Red Hat: Four Times Novell’s Open Source Revenue?
When Red Hat announced first quarter results on June 24, The VAR Guy spotted a rather interesting detail: Red Hat’s quarterly open source revenues are nearly four times larger than its closest Linux rival, Novell. Next, can you guess who’s growing faster in the open source market? Here’s the math, and the potential implications.
First, a little background. The VAR Guy is NOT referring to overall company revenues.
- In Novell’s case, our resident blogger is only focusing on Open Platform revenues — most of which involve SUSE Linux sales.
- For Red Hat, The VAR Guy focused only on quarterly subscription revenues — most of which involves Red Hat Enterprise Linux and JBoss.
- The VAR Guy is ignoring variables like Red Hat’s consulting revenues and Novell’s legacy product revenues.
- This is NOT a Linux vs. Linux comparison, since Red Hat’s open source portfolio also includes JBoss.
Keeping Score
So, how do the open source numbers compare? In Novell’s most recent quarter (Q2 2009), Open Platform sales were about $39 million — up from $30 million for Q2 2008. Nice, solid growth. And in recent weeks, Novell has been promoting new channel partnerships and promotions that strive to migrate Red Hat Enterprise Linux customers to Novell SUSE Linux.
But now let’s throw Red Hat into the mix. In its most recent quarter (Q1 2010), Red Hat’ subscription revenues were $148.8 million — up from $130.7 million in Q1 2009.
In other words:
- Red Hat’s current quarterly open source subscription revenue ($148.8 million) is roughly 3.8 times that of Novell’s open platforms revenue ($39 million).
- Plus, Red Hat is adding quarterly open source revenue (up about $18 million, year over year) faster than Novell (up about $9 million, year over year).
It’s All About Synergy
In Red Hat’s case, recent success involves synergy between Red Hat Enterprise Linux and JBoss middleware sales, The VAR Guy believes.
Like peanut butter and jelly, Linux and JBoss are a natural tandem — creating market pull for one another. And now, Red Hat is partnering up with ISVs (such as Alfresco ) to gang up against entrenched closed-source applications like Microsoft SharePoint.
Meanwhile, Novell’s legacy business continues to shrink but newer businesses like SUSE Linux, identity management, security and data center administration offer promising growth. But here’s the problem: Those individual Novell products don’t always create pull for one another, The VAR Guy believes.
Hmmm. Plenty of skeptics initially dismissed Red Hat’s decision to acquire JBoss in 2006. Fast forward to the present, and the Red Hat’s JBoss business is growing faster than Red Hat’s Linux platform business. The numbers seem to show that Red Hat has a killer software combo.
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Meanwhile, Oracle’s attempt to undercut Red Hat by offering me-too software at a lower price seems to have gone nowhere. Whither Unbreakable Linux? Gone to pieces, it seems.
I can’t see that Novell’s ‘growth’ is any growth at all. All they seem to be doing is just about keeping Suse’s existing business ticking over. $39 million is pretty pathetic considering that the business is now almost six years old from the time that Novell took over, and they can’t afford to just have a ‘Linux’ business. They needed Linux to start moving in and being a real Netware replacement to compete against Windows Server. What happened? No existing Netware customers are keen on OES at all, people are still jumping to Windows Server and even their biggest competitors is having to sell their own Linux distribution.
I can’t seem to find Canonical’s profits for the same period… I had heard the number 30 million and know the break even point was coming up. It would be interesting to see Canonical’s economic growth compared to Novell’s Suse.
@matthews:
Canonical is a private company and as such there are absolute no requirement for Canonical to publish solid numbers concerning financial performance in the public view. There’s no point in trying to compare Canonical’s performance to Novell or Red Hat without solid financials to talk about. And those published financials do not exist for Canonical. The Var Guy can compare Novell to Red Hat only because they are both public companies. You can’t do this sort of analysis with start ups or or private businesses.
The 30 million number that is floating around is what Shuttleworth thinks is sustainable revenue to keep core Ubuntu distribution operations going. He said that in Jan of 2009. He also said that revenue was growing. But he has never put a hard number on what that revenue growth looked like nor has he ever given a solid revenue figure (or a net profit or loss for that matter) associated with quarterly or yearly performance. There is absolutely no statement on record to suggest exactly how close Canonical is to reaching that 30 million in revenue. Anyone outside of Canonical management which attempts to suggest that Canonical is close to that mark is doing so without the benefit of actual quarterly or yearly financial performance data to back the claim up and is dabbling in speculation instead of analysis.
I realize a lot of people really hope Canonical is performing well because they have a personal investment in the Ubuntu brand. If you have installed Ubuntu and like it, why wouldn’t you want to see Canonical succeed? Brand loyalty is a valuable thing, but its no substitute for solid revenue and expense reporting when it comes to understanding Canonical’s performance as a business. You have to be careful about letting personal bias fill in the gaps of your knowledge when doing analysis concerning Canonical’s performance as a business. Its completely inappropriate to substitute good will for solid financial data. Companies with popular products can still be run into the ground with poor business decisions.
-jef
While Red Hat’s numbers are impressive. The percentage breakdown between RHEL and SLES remain pretty much the same. So, Red Hat’s revenue on the RHEL side is growing apparently at the same rate (??). Actually, I think less just because the number for “open source” on the Red Hat side go a lot farther outside the server Linux box.
Also, realize that ONLY Novell has whitepapers and competitive offerings that COMPETE against Microsoft. Where’s Red Hat’s info? Nowhere to be found. In fact, since Red Hat, and NOT Novell, ships an arbitrarily limited “enterprise” version, this is the version that Microsoft uses over and over and over again to PROVE their TCO is way lower than Red Hat… well, actually they say LINUX. So why does Red Hat want to arm Microsoft? I’m serious. I know the people (without knowledge) want to focus on Novell’s business partnership with Microsoft, but ONLY Novell actually competes head to head with them. The ONLY competitive data you’ll find at Red Hat (and it’s weak at best) is against Solaris… which is arguably dead.
So… Red Hat, what are you so afraid of? Is there a “deal” unknown in your Microsoft relationship that forbids you from painting Microsoft in a bad light?
Kudos to Novell for at least showing that enterprise Linux is very appealing vs Windows. Wish Red Hat could get that message.
So… I’m still going to bet on Novell with a total annual revenue that is almost twice that of Red Hat, yet a company that has a market value almost a fourth of RHT. Yes… Novell is still figuring things out. Red Hat seems to of figured out the best way to not offend the 800lb gorilla is to run away from it.
I’m not anti-Red Hat, I own interest in both companies. RHEL 5 is the FIRST enterprise worthy release from Red Hat. In comparison, SLES has been enterprise worthy for several releases.
@ Chris Cox
Accuse your competitor of what you are guilty of. I’ve seen a few posts like your on every Article about Red Hat’s good financial news. The unfortunate few who believe as you do will be future fodder for Open Source. Hey, somebody’s got to be the meal.
“Also, realize that ONLY Novell has whitepapers and competitive offerings that COMPETE against Microsoft.”
Yep. They’re so successful against competing with Microsoft that Netware customers continue to jump ship, Microsoft is having to sell SLES for Novell and Novell entered into a deal that all but said “Pretty please don’t kill us!”
Novell’s Netware revenue where they directly compete with Microsoft and Windows Server is declining, has been for years, the figures don’t lie and they can’t be refuted by wishful thinking.
“In fact, since Red Hat, and NOT Novell, ships an arbitrarily limited “enterprise” version”
In what way?
“So… I’m still going to bet on Novell with a total annual revenue that is almost twice that of Red Hat, yet a company that has a market value almost a fourth of RHT.”
There’s a reason for that, and the Varguy has pointed out what the issue is with Novell. Novell’s traditional bulk revenues come from mainstay software like Netware, but they’re declining and there’s no growth in site or even hope of arresting that slide. There’s nothing there to give their older software hope of competing. That should have been kick started by using Linux and open source software but nothing has happened on that front. The old mainstay software is on life support and Suse’s Linux revenue is a miniscule fraction of the whole so you don’t need to be a genius to see that revenues are still falling.
The market knows a brick falling when they see one.
segedunum:
Be careful about how you characterize the MS-Novell voucher arrangement.. you have to look very closely at how Novell accounts for the money for the subscription vouchers they sold to MS. It was a cash injection quarters ago now..which is being accounted for on the books as multiple quarterly revenue across the number of quarters associated with the terms of the service arranged for by the voucher.
If you look at the transcripts for the quarterly conference calls however I think they’ve said they haven’t gotten any new customer contracts through the voucher arrangement for this last quarter, and I think the previous quarter…but you’ll need to double check that I could be remembering he transcript incorrectly. The voucher money sort of forms a baseline for quarterly reported revenue..but its not underpinning the quarter-to quarter revenue growth that Novell has reported in the last quarterly filing. That’s my understanding at least.
In any event…the real test for the long term impact of the voucher deal will be when the service contract period associated with those vouchers is up and customers have to choose to pay to renew SLES subscription contracts or not. My understanding is that hasn’t happened yet and its also my understanding that the customers using the voucher were relatively large deployments from a few customers…not a lot of little deployments. If Novell can’t renew those big customers that will have a big impact on the quarterly revenue once the term of service for the vouchers expire. If they do renew those customers, then it will more than justify cutting the deal with MS to begin with.
-jef
@Chris:
My only question, is why does Red Hat have to compete with Microsoft? In fact, Red Hat isn’t competing directly with Microsoft (although they certainly do overlap in areas). I’m not sure why some people think the only way for a Linux vendor to be successful is to slay Microsoft. They’re a Linux and middleware vendor. They have shown absolutely ZERO interest in going after the desktop. They’re working on an identity management system, but it’s certainly not a priority for them. They’ve never claimed to be going after Microsoft. So why should they outline some big strategy to go after Microsoft? Red Hat knows it’s market and has executed it’s strategy wisely to grow the company.
Novell on the other hand already had legacy products competing with Microsoft so of course they’re going to try to come up with a Linux solution to take their place. Unfortunately they’re kinds stumbling around and haven’t really come up with a compelling solution.
Hey VAR guy
Using the numbers you give in this article, Red Hat’s open source growth rate is 14% and Novell’s is 30%, meaning that Novell’s open source sales are growing a little more than twice as fast as Red Hats…
You might wanna stick with journalism Var guy, ’cause I don’t think your math skill is quite up to snuff.
Steve: Percentage growth rates can be misleading. Please allow The VAR Guy to respond with this hypothetical example. Which company is better…
1) A $600 million open source business that’s growing at 10% annually ($60 million)
2) Or a $100 million open source business that’s growing at 30% annually ($30 million)
Example 2 has the faster percentage growth rate. But The VAR Guy will take the $600 million/10 percent growth over the $100 million/30 percent growth every day of the week…
I don’t know for the deal about NetWare numbers? NetWare is schedule to die next year ( March 2010 see link — http://support.novell.com/lifecycle/lcSearchResults.jsp?st=-1amp;sl=namp;sg=-1amp;pid=1000 )
Novell will not get any significant NetWare revenue after that. So what does it mean for Novell? It means more focus on Linux more focus on SUSE Linux Enterprise Server and Desktop and their solution product line. Well, RedHad has OS too, right? So what’s the difference? I think, it is in the amount of Linux Solutions and products offerings.
In my opinion, Novell has quite a few different product lines compare to RedHat ( not just OS and Destkop). For example, Identity Manager, UserApplication, GroupWise, iFolder, Teaming, eDirectory, ZENworks…..
All those “solutions” are running on Linux. ( When NetWare dies it will give Novell more development resources to spare on Linux)
I think RedHad has more focus on Linux because that’s the only thing they do. Novell has a lot of legacy products that they continue to support, but that slowly going away. I do see more clear sky and more sun for Novell in the future.
TechnoGuy: Thanks for your perspective. Can you tell The VAR Guy and our readers a bit more about your background? Are you a corporate IT manager? Channel partner? Someone else? The VAR Guy would love to hear more.
Also, two quick thoughts from The VAR Guy:
1. Novell: Yes, Novell has a pretty diverse product base. That’s both a blessing and burden. Identity management, data center consolidation … all good areas for Novell’ potential growth. But Novell has to do a better job connecting the dots between its products.
2. Red Hat: You suggest Linux is the only thing Red Hat does. That’s no longer true. Red Hat’s JBoss open source middleware business is growing faster than Red Hat’s Linux platform business.
Still, it’s good to hear your thoughts on Novell.
“you have to look very closely at how Novell accounts for the money for the subscription vouchers they sold to MS. It was a cash injection quarters ago now..which is being accounted for on the books as multiple quarterly revenue”
There you are.
Much of what most of you have said is correct or nearly correct. I worked at Novell for almost five years starting in late 2004 and just resigned recently. The real key to the Microsoft TCA with Novell is renewal around the certificates gained in the TCA.
Since Red Hat no longer tells us what the RHEL subscription revenue is, I know that in FY2009 it was well over $400 million out of the $541.2 million subscription revenue reported. I would say that the number is close to $450 million for RHEL subscriptions.
BTW, I wrote all of those competitive papers for Novell that someone was talking about earlier. There are similar papers for RHEL and Solaris 10 on x86 so Microsoft was not Novell’s main competitor, it is Red Hat. I spent much of my time working on competitive papers for SLES vs RHEL, even on System z.
Good discussion.
Bill
Bill: The VAR Guy is, um, pleased to hear that much of what he rights is correct. Please ignore the stuff that isn’t correct 😉