Okay, here’s another one of Dana’s stories that I take exception to. Note that I respect Dana’s writings and I read his blog daily.
In Reputation vs. marketing in open source by ZDNet‘s Dana Blankenhorn, he says:
One of the big stories for 2007 is going to be the battle between marketing and reputation…..You don’t see a lot of high-cost advertising from companies like RedHat. It’s not necessary.
Take a look at Red Hat’s advertising spending as a percentage of total revenue. Next, compare Red Hat’s SG&A spending (you know, where their Ad budget sits) to R&D spending. Let’s not forget to look at Red Hat SG&A spending as a percentage of total revenue. Now let’s compare Red Hat’s data to similar data from traditional IT vendors like IBM, Oracle or Microsoft. What do you find? Well, I’ve posted some of this before, but I’ll cut & paste it again:
Company | Ad spending as % of Total Rev |
SG&A to R&D |
SG&A as % of Total Rev |
R&D as % of Total Rev |
Source |
IBM | 1.4% | 3.6x | 23% | 6*% | Full year 2005 |
Microsoft | 2.8% | 2.1x | 31% | 15% | Fiscal year 2006 |
Oracle | 0.7% | 2.0x | 26% | 11% | Fiscal year 2006 |
Red Hat | 4.6% | 3.1x | 54% | 18% | 6 months Fiscal 2006 |
[Note: To find Advertising spending, do a “CTRL-F” search for the word “advertising” in the above SEC filings. The data is included in text, and not usually in a nice table format in the filings.]
[*Note 2: IBM drives significant revenue from services. While IBM likely does invest R&D into services research, a much lower percentage is likely required than for pure science R&D]
So, whether or not Red Hat is putting out a lot of “high-cost advertising” or not, they sure are spending their fair share (and then some) on advertising. It should also raise a few eyebrows that Red Hat SG&A spending is such a large % of their total revenue. Yes, if we looked at absolute Ad spending, Red Hat would be spending far less than the others ($4.2M vs. $1.284B for IBM) on Advertising. But it doesn’t make sense to look at absolute figures when revenues differ so much amongst the group. Hence the need for a proportional analysis.
Now, here’s what gets me. It took me 20 minutes to pull this data together when I first posted it and another 10 minutes to get the Ad spending data today. Why couldn’t Dana (or Matt in this case) do the same before repeating “obvious truths” about Red Hat or open source in general? Have we all had too much of the Kool-Aid? We (the collective open source supporters) need to present analysis based on facts rather than “obvious truths” if we are to appear credible to those who don’t gork the value of open source just yet.
12.19.06 at 7:34 pm
[…] Today I read Savio Rodrigues post, comparing Red Hat’s SG&A spending to similar data from IBM, Oracle or Microsoft and I got a clear picture of the (often) unseen side of the moon. I think he did a very good job searching around SEC files. […]
06.25.07 at 8:49 am
[…] Mon 25 Jun 2007 Truths That Become Less So Posted by Savio Rodrigues under WAS Community Edition , WAS CE , WebSphere , linux , Open Source Matt and Dave D. good guys that I respect, but they are also wrong. There, I said it. We Canadians aren’t known for being so blunt, but this needed to be said. I may get a few eggs directed at me, but so be it. You can argue with me, but you’ll have to use your data to argue with my data. […]
07.27.07 at 3:22 pm
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11.29.11 at 2:45 am
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