While proprietary file formats and illegal tying have no doubt contributed to Microsoft's dominant market position in operating systems, office productivity suites, and more, the real secret to Microsoft's success is the channel. Take away Microsoft's exceptional channel execution--up to 96 percent of Microsoft's revenue comes through partners--and you take away Microsoft's market dominance.
It's therefore not surprising that Red Hat, Microsoft's rising open-source competitor, has been aggressively focusing on its channel, culminating in this week's announcement that it has created the Open Source Channel Alliance, by which it will promote a range of open-source companies, including Alfresco, Zimbra, and EnterpriseDB, through SYNNEX, a distributor with ties to over 15,000 system integrators.
Let the games begin.
This move positions Red Hat at the center of a growing open-source ecosystem, as Glyn Moody suggests, and capitalizes on the accelerating pace of enterprise open-source adoption.
In some ways, this is the next logical move beyond the Red Hat Exchange program, Red Hat's initial attempt to corral the open-source ecosystem by providing a one-stop shop for buying open source under the Red Hat banner.
The Open Source Channel Alliance, however, promises to be more successful as it broadens distribution for open-source vendors, rather than trying to funnel it all through one company (Red Hat) and one Web site.
Again, the real lesson from Microsoft's impressive growth isn't its run-ins with the U.S. Justice Department, but rather its focus on enriching itself by enriching its partner channel. Red Hat is taking the right page from Microsoft's playbook by focusing on the channel and seeking to help its partners even as it helps itself.
It's a new shift for Red Hat, one for which many of us have been waiting for a long time.
Disclosure: I am an employee of Alfresco, one of the founding members of Red Hat's Open Source Channel Alliance.
Follow me on Twitter @mjasay.
I'm at a Red Hat channel event, listening to Toni Clayton-Hine, managing director of The Institute for Partner Education & Development at CMP Media, talk through software acquisitions in the recessionary economy, especially as it pertains to business partners (resellers, system integrators, etc.).
CMP Media surveyed 250 North American partners to try to get a read on their customers' spending priorities and directions, as well as channel priorities for 2009.
The data are interesting:
- Economic uncertainty is pushing companies to prove technology before buying it, which skews toward open source, which is all about trying before buying;
- There are fewer trusted options. Many vendors meet or exceed requirements, so buyers want to spend with brands they trust. (Note: Ironically, the "try before you buy" mentality will not always mesh well with this requirement, due to conflicting licensing models);
- End customers are planning smaller initial projects, with incremental add-ons. (Advantage: open source and SaaS, since both allow vendors to start small and grow organically);
- Forty-eight percent of end customers are looking to streamline business processes, rather than endure pure cost cuts. Basically, they want to spend money more efficiently, rather than simply cutting heads;
- Seventy-five percent of end customers are buying some version of managed services, but the definition of "managed services" is quite broad;
- Twenty-seven percent of channel partners expect to grow their business by more than 15 percent, 40 percent expect to grow their business by 5 percent to 15 percent, and 24 percent plan no changes, suggesting that IT spending may not crater as much as expected in 2009; ... Read more
Where End Customers Plan to Spend Budget
With as much as 60 percent of Red Hat's $680 million in FY 2008 revenue coming through its partner channel, The VAR Guy reaches a cogent conclusion: "Red Hat-driven solutions are likely a multi-billion channel opportunity now."
Granted, Red Hat's top competition like Microsoft pushes even more through its channel, but let's not forget that Microsoft is a proven entity. Red Hat, on the other hand, is training a new generation of VARs and system integrators to work with Linux and open-source solutions. It has to be both evangelist and business at the same time.
The results look pretty good:
...Red Hat is signing up roughly 8 to 10 new Advanced Business Partners per quarter. But this is more than a Linux story, folks. Roughly 40 of Red Hat's top Advanced Business Partners now sell JBoss middleware solutions, and 29 of those partners focus primarily on JBoss and have yet to take the Red Hat Linux plunge....Another key stat: The recent Red Hat Summit in Boston attracted 3.5 to 4 times as many partners when compared to the 2007 summit.
This is awesome. I'd find it fascinating (and profitable :-) to understand better how Red Hat entices and makes productive this swelling crowd of partners. Europe has traditionally been partner-driven for many software businesses, but the United States, in particular, has tended to prefer a direct model.
What is Red Hat's secret sauce for generating partner interest and productivity in the Americas?
Todd Barr (Director of Marketing at Red Hat) has a great post about open-source revenue mechanics and how they shift as an open-source company becomes an established player. Net net: giving away free software is great for driving adoption, but an open-source vendor needs to figure out more than how to give things away to build a great business.
Sound simplistic? Just try it. Sexy as open source is, you spend far longer ramping revenue (revenue, mind you, not bookings/sales) to cover expenses than you would in a typical proprietary license-based software model, as Todd points out. I've argued that open-source startups have benefits that proprietary vendors can't match (a focus on ubiquity, for one thing, and the attendant benefits that derive from "abundance"), but it's not easy sailing.
Todd writes:
So, start-up open source companies necessarily need low-cost, high-impact marketing tactics. And, by golly, providing awesome software to download for free is a great tactic - it drives a lot of web traffic, builds your brand, helps you get your early adopters, and quickly builds a community of advocates that might buy your value-added services in the future. But the free download tactic is less relevant to the challenges of a mid-sized company:
... Read more
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