Fedora and the System Administrator

[Stephen Smoogen]

On Tue, 2003-10-07 at 11:03, Chris Spencer wrote:


> I also am not sure I understand the dumping of the RHL product line. 
> Again it is a poor business choice.  Spawning off Fedora makes sense. 
> Dropping RHL though?
> 

1) Retailers do not want products that change in less than 18 month
time-frames. You have to deeply discount and also take buybacks etc from
a lot of them. Red Hat was losing money from this.

2) Retail sales never took of as much as enthusiasts (inside and outside
of the company) have said they would.. Sales of products above 40.00
never reached a point where you could make money off it. You can easily
see this by looking in the back dumpster of Best Buy when a new release
comes out... tons of shredded boxes.

3) Support costs from the retail market are several times higher than
that of the commercial market. The product isnt as simple as a washing
machine, but a vast majority of the people buying it expect it to be.
Returns from unhappy customers probably also weighed into it.

4) A good majority of the people I have talked to who are complaining
about it have only bought handful of boxed sets (if any) and then used
those to install it on hundreds of computers. It was good for their OEM
or consultant business but bad for Red Hat because they were spending
tons on development but seeing little in return. 

5) Even if Red Hat were to keep a consumer edition and support it for 2
years from point of delivery.. look at what other costs are involved:

   FTP/WWW colocation internet costs. Probably $1 mil/year for the
bandwidth, power, machine maintenance. And from what I have seen.. those
prices are going up and not down.
   2-4 Maintenance engineers and 3-6 QA staff. Maintenance engineers are
a special breed because they have to remain focused on old 'crap' that
might be fixed in a newer edition but with a complete new API/ABI so you
cant go to it without breaking 200 other apps. Cost to company counting
benefits, taxes, overhead, and other items.. 175k->250k per engineer.
Take the conservative numbers...  875,000.00/year.
   There are additional costs in sales force(staff of 3-6), technical
support (staff of 12 minimum to deal with just the amount of tickets 6.2
produced.), keeping a maintenance lab, shipping of defective product,
creation of the product, discounts for various partners, and things like
that. If you take a more conservative interval of ~1/year, you end up
with about 2 mil/year in those costs.

On a 40.00 boxed set, the original manufacturer sees $2-$5 after
continueing manufacturing costs, channel costs, distributer costs, and
about 10 other things I cant remember. An 80.00 product does not see
this increase to 42-45.. but to about $10-$20.. this is because for
small producers (and unless you reach the sales of Microsoft, Hasbro,
etc you are a small producer) the costs for pushing it into the market
are higher because Best Buy is assuming it is going to lose money on it
so they want a bigger cut.

Also I think this doesnt take into the taking back 'damaged/unsold'
goods that most small producers have to have in their contracts. The
last numbers I saw was that on average that was 60% of all product
shipped into the retail market. I cant remember how that is added into
the cost structure (or if I have already done so.. so I wont try to add
it in again)

So if we take the optimistic cut of $20.00 per boxed set and a
conservative costs of ~4 million/year.. you will need to sell at least
200,000 boxed sets in a year. If you have lower price point or higher
costs.. then the numbers increase quite a bit. I do not know how those
numbers compare to Red Hat sales... 

> In the driver seat at RH my decision would have been spawn off fedora
> and at yearly intervals take Fedora and Call it Red Hat Home Linux,
> whatever.  Give that RHHL a 2 year maintance life instead of the 9-12
> months of Fedora with a $50-$80 price point.
> 

There is little stopping others from doing this with Fedora. Of course
they will have to help absorb the costs of updates for the 2 years. And
push to get it into channel, and all the other things that are mostly
money losers. 

-- 
Stephen John Smoogen		smoogen at lanl.gov
Los Alamos National Lab  CCN-5 Sched 5/40  PH: 4-0645
Ta-03 SM-1498 MailStop B255 DP 10S  Los Alamos, NM 87545
-- So shines a good deed in a weary world. = Willy Wonka --