Ubuntu: Matt Asay Discusses Canonical Revenue Strategy
No doubt, you know Ubuntu 10.04 debuts today. Most Ubuntu trackers are focused on the desktop and server editions — where Canonical seems to be making progress with ISVs and partners. But during a recent discussion with Canonical Chief Operating Officer Matt Asay (pictured), it became clear to me that Canonical thinks Ubuntu Enterprise Cloud may unlock key revenue opportunities for the company. Here’s why.
Of course, Canonical is pursuing multiple strategies to drive revenue. A few examples include:
- Ubuntu desktop and server support
- Subscription revenue from Landscape, a remote management tool for Ubuntu. Landscape is available as both as SaaS and on-premises solution
- Subscription revenue from Ubuntu One, the online storage and file sharing system
- Revenues from the new Ubuntu One Music Store
- Consulting revenues from multiple projects, including Canonical’s decision to help Google with Chrome OS
- Some new opportunities around Ubuntu Enterprise Cloud
How are all of those revenue streams performing? As an outsider looking in, it’s impossible for me to say. But my recent conversation with Asay offered some interesting insights — especially with regard to Ubuntu Enterprise Cloud. “I think the cloud was made for Canonical,” said Asay. “On the desktop and the server some people have been conditioned not to pay. We remain one-thousand percent committed to a free OS strategy. That makes my job hard. But in the cloud — it doesn’t. People are conditioned to pay in the cloud.”
Asay says Ubuntu Enterprise Cloud now has 12,000 active deployments, with 200 new ones coming online each day. (Still, we didn’t get into deep details about how many of those deployments are monetized.)
Within a few months, Canonical plans to announce “more cloud services” and Canonical will keep “rolling out new functionality into a subscription offering,” said Asay.
More Money Matters
Asay declined to discuss specific details about Canonical’s revenue streams. But he did offer some more clues about how Canonical’s business is shaping up.
On the revenue front, Canonical’s fiscal year runs April 2010 to March 2011. Asay predicts Canonical will “do multiples over what we did last year. We’re starting from a good [revenue] number and we’ll do several times more than in the previous year.”
As part of that effort, Canonical is rolling out an enterprise subscription service within the next few weeks. And on the desktop, Canonical has signed a “fantastic deal” that’s worth a lot every year.”
Still, Asay concedes that Canonical faces challenges. Roughly 300 of the company’s 330 employees are engineers — meaning that Canonical still needs to ramp up its marketing and sales efforts more aggressively. But “because the company didn’t focus on money so long, the opportunities to make money are just sitting there.”
“Enterprise Subscription Service”?
I thought Canonical already had that.
The way I see it, Ubuntu’s server competitor is Red Hat as much as it is Windows. Perhaps Canonical could offer a discount or some sort of consulting service for companies who want to migrate from RHEL, like Novell is doing.
Ubuntu should set integrate FreeIPA into its server setup. Most organizations need some kind of single sign on service, and this sort of integration would help Ubuntu.
Ubuntu should make respinning its distro EASY. Deploying custom network installations and creating/managing local apt mirrors should be trivial. This way, sysadmins can easily alter the default installation to their needs.
Good luck making money, really. Ubuntu has plenty of room to grow if they get good salesmen at the helm. Hell, tell me where to send a resume!
Many multiples compared to last year?
Okay if Canonical isn’t profitable by the end of this fiscal year… then that will say volumes about where they are right now. You can’t be close to profitability in 2010 and in 2011 do multiples over what you did in 2010 and still not be profitable.
So this is the year where the rubber hits the road. If Canonical doesn’t have a profitable quarter this year… someone has some explaining to do.
-jef
Jeff: Your logic fails to account for growth, the reason Canonical is not already profitable is because they are pouring all the extra revenue they get into hiring and expanding. It’s a good strategy that’s seen their engineer count go from 100 to 300 in a very short time.
I know the press likes to bang on about profitability but I think what would be more useful is no net loss, a stable balance sheet. After all it’s not a publicly traded company and there are no share holders to appease. We’re playing by different rules.
Soon they might actually have two tenths of Red Hat’s employee count instead of just one tenth.
“Soon they might actually have two tenths of Red Hat’s employee count instead of just one tenth.”
@Martin: Did you mean “…one fifth of RH’s emp…?! 😛
Where Jeff misses the point is in not remembering that revenue is only one part the profitability equation.
Martin:
You want to be that specific? Fine let’s put away the word profit and let’s just talk about breakeven. Let’s forget for the purpose of this conversation the millions and millions of dollars that Shuttleworth has injected over the past 6 years that any other venture capital backed startup would be expected to earn back for the VC investors.
Fine… breakeven. Sustainable growth requires breaking even quarter to quarter. That hasn’t happened yet. Shuttleworth is still bleeding money every single day for Canonical operations.
If expeneses are out pacing revenue for 7 years straight…that’s not sustainable. At some point Canonical has to break even and live within its means. If Canonical balloons up in headcount now and then has to make a drastic cut in staffing to get to break-even that’s not going to help them in the long term.
If anything Asay is hinting at actually spinning up more headcount…more expenses..to better equip Canonical’s sales and marketing side to start going after the revenue that the engineers aren’t tasked to do. If Canonical has to continually hire to chase sustainable break-even..that’s a problem. At some point news hires have to be funded by profit..or it all falls down.
Right now.. what is the sustainable level of Canonical staffing which does not require continued supplemental cash injection from Shuttleworth’s personal cash pile? Half the current staffing? A quarter of the current staffing? If the venture capital money ran out tomorrow and Canonical had to layoff staff.. could they keep up with the work with the staff that existing revenue would be able to pay for?
Canonical has to show its sustainable. How long do must venture capital backed starts get to prove that?
This is an interesting read:
http://www.ipo-dashboards.com/wordpress/2009/08/how-long-does-it-take-to-build-a-technology-empire
Is Shuttleworth prepared to be the sole venture capital investor for Canonical for a 15 year period? Canonical is clearly not a “rocket ship” in the terminology of that article. Is Canonical’s capital efficiency being managed like the slow growth company that it actually is or is it still being managed in anticipation of performing like a fast growth “hockey stick” start-up?
Asay is using fast growth startup language which seems to be contrary to the course Canonical is actually tracking. That’s unsettling. When the execs of a slow growth company are talking like a fast growth incubator start-up.. and the hiring practises are still tracking a fast-growth start up trajectory even in the 7 year of operations…that’s a problem. Can Canonical survive a corrective action which that requires a reduction in staffing to meet the demands of a breakeven sustainable growth model? I think Canonical has a picture of itself as a corporation, that is incongruently with reality.
-jef
well on the topic of profitability, as well as increasing revenue you need to keep your costs down
Check out Ted Tso’s comment here
http://lwn.net/Articles/385320/
Which covers what seems to be the strategy
If you can give away a Free ebook that nearly everybody on
the planet wants, then you can rack up sales online.
Get your hands on, “The Greatest Free Money Making Ebook Ever!”
The Sales are Sizzling – And You Make 100% Profit!
That question of profitability always comes up with open source, but It is now the most promising sector of IT business.
Ubuntu is the most used linux distro, has the fastest growing popularity, and has tripled it’s number of employees in recent years. Believe it or not money is coming and is getting better by each day.
Continued cash injection to avoid bankruptcy is a bad sign, but in a company that has tripled it’s size has the oposite meaning. Mark doesn’t need to inject money, he wants to do so! More investment = More profit