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When Preconceptions Bite You

May 18, 2007, 22:30 (14 Talkback[s])
(Other stories by Brian Proffitt)

By Brian Proffitt
Managing Editor

With all the hootenanny and hubbub about Microsoft's smack talk this week, I felt a little disappointed that I could not share something I discovered at last week's Red Hat Summit. Now's my chance.

My opinion of Red Hat has always been a little bit guarded. Certainly they are the numero uno commercial Linux distributor out there, and their presence on the global IT market cannot help but make Linux recognition better. They contribute a lot of technology to the software cause, too, usually (ahem!) opening it up for the rest of the community.

But there are some things that Red Hat seems a little bit squirrelly about. They like giving partners customized APIs that they don't always share with other distros (hence the clearing of my throat). They are focused on the server side and only pay a minimal amount of attention to the desktop. And they are completely, totally focused on the enterprise, and not the small- to medium-sized business space.

Or... are they? Or has Red Hat been hitting the SMB space all along and yours truly never noticed?

During the course of the Summit, my colleagues in the press and I were given multiple opportunities to speak to Red Hat executives, perhaps to make up for the fact that there's a high PR fence around the company for the rest of the year. There were press conferences galore, a roundtable session held for each geographic group of journalists, and one-on-one briefings.

It was during the US-press roundtable discussion that an interesting factoid came up from CEO Matthew Szulik: every 90 days, Red Hat averages anywhere between 10-12,000 new, paying subscribers. An impressive number, to be sure. But it wasn't until my conversation later in the week with Executive VP Worldwide Engineering Paul Cormier where the real implications of that number came in.

I went into the interview with Cormier with one clear goal in mind: I wasn't going to ask him about when Red Hat was going to have a desktop offering. In my opinion, that question has already been asked and answered. Better, I hoped, to try something different. Since the SMB space is something of interest to me, I went down that line of questioning.

Cormier's response was, initially, to repeat that 10-12k new customer line his boss had mentioned earlier in the Summit, but also mentioned the fact that there are only 500 Fortune 500 companies.

It was one of those moments when someone says something so obvious you initially look at them like they're nuts. But then the implications of the statement actually gel in your brain and you realize that you've been completely blind to something that was always there. There are indeed, only 500 Fortune 500 companies, and if Red Hat is selling to 40-48,000 customers per year, then clearly they are selling to more than just this select group of companies.

Granted, there are more than 500 enterprise-level companies in the world. According the US Census Bureau, there were 16,845 enterprise companies in the US in 2002, and a projected 50,035 in the world. But even then, Cormier's implication works: even if Red Hat were selling to multiple customers within companies (divisions and departments, for instance), they would have worked through all of the enterprise companies a long time ago--and that, of course, assumes they sold to every enterprise firm, which they haven't. I hear there's one in Redmond, Washington that's a holdout, for instance.

There are other, less Zen-like clues to this quiet deployment in the SMB space. When Red Hat announced its new Red Hat Exchange (RHX) online portal at the Summit, one of the RHX partners summed it up very well.

"For us, the big benefit was access to the broader market reach," Helen Donnelly, Sr. VP of Marketing for EnterpriseDB had told me in an earlier interview. "[Such as] the small- to medium-sized business market, the individual user who wants to explore different solutions and is looking at whole ecosystems, and doesn't really want to just look at individual piece-parts."

Donnelly's logic was strong: people who come into RHX are going to be using credit cards to buy individual application stacks and support subscriptions. That's not going to be the enterprise customers. An enterprise customer isn't going to buy just one server at a time. They're going to come in through the channel or direct and buy in bulk. In Donnelly's opinion, the real customers are going to be the SMBs.

When I presented this to Cormier, he was surprised that I thought Red Hat was perceived as only targeting the enterprise.

"Do you think we market only the enterprise?," he asked me.

"Yes, I honestly do, and if I'm wrong, then I'm wrong" I replied, "But that it the impression that I have and a lot of other people have."

"I'm the wrong guy to get into a deep marketing discussion," Cormier said. "But, if you look at the 10-12,000 customers per quarter, as well as look at the people walking around this thing... they're not all working for enterprises."

Cormier also added that in terms of overall sales, it's a 50-50 split between direct and channel sales. "50 percent through channels. Most of the channels are going through the SMB market because we cover the Fortune 500s through the [direct] salesforce."

Is this groundbreaking, earth-shattering news? No, not really. But it does represent a subtle, important change in the perception of Red Hat as an enterprise-only vendor. Apparently, it was moving into the SMB space all along.

"Maybe your article can clear this up," Cormier jibed.

Maybe so.