in the open source world?

Szulik: Economically, it has to be. Look at the economic exhaustion of proprietary models. The cost of software is plummeting so where is the margin and volume? We won't see development of CRM that takes four years to be deployed. Look at Salesforce.com. There will be other electronic models.