Red Hat CEO Backtracks From Channel Plans

The Linux software leader will continue to work with "large-scale" systems integrators but won't have a traditional channel program. Its strategy focuses on the enterprise marketplace.
Red Hat will face off against new competitor Novell with Enterprise Linux 4.0 and a full-fledged corporate desktop in 2005--but without a "traditional" channel program in place.

In a brief interview with CRN at the MIT Hotel in Cambridge, Mass., on Monday, Red Hat CEO Matthew Szulik said the Linux software leader continues to work with "large-scale" systems integrators such as Hewlett-Packard and IBM Global Services but won't have a traditional channel program.

With that, Red Hat appears to be backtracking from its stated intention to launch a major channel program at least in the near future. The Raleigh, N.C., company appointed channel chief Mike Evans last February to develop and launch a channel program, which was expected by the end of 2003. CRN could not reach Evans as of press time.

"Is the issue breadth or is the issue depth?" asked Szulik. "We could have signed up 20,000 partners over the last six years. But that was not our strategy. Our strategy is a very clear focus on a marketplace that we are selling to direct, which is the enterprise marketplace. And then making sure we build relationships [so] that when we do build a channel program ... the channel can make money from that and there is no channel conflict."

Novell, which acquired SUSE Linux last December, plans to exploit its global army of channel partners to help migrate its sizable installed base of NetWare customers--and other customers on Unix and Windows--to its forthcoming fleet of corporate desktop and server Linux products.

When asked how Red Hat intends to compete with Novell in the SMB space without solution providers, Szulik left room for future partnering but said the traditional channel model won't work in the Linux space. He questioned Novell's business strategy and said the services business model for Linux is still in development.

"I just don't think we are planning to do that [build a channel program] in the same way that you have historically seen reseller models been built," said Szulik. "We do intend to do that with the likes of Hewlett-Packard and with the likes of IBM that have 10,000, 12,000, 18,000 channel players and [are] consistently working with them to build that channel up."

Noting that Red Hat now has almost $1 billion in the bank after 11 years in business, Szulik said his company has been able to finally get "a little traction" and post profits due to a subscription licensing model in which the technology and services are delivered together.

Before a handful of programmers gathered at the MIT Hotel for the Boston stop of the Red Hat-HP World Tour, Szulik slammed Novell's attempts to become an open-source company.

"We have a new competitor, absolutely, and we think that's good" Szulik said. "[Novell has] historically been a proprietary software company [now] claiming to be open source. Only time will tell [if that business model will work]."

Proclaiming Red Hat as the defining technology company of the 21st century, Szulik noted that his 675-employee company now has 20 locations and last year grew top-line revenue by 40 percent. Gross margins exceeded 91 percent.

During the company's previous quarter, Red Hat added 87,000 new subscriptions and 4,000 new customers, Szulik said.

Red Hat will launch a major assault on Novell-SUSE by launching Enterprise Linux 4 platform, which fully exploits the Linux 2.6 kernel and uses the secure SELinux technology during the first quarter of 2005, Szulik told CRN.

He also said the company will launch sometime in 2005 a major corporate desktop that will address a huge "pain point" of the contemporary computing desktop: security and management.

Other Red Hat executives noted during the briefing that the forthcoming Red Hat desktop will feature a simple user interface and include GNOME 2.6 and/or GNOME 2.8 GUIs; Mozilla browser and possibly FireFox and Epiphany; Evolution 2.0 e-mail client; and server-side features integrated with the desktop, including file-print, mail, collaboration, directory services; and better Microsoft Office file format interoperability.

Red Hat is also considering integrating antivirus and virus detection services into the forthcoming desktop and will tightly integrate Red Hat Network management services with the desktop to enable better management of installs and upgrades as well as improve problem resolution and threshold monitoring.

Red Hat's CEO was clear that the company is going after the server and desktop business, but will attempt to do so only with large systems integrators and its own consultative services arms and sales teams in the near future.

"The [Microsoft] Software Assurance licenses have been paid for. The biggest pain points are security, performance and infrastructure management," Szulik said.