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Red Hat: Focused on Customers, Not Competitors

Posted in Finance, Fork, Free/Libre Software, FUD, GNU/Linux, Marketing, Microsoft, Novell, Red Hat at 1:00 pm by Shane Coyle

In their quarterly earnings report conference call yesterday, Red Hat was repeatedly asked about just how much pressure they have felt from Oracle and Microvell.

The numbers indicate that Red Hat feels no pressure, in fact they feel they are benefitting from all of the press coverage on Linux and open source caused by Uncompatible Linux and Microvell. Rumors of Red Hat’s demise seem to have been greatly exaggerated.

Some of the results posted by Red Hat in the face of this two-pronged assault: 12,000 new customers this quarter (30,000 for the year), this year ended with more multi-year contracts that ever before for Red Hat, with renewing customers frequently expanding their Red Hat implementation. So, it doesn’t appear that Red Hat customers are switching in response to either of the recent announcements.

To give you a sense of Red Hat’s customer retention records, here is a tidbit: "98 of the top 100 Red Hat customers have renewed this year, including 24 of 25 (up for renewal) in Q3".

So, that means that Red Hat lost a customer up for renewal this quarter. Oh my gosh! Who could it have been, Credit Suisse or some other "enterprise" customer concerned about Microvell FUD? No, it’s funnier than that…

Tim Klasell – Thomas Weisel Partners
Just a quick question on the 24 of the top 25 deals that closed in the quarter, last time when somebody did not renew, you sort of gave the circumstances around that. Could you provide that now? And then one follow-up.
Matthew Szulik
What circumstances would you like. Tim?
Tim Klasell – Thomas Weisel Partners
Why didn’t the customer renew?
Matthew Szulik
It became a competitor during the quarter.

Some analysts are questioning if that customer should remain a competitor next quarter, at least with its current offering:

Mark Murphy – First Albany
Thank you. You are saying that competitive actions are actually expanding your opportunity. You were not saying that in early November. What did you see happening toward quarter close that has emboldened you here to make a longer-term statement like that?
Charlie Peters
I think probably the difference is in early November, although there is an incredible amount of press — in fact, all of you guys wrote an awful lot, and so there was an awful lot of noise. And we were still working with the customers trying to understand their positions and understand the competitive offerings. I think as the quarter, particularly within the month of November went along, it become much clearer. The open source community contributed very heavily in blogs and other things trying to shed light on competitive offerings, which were helpful to us and helpful to customers to understand what was really been offered. So, it certainly did become clearer as the quarter went along. There is lots of talk about open source software. Lots of talk about Linux and middleware, and invariably when that kind of talk happens, when people talk about Red Hat and there’s an awful lot of advertising went on about open source software so that people think about Red Hat.
Matthew Szulik
Mark, let me just add to that. Management in the last 90 days has traveled around the world and has expected both the current installations that our leading customers have spoken with OEMs and third parties, as well as participated actively with prospect case. I think just to reaffirm Charlie’s comments, although the marketplace is certainly competitive, customers continue to reinforce the value that they get from doing business with Red Hat and open source software.
Mark Murphy – First Albany
Then Matthew, just as a follow-up, our own survey of Red Hat customers showed that Oracle’s Linux is essentially irrelevant to your customers in a lot of ways and we have also spoken to Oracle’s own resellers, and they have actually been unable to figure out where to order the product from. And there is other feedback showing that Oracle’s Linux is extremely buggy, and it keeps crashing, and Oracle has generated quite a bit of backlash and animosity from the broader open source community towards Oracle. So, I guess the question is, is it realistic to think that Oracle is just going to ride this experiment into the ground, or would you expect them to possibly withdraw their offering from the marketplace?
Matthew Szulik
Mark, I like the famous basketball coach at UCLA, John Wooden, used to say, we’re focused on the success of our customers. We are focused on expanding the opportunity for open source software through initiatives like OLPC with RHEL 5, RHN 2.0, the expanding JBoss middleware stack, and I have to be frank with you, I don’t spend a whole lot of time thinking about the operational issues and the Oracle operating system product. We are focused on making our customers tremendously successful with open source software.

Amazing, while abiding by the spirit and letter of the GPL, Red Hat can simultaneously deliver service to their customers, value to their shareholders, and respect to the community and increase their customer base by thousands in the process. Novell sold their soul to net one client to date. Is Novell sure they have the right philosophy?

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