Red Hat offers TCO savings: de Visser
After years of losses, Red Hat, Inc. announced its first quarterly profit ever last month. The company looks at a bright future, while others are struggling to survive. For Mark de Visser, Vice President of marketing with Red Hat, who sees an irreversible change in the market, this is no surprise. De Visser talks about the industry, the struggles in the company, the future of the industry, the community and the road ahead. The bottom line is clear the prospects for Free Software are good.
Red Hat is anything but usual for a company. Unlike others they didn't have to reach break-even in two years, nor be profitable in three years. The last eight years the financial results were all written in red, while the company gained a position as a leading GNU/Linux distributor. But while others still struggle to remain profitable, Red Hat posted its first profit ever (US$ 305,000 on a turnover of $24.5 million) and they expect better results to come.
"When other companies claim big savings in TCO because of Linux, every CEO has to ask himself the question if their organization could afford not to use Linux" says de Visser, 50. He says cost savings are driving businesses in the current economy. "Costs were irrelevant in 1998/1999, but that's different now. People look at the ROI of purchases." De Visser is convinced that the savings also cause a growth in turnover (21%) that is substantially higher than the industry.
A much-publicized Microsoft-sponsored IDC study that claimed a TCO advantage for Microsoft doesn't change that one little bit. De Visser points out that if you tweak parameters enough any result is possible. He says that upgrade costs for new Windows releases and Microsoft's Client Access Licenses (CAL) were left out of the research. Since the study assumed that Windows-using companies would stick to the same version for five years without an upgrade, it couldn't take into account the ever continuing price increase of Microsoft licenses. "Wall Street expects growth. A monopolist hardly ever gains market share, so prices must increase to earn more money," de Visser said.
The IDC-report doesn't really have that much value for De Visser and he expects any CIO to react the same. He rather looks at the fundamental change from several Unices to Linux that is taking place right now: "For businesses these savings are more visible on the surface. Companies replace the underlying hardware platform with Intel, while most of the software will still run just fine after a recompile. This really is bad news for Sun, not Microsoft. It takes more time to have Microsoft-customers move over, but also that will happen." This savings story is backed up by the fact that about 93% of Red Hat's revenue is now coming from business sales.
Such a number also raises the question if focus will move away from the non-corporate users and the community. "No way," de Visser says. "Without a community we wouldn't have anything to sell in the first place. Also numerous individuals placed us on the map, they have jobs and tell about what they do at home. For us it is a motivation to work harder for them as well and we still need them. We once discussed if we should revisit our policy on delivering our distribution for free through the Internet. But soon we all considered that service as good and it should remain like that."
Still the downloads costs a lot of money. To overcome the costs partially Red Hat turned to a paid service (up2date) for automated updates. People and companies can subscribe their Linux system. Despite the fact that there are several free update scripts to be found elsewhere, the service is a big hit. Last July there were 500,000 subscriptions, but with an average growth of 5-10 thousand new systems per day the service now surpassed the 1 million marker.
The mutual benefits between Red Hat and the community surely pay off. The company has put a lot of energy into the GNOME desktop in the past and now the desktop slowly starts to resemble what corporations like. Also the 1.0 version of OpenOffice is considered a big step ahead. De Visser: "Red Hat 8.0 shows the direction where we want the desktop to be. But before it is really ready to be widely deployed in the business world some additional steps have to be taken." He explains that software like Evolution should better interact with Domino and Exchange mail servers. Also many businesses run applications from Siebel and Oracle. These applications have been written to interact correctly with Microsoft Internet Explorer and thus Netscape isn't an option yet. But by supporting the Evolution and the Mozilla De Visser expects these problems to be conquered in 2003. "If those two issues have been dealt with, we're ready for the corporate desktop," he said.
De Visser has also high expectations from governments to push the movement further. He is aware that leaders elect software sometimes on other criteria, than purely economically. There is a lot of growth in that market and some countries are at the very beginning. For some nations free software will make software affordable that would otherwise be out of reach. In Europe especially, the German distributor SuSE has been very aggressively gaining market with governments. In Spain there is even a Spanish distribution paid for by the government, that is now being used by thousands of civilians.
Nearly all governments in the European Union have expressed favor for open source in the past, however the Netherlands had never been really outspoken. But at the end of 2002 the Dutch Green Party (Groen Links) published a report on open standards and the value of open source. A motion by the same party in parliament that forces Dutch government agencies to use open standards and favor open source/ free software passed by 127 to 23. By 2006 all departments should have this policy implemented. Joop Wijn (Christian Democratic Party - CDA), Secretary of Economic Affairs, told Parliament he was positive about the plans and would work hard to achieve them, but he also had serious doubts if the time frame 2003-2005 was long enough to achieve the goals. The only party opposing open standards were the Dutch liberals (VVD). When asked for a response to explain their position, they hung up the phone shouting "no comment." It seems that the party that has freedom, people and democracy in their name doesn't want the people to understand their opinion.