Latin America has tended to be one of the worst performing geographies for most software companies, generally coming in at one to four percent of total company revenues. That may be about to change.
Yesterday I had lunch with Julian Somodi, Red Hat's general manager for South America. Somodi has one of the most exceptional backgrounds of anyone I've met at Red Hat. His first "job" was with Red Hat: Until then, he had always been an entrepreneur, starting and selling a range of businesses.
In fact, he started the first real Red Hat distributorship in South America and practically demanded Red Hat to open shop in the region. (I heard this from his colleagues - Somodi isn't the type to brag of his own achievements.) He was Red Hat's first general manager back in 2006, and has been pushing forward ever since.
News flash for Red Hat: Somodi is still every bit the entrepreneur, and is now putting his drive and ambition to work for Red Hat. It's pretty impressive to behold. But then, for anyone that has worked with Somodi, they already know this.
Asay: Latin America has always been difficult for North American and European software companies. Between piracy and comparatively low budgets for technology, we've struggled to know how to do business in Latin America. You seem to see an opportunity, and have been closing some big customers like the Brazilian Federal Court. Why?
Somodi: The very things that make Latin America difficult for traditional software businesses make them ideal for an open-source business like Red Hat's. Our business depends on local support. For an Oracle, a company with which I worked for many years, it's very difficult and costly to provide such support.
For Red Hat, it's just how we operate. I have a team of core Linux and JBoss engineers here in the countries in which we operate to provide local language and local understanding support. We don't outsource support. It's the core of the value we provide to our customers. When a customer in Brazil needs help, they can feel comfort in knowing that Marcello Tosatti, a core Linux kernel developer, is just a phone call away.
Because we're localized, we can provide support at rates and in a manner that works for Latin American budgets. We operate Red Hat South America as Red Hat South America, and not as a North American company pretending to care about local concerns.
Asay: Fine. But you're still a business and I've heard enough about Alex Pinchev (Red Hat's global head of sales) to know that if you're getting paid in pesos, he wants lots of pesos.
Somodi: South American software budgets may be, in some cases, smaller than in North America and Europe, but they're still significant, and enterprises and government organizations here love our value proposition. It's true that they tend not to want to pay for licenses: they don't see value in buying the right to use software that may or may not work for them.
Instead, they'd much rather pay for support. We offer a lower upfront acquisition cost, which enables South American CIOs to spend more on development to tailor solutions to their needs, not ours. Make no mistake: Lower budgets work to our advantage. Our customers can't afford to waste money. That's why they buy open source.
Asay: But won't enterprises here simply use CentOS or some other free software, rather than paying for commercially supported open source?
Somodi: Perhaps in some cases. But we have no shortage of prospects who see the value in what Red Hat provides. They want to buy supported software. They want the security and assistance that comes with it. A CIO in South America is the same as a CIO in the United States: he wants to save money, but not at the risk of performance and stability. Red Hat offers superior performance at minimal risk.
Asay: What about competition against the big proprietary vendors? Despite Red Hat's business model advantages, surely these big ecosystem vendors must be difficult competitors here in South America?
Somodi: You need to remember that we're effectively "starting from scratch" here in South America. Yes, there are enterprises that have big deployments of Oracle, SAP, Microsoft, or whatever. But very often we're selling into enterprises that are not locked into big proprietary software packages. Open source is the de facto choice to an increasing degree. We're at the point on my team that we have to sprint to keep up with incoming demand. South America is a huge "green fields" opportunity for Red Hat and other open-source vendors.
Asay: Speaking of the "other open-source vendors," how is Red Hat working with its open-source peers here? I've heard it said that Red Hat is the "gateway to Latin America" for open source. True?
Somodi: Red Hat has an incredible brand here in South America. Customers trust our quality and value. They may not have heard yet of an Alfresco or Zimbra, but they know Red Hat.
We're still trying to understand how we can translate our brand into a "gateway" of opportunity not just for Red Hat, but for other open-source companies, as well. One thing is clear, though: in South America, enterprises don't want to stop at the operating system and middleware. More and more want to have open source databases, applications, etc. This isn't a fad for them. It's how they plan to protect themselves against vendor lock-in and innovate.
As such, we still need to figure out how we can stay true to our core value while also helping others. But we talk about this a lot. RHX was one example of our efforts to grow the broader open-source ecosystem.
Asay: You mentioned JBoss? Are you seeing much demand for that in your area?
Somodi: JBoss has been hugely successful for us in South America and elsewhere within Red Hat. There have been reports that JBoss growth was troubled early on. Perhaps. The opposite is true now. JBoss has become a major driver for our business here.
Asay: Finally, what do you think of your new boss, Jim Whitehurst? You were hired by Matthew Szulik and obviously respect him. How has life been under Whitehurst?
Somodi: Jim is different from Matthew, but the central, disruptive feeling at Red Hat remains. Matthew was a visionary: he wanted to change the world. Jim tends to be a bit more operations-focused, but he, too, wants to change the world. That desire is too deeply engrained at Red Hat to be easily cast away.
South America is in very good hands under Somodi's leadership. I found him cut from the visionary mold of Matthew Szulik with an exceptional operations focus that reminds me of Jim Whitehurst. Somodi is a credit to a highly creditable organization.