Inside Red Hat’s Magical Mystery Open-Source Sausage Factory

Facebook may be the biggest contributor to open-source software communities, but Red Hat is hands-down the world’s most successful open-source software business. Despite this success, it’s “surprising” that no other companies have really attempted to replicate its model, as Red Hat CEO Jim Whitehurst told me in an interview this week.

Surprising? Perhaps. But partly it’s because few understand the nuances of why Red Hat’s model works, and where. Whitehurst, being an open source guy, was happy to share.

Open Source As The Competitive Advantage

Most “open-source companies” have downplayed open source for years and instead tout their capabilities in specific fields like customer-relationship management, databases or whatever. Whitehurst says Red Hat is not a cloud company (OpenStack), not an operating system company (Linux) and not a  middleware company (JBoss). It’s an open-source company. 

This isn’t just semantics.

As Whitehurst suggests, “Every company really needs to understand its source of competitive advantage” and not simply “look around for big markets” where they may not have such an advantage. Red Hat, Whitehurst insists, “knows how to catalyze open-source communities.” That’s Red Hat’s core differentiator from every other major vendor.

It’s a bit like Toyota, he goes on. Toyota’s source of competitive advantage is entirely built around a production system called kaizen, which means “continuous improvement.” This has led Toyota to start in small cars but then to expand to a wide variety of other manufacturing, with kaizen at the heart of all its actions.

Red Hat’s advantage also revolves around a production system. Instead of building cars Red Hat builds and orchestrates open-source software.  Given the breadth of open-source software and its increasing importance to the markets that matter, “this means [Red Hat has] the potential to be involved in a lot of areas,” Whitehurst says.

Focusing On The Right Things

However, Whitehurst continues, “just because we have the capability to be involved in lots of areas doesn’t mean that we can simultaneously execute well in all of them.” 

Unlike Oracle, which has made a practice of buying fully-formed companies with built-in sales and marketing machines, Red Hat has  tended to “buy technologies which [we] then have to push through our sales force and other business infrastructure.”

Which is why, Whitehurst suggests, Red Hat has hitherto not delved deeply into Big Data and other juicy markets. While acknowledging Big Data is a “fast-growing area and a hot topic,” Red Hat must always ask “whether our sales force and our distribution channels can effectively embrace these along with OpenStack and our existing commitments.”

3 Keys To Red Hat Success

So Red Hat’s focus is on catalyzing open-source communities in a manageable number of big markets. Given that it gives away all of its code under open-source licenses, I asked Whitehurst to divulge how Red Hat turns code into cash.

It turns out that there are three secrets to Red Hat’s success.

The first is simply brand. Over the years Red Hat has cultivated a brand that CIOs trust. For many companies, for example, the difference between Red Hat Enterprise Linux (RHEL) and SUSE Linux or Ubuntu is simply the confidence Red Hat’s brand conveys. It’s not yet true that “no one ever got fired for buying Red Hat”—what people used to say about buying from IBM—but it’s not far off.

Perhaps more importantly, however, are “two components in Red Hat’s DNA” that drive enterprises to want to buy from the open source leader. 

First, Red Hat “knows how to get stuff done in open-source communities.” In other words, when enterprises need a patch to Linux, Red Hat is adept at getting it upstream into the kernel. Red Hat’s competitors might be able to make the fix, but, Whitehurst stresses: 

It’s not just a matter of fixing a problem but rather of doing it the right way: the open-source way. You can’t just demand that the community do things. You have to know how to persuade and work with them. This gives them confidence that you can move necessary changes upstream.

Second, over the years Red Hat has learned where its model fits, and has become selective about the kinds of open-source software it turns into products. The Red Hat model fits a platform like an operating system (or cloud platform like OpenStack), for example, but less so a framework like Spring. 

“We must have some sort of a runtime that needs a stable life,” Whitehurst explains,” or when there’s something that people want to certify to” like RHEL.

Your Mileage May Vary

Small wonder, then, that Wells Fargo analyst Jason Maynard cites Red Hat as “one of the best-positioned software vendors for long-term growth.” Maynard echoes Whitehurst, positing that Red Hat “has evolved into a diversified provider of open source infrastructure solutions, with the potential for high-teens to 20% plus top-line growth long term, in our view.”

But whether Red Hat’s model works for you depends largely on the nature of your business. I’ve worked for a variety of open source companies over nearly 15 years, and have opted for a Red Hat-like model at most of them. True to Whitehurst’s finding for Red Hat, the model hasn’t worked particularly well in application frameworks or even in Linux if you’re not building out a certification ecosystem. 

So your mileage may vary. But for Red Hat, it seems to offer the open-source leader many years of continued growth.

Photo by Paul Frields

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