Red Hat insists rivals not gaining

Leading Linux vendor dismisses suggestions it is losing its foothold; IDC analyst notes that market share shouldn't be Red Hat's biggest worry.

SINGAPORE--Facing increasing competition from rivaling Linux vendors that include Novell and Sun Microsystems, Red Hat rejects suggestions that it is losing market share.

Responding to ZDNet Asia's query Thursday during the launch of Red Hat Enterprise Linux 5 and Exchange, Scott H. Crenshaw, the company's vice president of enterprise Linux platform business, said: "I've seen no data to suggest that we're losing market share."

Crenshaw added that Novell's revenues from its Linux products are nothing to shout about.

According to Novell's preliminary results for its first fiscal quarter this year, ended Jan. 31, the company earned US$15 million in revenues from its Linux platform products, an increase of 46 percent over the same quarter last year.

Red Hat's latest revenue figures revealed a 45 percent increase to US$105 million, of which 84 percent were from recurring subscription contracts.

According to Rajnish Arora, research director of enterprise servers and workstations research at IDC Asia-Pacific, Red Hat still leads the Linux market in the region and globally.

While IDC does not break down its research numbers according to the different Linux distributions, Arora said in a phone interview that "Red Hat is completely dominant, by far and the largest" player. "It would be fair to say that they have more than half of the [Linux] market in the Asia-Pacific region," he said, adding that the vendor has maintained its sizeable market share in the last five to seven years.

However, the analyst acknowledged that Novell has emerged as a viable competitor, making it very much a two-horse race between the two Linux vendors.

"Novell has definitely become more active and bigger in the market since it took over Suse, and largely because it has a market in terms of ISV (independent software vendor) relationships and channel network," Arora said. He added that Novell also has a large Netware install base, which it was able to retain by providing a roadmap to Linux.

Arora noted that Red Hat must continue to innovate to stay competitive because it is "not the only game in town", especially with vendors such as Oracle coming out with a strategy to offer cheaper support on Red Hat Linux.

"Things like this can stray customers away from Red Hat...and erode its market share if the competition becomes stronger," he said.

Turning 'free' to fee
To cement its market leadership, Arora said, Red Hat needs to continue working with ISVs to help strengthen its market presence in the region.

"It is still a fairly small organization in the region, so they need to all the more drive their channel strategy and ISV network to grow their business," he explained.

"The ISV play is extremely important because, at the end of the day, customers will choose a certain OS primarily based on how many applications are available on that platform."

Red Hat, Arora added, already has a good mindshare in the market. It needs to then use this advantage to grow its ISV network and encourage application vendors to optimize their software offerings on the Red Hat platform.

Crenshaw also underscored the importance of channel partners to the company's overall strategy. According to Gery Messer, Red Hat's president of Asia-Pacific and Japan, 80 percent of the vendor's business come from its channel network.

Citing figures from IDC, Crenshaw noted that the Linux ecosystem, which encompasses services and applications, was worth some US$18 billion last year. This figure is expected to grow to US$40 billion by 2010, he added.

"We have no interest in being a market of one," he said, emphasizing Red Hat's focus on nurturing its channel network.

He added that the company's commitment to deliver its customers "value" remains unchanged and is further extended with this week's announcement. Together with the launch of Red Hat Enterprise Linux 5, the company also unveiled a new service level agreement (SLA)--summarized to a single page--to provide a simplified support structure for its customers, Crenshaw said.

Arora also noted that the Linux vendor needs its partners to help persuade customers who are still using Red Hat's freeware version of Linux, Fedora, to move to a subscription version.

"At the moment, one of Red Hat's biggest challenges isn't about fighting it out with Sun Solaris or Novell Suse or Microsoft Windows. Rather, the challenge for them right now is that a lot of their customers aren't paying any subscription fees," Arora said. "So if I was Red Hat, I wouldn't be worried about Novell or Microsoft, but about customers who aren't paying me today."

"The biggest challenge is actually converting customers who are already using Red Hat [through Fedora] to the subscription model," he said.

According to Crenshaw, to date, Fedora has been downloaded over 2 million times.