Picking up the penguin

Linux is the network operating system that everybody talks about, but not everybody necessarily understands. With vendors and resellers ramping up for a 2004 Linux push, CME asks why the channel should be picking up the penguin.

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By  Paul Barthram Published  January 29, 2004

|~|SoubhiChebib15.gif|~|Soubhi Chebib, director of IBM brands, Gulf Business Machines|~|Linux is the network operating system that everybody talks about, but not everybody necessarily understands. It gives Microsoft a few sleepless nights, but in terms of channel business opportunities it remains a bit of an enigma - after all, it is a free operating system. Channel Middle East talked to Bashar Kilani, manager of IBM’s software group for the Middle East, Egypt, Pakistan & North Africa; Soubhi Chebib, director of IBM brands, Gulf Business Machines (GBM); Daniel Handley, technical consultant, Business Integrated Operating Systems (BIOS) Middle East, and John Bell, managing director, Novell-ME, to explore the myths and margins behind the penguin.

Cme: Linux seems to have come out of nowhere promising the miracle cure to resellers thinning margins, but where does the margin lie in Linux for the channel?

Bashar Kilani: It lies in services, education, training and the support they provide around Linux-based solutions. Then there are the additional services they sell through related hardware and software sales.
Soubhi Chebib: Linux is like any other OS. The channel’s margin is in the provision of services around Linux software. The channel can also make margin by helping customers migrate from other operating systems such as NT and by providing education. There is a now a suite of services around Linux that gives the channel a real opportunity.
Daniel Handley: The margin lies in consultancy and systems integration for channel partners. Linux itself is mostly free but solutions based on Linux are not. This is where you will see the systems integration and consultancy opportunity.

Cme: Will the channel find this opportunity attractive enough to start pushing Linux right away?

Kilani: It depends on what type of channel business they are in. Linux allows the channel to offer customers a solution at a more competitive price. The client benefits from cheaper costs based on using Linux as well as technology advantages.
Chebib: The channel has an incredible opportunity in the coming few months as NT and Exchange 5.5 come out of service. This will lead to a number of changes for software platforms that Linux can replace. The opportunity is there for the channel to offer customers a different choice to what they’ve had in the past.
Handley: To be attractive, Linux margins will have to be in consultancy, which should make the channel happier, as they should make more money here, whereas they will make little to no money on boxshifting the software.
John Bell: The more vision a reseller has, the more open they are to adopt this new technology wave. On their part it just takes a little investment in training to fully understand Linux. The attraction lies in the number of open source applications available. Additionally, Linux provides a virus free environment, which means customer satisfaction and lower support overheads for the channel — something every reseller wants.||**|||~|kilani.gif|~|Bashar Kilani, manager of IBM’s software group for the Middle East, Egypt, Pakistan & North Africa|~|

Cme: How big is this margin likely to be?

Kilani: The fact that the operating system is Linux does not make the price of the hardware or the software that runs on top anymore attractive. Margins on hardware, software, training and education as well as services will be similar to the margins they get from normal services of this quality. But it is not less and this is what makes it attractive. They are able to pass a free operating system to their customers with a better value proposition while keeping similar margins.
Chebib: The margin is not in selling Linux distribution but in selling the hardware and software to deliver on customer business needs. The services and training is a significant part of the business. The question here is not a matter of margin but of understanding the value proposition, and aligning the skills and capabilities to deliver products, services, and consultancy that come with Linux.
Handley: Well it depends on the person who is installing it; I guess the channel will have to decide on what they will charge per hour or per day and that impacts the margins. It all depends on the integration and who is selling it.
Bell: I believe that services margins for Linux resellers will not be less than 50%, whilst straightforward Linux operating system support and supply from Novell will command over 25%.

Cme: Does the local channel truly understand Linux?

Kilani: I think like anywhere in the world, the Linux value proposition is becoming appealing. The channel is actually investing in skills and knowledge. As time passes we see a good understanding of the value proposition of Linux, and I expect a lot more.
Chebib: We are in the early adoption curve. Some of the channel invested very early in Linux and did not find any payback. But I think the channel is now in the sweet spot to engage with more customers. We are seeing a substantial amount of demand on the market, and there is strong interest from major corporations and institutions.
Bell: Every reseller has some understanding of what Linux is, and of what an open source environment represents as a concept. Linux provides a dramatic reduction in cost and increase in performance. If the local channel does not recognise this, their business will simply fail.

Cme: What market response has there been so far?

Kilani: On the server side I believe every enterprise today is looking at Linux as an option. On the desktop side, people are exploring it; we’ve got some customers who are actually using it on the desktop but we still haven’t reached the kind of acceptance on the desktop that we have seen on the server side.
Chebib: We are very encouraged by the market response and the number of major institutions that have adopted Linux-based solutions. This has started to fuel the interest of channel partners to take part in this market. We are getting around 15 calls per week on Linux, but it is not just the number of calls it is also the size of opportunities coming in.
Handley: We mostly get calls from corporate construction companies, universities have also approached me, and I do get a lot of forwards from SuSe Linux. But mainly I’d say it is a go-to-market approach. You have to go out and physically run demos, and you’ll probably find you have to do a lot more work selling Linux than another network operating system. This is because there are still some myths around Linux. People still make assumptions such as Linux is only for techies and that it is not viable in the commercial environment.
Bell: The beauty of the current wave of enthusiasm for Linux is that the customer is driving it. We put end user enquiries to the channel at a rate of between 10 and 20 per day. The drive to reduce maintenance costs for poorly performing operating systems is now unstoppable. It is one of the last bastions of driving cost out of the IT landscape.||**|||~|BIOS3.gif|~|Daniel Handley, technical consultant, Business Integrated Operating Systems (BIOS) Middle East|~|

Cme: Are enough vendors making their products Linux ready?

Kilani: I think all vendors, apart from Microsoft, are making their products Linux ready today.
Chebib: There are many vendors worldwide which have products Linux ready and many of them are present in the Gulf. There is also no lack of software out there either, as there are whole suites of offerings on the Linux environment and we have seen solid demand for software.
Handley: Most definitely. Hardware wise, major vendors including IBM, Dell, HP, Fujitsu Siemens have all tied or agreed deals with Linux, and all are advertising as Linux enabled. As far as software goes, Novell has pretty much ported everything they’ve got to a Linux platform. And if you’re going to look at backup software, Veritas products runs on Linux. I think many vendors realise today that Linux is making inroads into the global market and if they do not accommodate it they will alienate themselves.
Bell: When the likes of SAP, Oracle, IBM and PeopleSoft have already made products available or committed to Linux, you can imagine all major players will be available on Linux. Additionally, we at Novell will roll out a middleware solution during 2004 making it possible for all the .NET applications available to run on Linux. So availability of applications on Linux really is not a problem!

Cme: What support can the local channel expect from vendors?

Kilani: A great deal of support. IBM, Oracle and Sun are big supporters of Linux. We provide all the support for Linux in the same way we provide it to our products on other operating systems. You’ll find that IBM provides education, services, training, maintenance, and installation support — the complete nine yards.
Chebib: The channel will find many vendors delighted to engage with them in terms of pre-sales support, post-sales support, and in terms of implementation. In terms of hardware it should not make any difference: the standard support is available for Linux as it is for any traditional operating system.
Handley: I’ve never had a problem with Linux if I’ve had any questions or queries about it. I’ll call SuSe on the phone and I have an answer within 24 hours.
Bell: Before Novell announced its acquisition of SuSe Linux and put in place its global support facilities, I genuinely believe the regional support for Linux was a low but potential risk. Now a 24x7 support facility is available through Novell for all SuSe and Red Hat Linux users for a nominal annual maintenance fee.

Cme: Is the support model adequate for this channel?

Kilani: You can never say there is no room for improvement. The last year has seen improvements, and hopefully we’ll be even better by the end of this year.
Chebib: There is a great opportunity for post-sales support. The demand is going to increase. Channel players who ramp up now can capture a good size of the market for support services.
Handley: Whenever I’ve bought a product I’ve always made sure it is Linux ready and [therefore] I’ve never had any hardware issues on it. So I’ve never had to consult back to the original vendor.
Bell: Novell’s highly skilled Linux qualified trainers and engineers can offer unparalleled levels of support. Over time the support model will transfer to the channel, offering greater margin opportunity, but Novell-ME will always honour its obligation to support any of its products directly.||**|||~|JohnBell7.gif|~|John Bell, managing director, Novell-ME|~|

Cme: What Linux skills are there in the local channel?

Kilani: There are more and more. Companies that had one person trained up last year now have four or five. Channel players will need to have more skills on the ground if they want to be competitive. That’s my personal experience of it.
Chebib: The reality is variable. In some areas you can see the channel has built a niche skill. I believe training is a substantial opportunity in the channel for us.
Handley: The way to understand what skills there are in the channel is through the various numbers of certifications. There are a number out there such as Lotus Professional Institute (LPI), Linux Plus, Red Hat, and then there’s the SuSe Linux training programme. As long as you can see a company has its certification then that means their staff are trained and you should expect a high level of skills and expertise.
Bell: The channel is well supported for Linux in system management, system administration, and configuration. Novell’s training facility in Dubai Internet City (DIC) is fully booked through February 2004, so the skills pool is growing all the time. Linux is a simple system to operate and manage and requires far less time [to understand] than any comparable operating system in the market.

Cme: In what local regions can we expect to see Linux really take off?

Kilani: Saudi Arabia is already quite advanced. There are a number of companies today that are Arabising Linux and providing solutions.
Chebib: Bahrain is a major client making [firm] strategic choices. And we’re seeing a number of local IT providers ramping up their capabilities to participate in the market. In the UAE it is region wide and in Kuwait they have the Linux Institute, which has been there for three years now.
Handley: Well in an emerging market you’ve got no pre-existing company that’s already there, forcing its network operating system down your throat. There’s no one there already operating huge ad campaigns saying ‘buy us, we’re the best’. So emerging markets, like Iraq and similar places, where they’re cost conscious, and expensive licensing is something they really want to avoid they will [look at this type of solution].
Bell: Linux is in a global transition to lower cost computing. Countries in the Middle East that have embarked, or are about to embark, on e-government initiatives are clearly those who could benefit the most. This is because open source is the most secure way to ensure the validity of code being used to run their day-to-day business. With open source computing there is complete transparency of the programmes in operation for administrator interrogation. The alternative is to be locked out and to be at the mercy of ever increasing support costs for proprietary systems.||**||

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