Red Hat aims for greater market share in OS space

Though PC hardware rates have been falling at regular intervals we haven’t seen a similar trend in the software space. And thanks to high prices, PC penetration has remained low in the country. But all this is set to change if the open source software movement has its way. Leading the pack is Red Hat India. Stanley Glancy profiles the firm

Red Hat is not interested in selling a box, but in training and support. Red Hat’s entire business revolves around things that go around the product itself, says Javed Tapia

The Linux movement in India recently received a shot in the arm when President Dr A P J Abdul Kalam gave a call to the Indian IT industry to adopt open source code instead of depending on proprietary solutions. Many stand to gain from this thrust towards adoption of open source software, chief among them being Red Hat India. The face of Linux in India, the company’s arrival here in 2000 provided a major fillip to the open source software movement in India.

Though there was a good amount of awareness back then about the software as a technology platform there were also several misconceptions. One main misconception was that Linux didn’t have a graphical user interface (GUI). The technology was considered to be for geeks, not for normal everyday users. Also, organisations were not ready to experiment with a technology, which was here today but might be gone tomorrow. Red Hat helped bring about a change in this perception. And today, though Linux is still evolving, organisations are confident about the sustainability and viability of the business. In fact, Red Hat has the distinction of being the first Linux company to have achieved break-even.

The company

Set up in November 2000 in conjunction with Red Hat Inc., the company has more than doubled in size in the two years since inception. Product distribution was the initial focus for the company. At that point of time there was no formalised channel for Linux. The six-member team, which formed Red Hat India, set about building a network of partners for both selling the product as well as providing training.

The main item on the menu was creating awareness about the technology and clearing absurd misconceptions. Red Hat knew the market was going to prove a tough nut to crack, as the mindset at that point of time was that Linux was free. So no one was willing to pay for the services offered by Red Hat. The challenge for the company was to create a mindset that services are important and have to be paid for. Says Red Hat India director Javed Tapia, "We knew from the start that the potential was there for Linux. But we also knew that the challenge would be in marketing it. So we needed to change the mindset."

Red Hat set about doing so by following the 3A programme—awareness, appreciation and adoption. Pilot projects helped create mindshare for the technology. Tie-ups with system integrators and other technology companies helped increase appreciation.

Red Hat decided to focus on corporate users rather than the end-customer. This was when the company realised the need for enterprise support and so set up this division of the company. Today, support and services contribute to more than 30 percent of the company’s business. Sensing the growing demand for training, the company also set up a separate division to cater to this need. This division is also involved in generating Linux-ready professionals for the future.

Red Hat’s service and support is the main reason why the company has been able to penetrate the Indian market in a short time while other players had to bite the dust, says Amit Bhoraskar

The training division and the enterprise sales division also helped in educating the market through frequent seminars and road shows. These efforts also helped in clearing many misconceptions. Earlier, people thought that there was no interoperability between MS Office and applications on Linux, but the fact was that Linux was just another operating system. The office application was Star Office, which allows Linux users to communicate with and share files with those using Microsoft Windows.

Says Tapia, "We wanted to build confidence in Linux. Hence we adopted a customer-focused strategy. We are not interested in selling a box, but in training and support. Our entire business revolves around things that go around the product itself."

Another key aspect was that the management had decided right at the start that it was important to scale up the business and revenues before investing hugely in infrastructure. Explains Tapia, "We wanted to scale up revenues first and then our operations, and this strategy has paid off." By mid-2001 the company had fully laid down its business plans. The three main divisions included the original product distribution division and the two new divisions, which handled training and support and services. The company plans to set up new divisions once the business expands.

Enterprise sales

Red Hat takes the Linux Kernel, engineers it, processes it and then puts it in a box. The kernel customisation is what makes Red Hat Linux different from the other versions, free or otherwise, available in the market. The company has developed two products, one for the SOHO segment and another one for the enterprise segment. Red Hat has tied up with three key distributors, namely Sonata, G T Enterprises and Integra, to sell its products. Other than this the company has channel partners across the country. Red Hat has also tied up with OEMs to bundle its products at the production stage.

The company has also partnered with several technology companies, including Integra Microsystems and Vitage among others, in order to increase user appreciation. The partners have to fulfil three key criteria in order to partner with Red Hat—the organisations’ readiness to focus on services and support, their ability to manage technology solutions and most importantly a good customer base.

But product distribution forms only a minor part of the process. The enterprise sales division of Red Hat is particularly concerned with helping organisations adopt Linux for their business. Says Sachin Dabir, head-enterprise sales, Red Hat India, "The adoption stage is very critical to us, as we have to provide them with the confidence that we will impart support."

Training

The learning services division of the company was set up to create awareness about using Linux on a day-to-day basis. Says Shankar Iyer, training-manager, Red Hat India, "Training is a key area for Red Hat, as people require training when they buy Linux. One of the key reasons for setting up this division was to create awareness and increase appreciation for Linux."

Training is a key area for Red Hat, as people require training when they buy Linux, says Shankar Iyer

Another agenda was to make people with in-depth understanding of Linux available to the industry. Many organisations develop applications on Linux, which involves working on kernels. So there is a constant demand for people with expertise in Kernel internals. Also, since majors like Oracle and IBM have moved to the Linux platform there is an increasing demand in the advanced server area. Today, almost all leading IT vendors in the country have developed applications for the Linux platform, including Oracle, IBM, Wipro and HP.

Sensing this trend the company introduced its certification programme wherein a person has to have hands-on experience working on kernel internals. At the successful completion of an eight-hour hands-on test a person becomes a Red Hat certified engineer.

From 200 people in the first year, the number of people who appeared for the certification exam went up to 1,200 in the second year. Iyer is targeting 5,000 people for the certification programme this year. In addition to this, the company is also looking at training more than 20,000 students this year, a four times jump over the previous year when the company trained around 5,000 students.

Red Hat adopted the partnership model to increase its reach in the country. In addition to its training centre in Mumbai and Pune, where high-end training is provided, the company has also tied up with several regional training partners. In addition to training these partners also provide implementation and support services. Today, there are 50 authorised training centres in the country and, according to Iyer, the company plans to set up 50 more across the country by the end of the year.

Service and support

One of the most important aspects of the business for Red Hat is service and support. This is the key differentiator that separates Red Hat from other players. According to Amit Bhoraskar, Red Hat India’s channel manager, this is also the main reason why Red Hat has been able to penetrate this market in a short time where other players had to bite the dust. The company has people in key markets, including Bangalore, Delhi, Mumbai and Bhopal, that have seen a high rate of adoption.

RedHat provides support to customers directly as well as through channels. For large customers and for strategic projects the company provides support directly. Thanks to this division the company today boasts of corporate giants like Kotak Bank, Mahindra British Telecom, the CBI and many other government organisations on its client roster.

According to Sachin Dabir, the adoption of Linux is very critical to Red Hat, as the company has to provide organisations with the confidence that it will impart support

The future is Red Hat

Tapia is looking at tapping sectors that didn’t invest in IT due to the slowdown. He also sees a lot of opportunity in the e-governance sector. Nasscom predicts that the government sector will become a key implementer of the open source technology. Another area where Red Hat sees huge potential is the server segment. A report released by market research firm IDC says that Linux is the fastest growing server platform, projected to grow 174 percent to $5.9 billion by 2006.

Other than this Red Hat is looking at partnering with more ISVs, training partners and technology partners. The company is encouraging application vendors to develop applications on the Linux platform. Very soon Red Hat plans to introduce high-end training programmes, which are currently not available in India. Red Hat is also working hard on localising Linux to tap the regional markets. Very soon we should see versions of Linux in all the major languages in the country.

While Linux is slowly gaining in stature it is a fact that it is still evolving. For instance, Red Hat products wouldn’t be the ideal choice for someone using high-end macros and presentations. But the consolation is that Red Hat has been offering upgraded versions from time to time and each version has been a massive improvement over the previous one.

The awareness in the SOHO segment is still low. People are still not sure of how to work with Linux. The OS is still considered an add-on to existing platforms. It is going to prove tough to break the monopoly Microsoft has had all these years. But going by the rate at which Linux has penetrated the desktop market, Red Hat is definitely making good progress in this direction.

One key advantage Red Hat has in a price-sensitive country like India is that Linux can provide people with low cost PCs. The technology will play an important role in bridging the digital divide. As president Kalam puts it we need open source software to spread IT to the masses.