Red Hat: One Lingering Financial Question
Kudos, Red Hat: You beat financial estimates for your current quarter. Wall Street was impressed. And customers are falling all over each other to sign long-term business deals with you. Still, The VAR Guy was disappointed will one key data point you shared this week.
Specifically, only 52 percent of your most recent quarterly revenue came from channel partners. Does that mean the glass is half-full — or half-empty — with Red Hat’s channel program?
Sure, Red Hat had a strong quarter, and the company has made progress with its partner program in recent years. The addition of JBoss helps VARs make $10 in consulting fees for every dollar worth of Red Hat middleware they sell. And Red Hat hopes to derive 60 percent of its revenue through partners in the not-too-distant future.
The current state of Red Hat — where 52 percent of sales involve the channel — is such a curious figure. It’s sort of like saying you’re half-pregnant. In stark contrast, the most successful software and IT companies push for far deeper channel penetration. (Wow, somebody email those last two sentences over to Freud.)
Emulate the Best
The point is, Red Hat has got to drive channel revenues to 60 percent of overall company sales — and beyond — in order to scale its business.
Remember: Cisco Systems started out with a direct-sales model. But it wasn’t until around 1997 that Cisco went indirect and became a corporate powerhouse. Today, even Cisco’s global 2000 accounts are mostly managed by channel partners. Ditto for Microsoft.
So celebrate the current quarter, Red Hat. The VAR Guy knows you’re the leading financial indicator for open source companies. But he’s still thinks you need to crank up the channel program.