(You can listen to a replay yourself via the Red Hat web site)
A Baird analyst kicked it off by saying they were basing investment advice to their clients on the fact that OSS is a disruptive technology trend, with a "low barrier to entry but high barriers to success." Baird contends that RHEL is only a five year old product (but of course UNIX is almost 40 years old, which is the fair comparison).
The Red Hat speaker was Charlie Peters, its Exec VP and CFO. He made six topline points of interest to both investors and users and then expanded on them during a 20-minute presentation and Q&A session. Basically, he said Red Hat is the subscription-model-based global OSS provider with multiple revenue streams and product lines. Treating each of those points indvidually, he said (includes some of my analysis, especially pointing out both investor benefits and user benefits):
1. Open means "you can see it" (forgive him, he's the CFO not a technical guy). His point was that
- development model and community is open
- that makes development better, faster and cheaper (there is actually no research that backs up the first two points of this claim--made by all the OSS providers--but there is no doubt that it is cheaper because they get the OSS community to do the work)
Openness let's the company mitigate risk and grow revenue from users in different ways (Linux to JBoss users and vice versa). And openness let's user take advantage of a "certified" software ecosystem (3000 apps and other pieces of software are supposedly "certified"). If true (I cannot confirm that number), users do not have to constantly "try it, you'll like it" as is true of most OSS. Peters said Red Hat looks at Oracle and other Red Hat "clone" competitors closely as part of prudent business practice but feels it has an advantage because of Red Hat's customer count and the aforementioned certification procedures.
2. The Subscription model is of course good news for investors (almost half the FY2008 revenue is already "in" in accounting terms because of deferred revenue) but also has benefits to users.
- Users can choose 1, 2 or rarely 5 year contracts (and of course pay monthly)
- Red Hat allows users to sign coterminus subscriptions as customers add users (keeping things manageable)
Red Hat is seeing a 98% renewal rate (renewing at 100-120% of deal size) and is adding 10,000 customers a quarter as smaller companies sign on even though Red Hat's original success was in Fortune 500 companies.
3. Global sales and support is important to both investors and users
-- Good coverage around the world.
-- Bookings are 61% the Americas, 25$% EMEA, 14% APAC
-- 52% channel and 48% direct (Red Hat's goal is to get channel up around 60%, again making the products more available to users)
4. Red Hat is not just Linux; there is a large addressable market for UNIX and proprietary middleware migrations
-- Now: Virualization plus middleware on top of classic Linux
-- Coming: Red Hat Exchange (Red Hat will be "selling" and users will be able to get other suppliers' OSS through one point of contact)
Peters noted that under 10% of users are into virtualization at this point but it is there, embedded in the OS, and Red Hat is poised for virtualization to take off (see my thoughts on how virtualization will emerge at seekingalpha.com)
5. Red Hat just completed a major new product cycle
-- RHEL 5
-- New JBoss
6. Red Hat has two revenue streams
-- Services (15%) as well as subscriptions (85%)
-- Services include training and implemenation, which Red Hat will begin to emphasize (partnering with Exadel)
Market is not price sensitive but Red Hat has seen a mix of discounts as they broadened sales reach to smaller companies. The two revenue streams mean users can get their services needs filled with Red Hat as well as all of their OSS needs.
(For finance types, Red Hat has large tax-loss carryforwards and good cashflows because it doesn't worry about a hockey stick the way software companies have since the dawn of the ISV era around 1980.)
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