Red Hat: Savings of $5 to $10 per server not motivation to leave us

Red Hat: Savings of $5 to $10 per server not motivation to leave us

Summary: Red Hat's third quarter went well and the company had bookings of $133 million, well ahead of what analysts were looking for. Meanwhile, the company said 28 percent of its bookings were multiyear deals.

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TOPICS: Open Source
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Red Hat's third quarter went well and the company had bookings of $133 million, well ahead of what analysts were looking for.

Meanwhile, the company said 28 percent of its bookings were multiyear deals. As expected, any competition from Oracle isn't showing up yet in Red Hat's results. "Clearly, the doomsday scenario that some investors feared regarding the entrance of Oracle  into the enterprise Linux arena and the ramifications of the Novell/Microsoft partnership did not materialize in the quarter," said W.R. Hambrecht analyst Robert Stimson.

However, what really sticks out of Red Hat's results were the following comments by Red Hat CEO Matthew Szulik (See SeekingAlpha transcript).

"This past week I was at one of our largest customers, which is in the financial services business, and by his statements he made it very clear that saving $5 to $10 on an operating system on a per server basis was not very motivating to him. And as more and more customers move from analog-based models to digital-based businesses, their expectations for the performance and the strategic value of their computing infrastructure rises in importance. And most importantly, as evidenced by our continued strong growth in renewals on a year-over-year basis, they feel that they are getting very strong value from our business as it relates to the pricing question. Certainly, of course, in the enterprise and in the volume that we are selling there is a certain level of discount. But I will defer to Charlie to provide you the specifics."

CFO Charlie Peters then chimed in:

"In pricing we have always been competing against free Linux as one alternative and we have our own, Fedora. There have been other very price competitive distributions in the market. So, I don't think there has been anything new in that regard. And what we have done for at least the last two and a half years was very disciplined pricing approach with our sales guys. I believe, we have stuck to that sort of a pricing model. As regards renewals, in the last 12 months, we have renewed 98 out of 100 of the largest deal up for renewal, including 24 of 25 this quarter."

By the numbers Red Hat appears to overcome any noise from Oracle's Unbreakable Linux announcement. If anything, Oracle gave more exposure to Linux, which wound up helping Red Hat, said Peters.

"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."

Do I buy all of this? Not completely. It's too early to know what impact Oracle will have on Red Hat's business. Although that one customer of Red Hat wasn't going to budge for a savings of $5 to $10 per server, conditions change and other companies may go for cost cutting. After all, if you save $7 per server on 20,000 of them that's $140,000 saved.

What remains to be seen is whether that savings is all that important after factoring in switching costs. The other wildcard is how much do you trust Oracle to hold its pricing once it reels you in. Officially, the jury is out, but Red Hat has allayed a lot of fears for now.

Topic: Open Source

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5 comments
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  • A real threat to RedHat.

    Unbreakable Linux a real threat to RedHat? Unless you have experienced other Oracle products and Oracle's ridiculous incorporation of other technologies for market hype or their patching and versioning strategies you don't know what you're talking about. As an IT Manager with tons of Oracle experience, on Windows, Linux and Solaris, Oracle's Linux distro is something I will never use. As a consumer its not something I asked for or need and quite frankly something they have set themselves up to fail with. Why do I say this? Because of a little know economic principal called specialization or division of labor, they are throwing to the wind in a thinly veiled attempt to get back Fleury and RedHat for the JBoss deal. Quit screwing around Oracle and focus on your main product. Thats what the customers want. The database. Remember?
    night_watchman
  • Not motivating for him maybe, but definitly a motivator for the customer

    "he made it very clear that saving $5 to $10 on an operating system on a per server basis was not very motivating to him. "


    $5 per day on a server OR
    $5 per year on a server.

    Not motivating for him maybe, but definitly a motivator for the user to save big bucks.
    zzz1234567890
  • 2008

    2008 will be the year of linux on the desktop!!!!

    Arthas
    JamesNT
  • There will never be a linux desktop

    If by 'Linux' desktop you mean free linux desktop, there will never be a year of the linux desktop. There are just too many unfinished and unpolished aspects to desktop linux for maintream users.

    On the other hand, you can sign me up for OSX and that means that a Linux distro that completely revamps the desktop **may** gain traction. However, with the beauty of OSX and Vista, Joe Consumer is going to have high standards for fit-and-finish.
    ITTech001
  • Microsoft is sucking your money and their warez sucks big time!

    Note: MS would make ZERO dollars if it were not for forced installs on OEM machines. MS is going down!
    nomorems