Red Hat's secrets of success

Red Hat has done it again. The company reported fourth quarter revenues of $629 million, up 16 percent year-over-year. This translates to over $2.4 billion in annual revenues.

That’s $2.4 billion dollars, from pure open source projects. There is not a single strand of proprietary code in Red Hat’s products. So while some say open source is hard to monetize, here we have a company that continues to set the example for others to follow.

However, I recall an earlier interview with Red Hat CEO Jim Whitehurst where he said, “If open source was a proprietary technology and we had been the large share player of Linux as we are with RHEL, we would be generating 20 billion dollars of revenue instead of two billion in total for the company.”

But Red Hat is sticking to open source, they are the very definition of how open source is done right.

What is the secret of their success?

Things are much simpler than they seem. Thanks to Red Hat’s (and SUSE’s) success with Linux in the enterprise, companies have become comfortable with using open source and releasing their own technologies as open source.

Thanks to companies like Red Hat and SUSE, open source is becoming the defacto software development model. Even Apple released its Swift language as open source and Microsoft is open sourcing its core technologies.

But what sets Red Hat apart from the rest, based on my observation of the company for more than 12 years, is that Red Hat continues to evolve with the changing market, instead of reacting and responding to the market, or failing to see where the market is going.

In 2014, they saw the rise of cloud and shifted their focus from server-client to cloud-mobile. They acquired a technology to create a fully open source PaaS technology OpenShift. They saw the challenges and opportunities in the automation of IT infrastructure and acquired Ansible. They came up with software defined solutions based on Gluster, they created Project Atomic. They created and built their OpenStack cloud...and they continue to evolve.

But as they are expanding beyond the core Linux server business, they are careful not  to spread themselves too thin. Red Hat has not dipped their toes in machine learning, AI and many other technologies like software defined networking.

“As some of those products start to mature a little bit we'll certainly look to invest in other areas," Whitehurst explained, "What limits us are our financial and managerial resources to be able to go into those areas. There's no reason Red Hat couldn't be the big player in big data or the big player in SDN or the big player in analytics. It's just a matter of where we are investing heavily right now. Those are the areas we are in; I can't do five or six other things.”

In addition, Red Hat also continues to maintain its mindshare. I think Red Hat made a smart move by acquiring CentOS, a RHEL (Red Hat Enterprise Linux) clone that’s available for free of cost and is the biggest competitor to Debian. Even if Red Hat doesn’t make a dime from CentOS, the company controls that part of the market; every CentOS customer is a Red Hat customer. Some of these customers might graduate to become paid customers and that’s where they go with RHEL, instead of Debian or Ubuntu.

Even if they don’t, they are consuming RHEL technologies, they are becoming experts in RHEL technologies. It’s mindshare.

Red Hat has also succeeded in growing its reputation within the larger open source and Linux community by funding and sponsoring projects such as Gnome. Red Hat is among the top contributors to the Linux kernel.

Red Hat continues to amaze me. They have created a very good playbook for new and old open source companies to follow.

The key points I get from Red Hat’s success are:

  • Keep 'everything' open source
  • Contribute to key open source projects (it benefits you as you can also influence the direction of the project. The more you contribute, the more say you get)
  • Take risks and continue to evolve, instead of playing it safe and sticking to legacy products that have been doing fine
  • Bite off as much as you can chew; don’t enter so many areas just because that’s trendy or because everyone else is doing it.

When I asked Paul Cormier, president of products and technologies at Red Hat, the secret behind the company's success, he said, “As customers make cloud part of their infrastructure, we've built a portfolio that matches their needs. We were able to do this because the innovation that enables the cloud is based on Linux and open source. Beyond that, the 'secret sauce' is remaining committed to our model — 100 percent open source across our portfolio. Some companies have endeavored to only embrace 'open' where it benefits them, such as open core models. Half open is half closed, limiting the benefits of a fully open source model."

I quote my favorite author Charles Bukowski who said this in a totally different context: “If you're going to try, go all the way. Otherwise, don't even start.”

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