IBM Promotes Red Hat, Novell to Top Partner Status

Published: January 10, 2006

by Timothy Prickett Morgan

Server and services giant IBM made a big $1 billion bet on Linux back at the end of 1999, and has made many billions of dollars since then and amassed a customer base of 12,000 companies who have deployed Linux solutions using Big Blue's hardware, software, and services. Linux is undeniably one of the key drivers for the company's growth, and to that end, IBM has bestowed on commercial Linux distributors Red Hat and Novell the titles of strategic alliance partner, vaulting them to the status of being among the top 10 partners that IBM has among a group of about 100 such partners.

This may seem like a silly thing, but only the big companies like SAP and Cisco Systems have such influence at IBM, or are so important in their parts of the IT ecosystem that IBM has to swear its fealty to them as much as requiring it from them. But it is more than that. IBM is interested in making money with Linux, and if Linux eats into competitor's Unix server installed bases and provides a means to sell servers, storage, middleware, and services to create new Linux infrastructure, IBM is just tickled red and green to do so. In fact, according to Mark Elliot, general manager of global solution sales at IBM, the company did over $1 billion in Linux-related sales (including all products and services) in the third quarter of 2005, when the company booked $21.5 billion in sales. That means Linux accounts for around 5 percent of IBM's sales right now. With the rate that Linux is growing, it is my guess that it will not be too long before Linux accounts for two or three times that amount as IBM's sales stay more or less flat in the coming years. IBM's Linux server business was growing at 30 percent in the third quarter, according to Elliot, and the tighter ties IBM has now forged with Red Hat and Novell will hopefully allow IBM to push even more Linux tin. And, of course, services to migrate customers from Unix and Windows to Linux servers and--maybe even someday--desktops.

Under the agreements that IBM hammered out with the two companies, IBM will now be able to sell Red Hat and SUSE Linux licenses in conjunction with server sales, with software sales, and as a tech support bundle with IBM's own SupportLine offering. Customers will be able to buy Linux licenses in this manner--tied to their server, their software, or their tech support--or they can bundle it all together. According to Scott Handy, vice president of Linux and open source at IBM, Big Blue has built a dedicated sales force to sell Linux and related open source products in the Americas and had a worldwide sales force up and running by January 1. IBM has spent nine months building Web-based sales tools for this sales force to use to peddle Linux. And, because IBM has a huge reseller channel that it cannot afford to alienate as it chases the Linux wave, Handy said that the channel will also be allowed to sell these bundled services, but heaven only knows what kind of margin they will see.

All three companies want to make the Linux sell easier, and IBM knows that customers want one throat to choke when it comes to support. So, IBM is being allowed to stick its own neck out and reap the benefits of its global reach to customers and, to be honest, its control of a lot of key IT accounts in the world. Even if IBM ends up passing through a lot of the money it makes selling Linux this way to its customers, Big Blue gets to book the revenue; this helps boost the top line. And, of course, Red Hat and Novell get to book the licenses IBM sells and the revenue it passes on to them. So everyone is happy.

By being promoted to the top partner tier, Red Hat and Novell will also move to the front of the line among IBM's myriad innovation centers, where applications are ported and tested by customers and independent software vendors. Elliot singled out Brazil, Russia, India, China, and Korea--arguably the fastest growing portions of the Linux market and, indeed, for general IT spending in the world--as places where access to the innovation centers would be key for the promotion and selling of Linux solutions. It is no accident that this is also where a lot of industry from the Western economies has moved. The growth in these regions is being driven, in many cases, by greenfield manufacturing and distribution companies who do not have a legacy mainframe, minicomputer, or Unix setup and they are going to Linux and open source from the get-go. While mainframes, minis, and Unix servers are key platforms for millions of customers in the world, it would be hard to make an economic case for any of these platforms--unless a specific application drove that platform sale. Luckily for these platforms, in a lot of cases, rich, established applications still run on these systems, and that is why people still by them. But applications are moving to Linux, and that differentiation will surely dwindle, much as it did more than a decade ago as Unix displaced proprietary minis and mainframes as the dominant platform.

Under the agreement, IBM gets something else. Both Red Hat and Novell have agreed to integrate IBM's implementation of the Apache Geronimo Java application server, which it got by virtue of acquiring GlueCode this year and which it is distributing as WebSphere Community Edition. The two Linux distributors have agreed to promote WebSphere Community Edition. Novell is already putting IBM Apache Derby middleware (which is a Java-based database with Java and SQL hooks that IBM acquired when it bought database maker Informix in 2001) in its SUSE Linux 10 desktop release, and Apache Derby will also make it into Red Hat's and Novell's respective server Linuxes.