Red Hat Ramps Up Channel Efforts

Red Hat's indirect channel now accounts for more than 60 percent of company sales and its partner force is growing, executives said Tuesday.

At a briefing held one day after announcing its intent to buy open source middleware firm JBoss, Red Hat told a group of investors that it is expanding its focus on VARs and systems integrators to broaden global uptake of Linux products and services.

JBoss has primarily a direct model but will leverage Red Hat's channel "where it makes sense," JBoss CEO Marc Fleury said during the briefing in Raleigh, N.C.

Today 61 percent of Red Hat's business moves through indirect channels including OEMs and systems integrators. But now that the OEM business is established, Red Hat is turning its attention to its distributors and volume- and value-added resellers in the U.S., said a Red Hat executive who has been running its channel for two years.

"Two years ago our model was a direct relationship with customers," said Ed Boyajian, vice president of worldwide OEM and North American channel sales for Red Hat. "We had to go through a transformation. To create leverage and scale, we knew we needed to have engagement with partners to drive that business."The company recently invited 12 of its current U.S. VARs and a few prospective partners to discuss trends and Linux uptake, Boyajian said.

The conclusion? The time has come for a Red Hat channel, he said.

"Partners reported that customers are now coming to them and they say it's an important shift from even a year ago," said Boyajian. "It's a better indication the mass market is truly materializing because they're going through traditional trusted relationships with partners for their expertise. In the past we pushed ourselves into those partnerships and now we're seeing a transition with partners coming to Red Hat."

Red Hat will expand its channel base of partners with Linux expertise to serve the enterprise and SMB markets but it will be a selective group, he said.

"Our strategy is not to put thousands of channel partners on the street but those that can best align with our interests," the channel chief added.He said he expects the channel to mirror Red Hat's model of segmenting customers by size and geography. Red Hat operates four-tiered sales coverage model segmented by strategic accounts, Global 3,000, small-to-medium enterprise and small business.

But Red Hat pointed out that it is also growing its sales force "on the ground" to work directly with customers globally.

Until the deal with JBoss is closed, executives cannot discuss how they plan to integrate the sales forces and partners but acknowledged that the deal could impact quotas and commissions for each company's sales team.

Marc Fleury, CEO of JBoss, whose acquisition by Red Hat is expected to be finished by the end of May, said he hopes to leverage the Linux leader's global support and sales team to broaden use of JBoss and channel partners "where it makes sense."

"We're primarily direct inside sales with some indirect, but it's a very different mix. It goes back to products and pricing models," Fleury said, noting that the OEM channel is accustomed to selling operating systems-on-the-box and can consume and scale that software more easily than middleware. "The middleware sale is very different. It's enterprise software sale and it's a different pricing point.""We're nowhere near [the] mature structure Red Hat has developed on channel partners," Fleury said. "We have different pricing models and products but [Red Hat] has an excellent infrastructure we'll leverage where it makes sense for us."

Mike Evans, a vice president at Red Hat, said during the four-hour briefing that the company now has 2,200 ISVs in its ecosystem and is beginning to diversify ISVs by vertical markets and product expertise.

For instance, the Linux company is focusing partners on the oil and gas as well as telecom industries, and partners with expertise in storage, security, desktop and directory products as well as Red Hat Network.

Evans, who has worked to develop Red Hat's service partners and ISVs for several years, said the tide is turning in the channel's favor.

"Commerce in technology markets are driven by change and that’s what drives revenues for VARs and SIs," Evans said Tuesday. "When customers deploy new systems and migrate, Red Hat and the OS are the single largest catalysts of change. We're at the early stage still so when we hear channels coming to us and ISVs coming to us, the enthusiasm is about to change."Meanwhile, Red Hat's government business unit has worked with a variety of value-added resellers in the government sector for some time, said Paul Smith, vice president of Red Hat's sales operation for GBU.

Smith said systems integrators – both large ones like Lockheed Martin and smaller specialized value-added resellers – are responsible for 78 percent of all IT spending by the U.S. government – estimated at $64 billion annually.

Red Hat has done ample "tackling and blocking" to develop a channel model that enables OEMs to receive margins on service and support since margins on standard hardware are thin, said Boyajian. But he did not disclose its incentives or margins for resellers and systems integrators.

Tim Yeaton, vice president of worldwide marketing for Red Hat, said the deal with JBoss will broaden the company's set of offerings to channel partners.

The marriage will also enable JBoss to leverage the presence and trusted role of Red Hat in thousands of enterprises. "We're collaborating for the benefit of customers and partners to create the effect of a rising tide that floats all boats," Yeaton said.0