Red Hat Stays Focused on Target Market

Red Hat (RHT) executives briefed financial analysts October 6. The key question I brought to the session was,

“Where does Red Hat stand against its previously announced plans to gain half of market share in server operating software (see Feb 14, 2008 entry) and middleware during the 2010-2019 decade?”

Red Hat CEO James Whitehurst addressed the goals out of the chute by explaining differences between revenue and sites when it comes to operating software, and the difference between “paid share of application server workloads” vs. the many unpaid JBoss instances in the market.

Red Hat estimates JBoss already has 30% share of application server workloads vs. a like amount for Oracle (ORCL)/BEA WebLogic and IBM WebSphere. Whether or not this is somewhere between too optimistic and outright delusional, the problem is that most of the JBoss instances result from product-only downloads licensed via open source terms and conditions (Ts&Cs) with no associated subscription maintenance. Which means no accompanying Red Hat revenue. Red Hat recently trifurcated the JBoss/Red-Hat middleware lineup so as to potentially increase the paid instances.

I was surprised to hear--and assuming that I heard correctly--that Red Hat also believes there is as much unpaid Red Hat Enterprise Linux (RHEL) in the market as paid RHEL. That’s not the same as unpaid JBoss, because—while users can get JBoss under open source Ts&Cs—users should deal with the open source Fedora project, not RHEL, if they do not want Linux subscription maintenance. Red Hat is actively trying to “recover” revenue where RHEL is present at no fee. Whitehurst said Red Hat recaptured $2-$3 million of such RHEL potential in its last fiscal year.

Whitehurst provided this data as part of explaining three key Red Hat board-level initiatives in meeting its goals:

• build subscription value

• increase routes to market, and

• encourage mainstream adoption

There are two or more key Red Hat people associated with each of these initiatives, each of these with specific subtasks (e.g., using both the indirect and direct channels to reach market, playing nice with Microsoft (MSFT) to encourage mainstream adoption, etc.). It sounds like there is a very good program for slapping tasks on people's foreheads and taking names when objectives are not met.

Whitehurst also noted that in addition to market and shareholder goals, Red Hat--from a brand point of view--wants to be known as the“’trusted’ open source leader,” trusted being the key word according to Whitehurst. I feel that users don't care what Ts&Cs Red Hat's products are distributed with and that users don't go into the market specifically looking for open source software. Users care that these products are good (and Red Hat's are). This branding approach is especially an issue if the goal is half the operating software and middleware markets.

I was glad to hear Red Hat re-confirm that it is going to stay focused on operating software and middleware (as expanded with virtualization and cloud-computing-related technologies). Whitehurst says he is not looking for apps or database acquisitions.