When you think about the leading cloud computing companies, does the name Red Hat spring to mind? Jim Whitehurst hopes it does. In fact, the CEO of the rapidly growing, Raleigh, NC-based, open source company, is doing everything in his power to ensure that Red Hat has the widest possible portfolio of tools for your private and hybrid cloud -- a collection of technologies that Whitehurst says is only rivaled by Microsoft (without the "walled garden" strategy, of course). In addition to Enterprise Linux -- the flagship product -- Red Hat's growing cloud stack includes tools for server and storage virtualization, management, security, and an "enterprise-ready" version of OpenStack.
In this installment of the IDG Enterprise CEO Interview Series, Whitehurst talked with Chief Content Officer John Gallant about the changing competitive landscape in enterprise software and explained why VMware is now Red Hat's closest rival. He also talked about how Microsoft's transitions to the cloud and a new-generation operating system will benefit Red Hat. Whitehurst also explored why many IT leaders have a fundamentally flawed view of Red Hat's strategy and how his time as an executive with Delta Airlines made him a better tech company CEO.
IDGE: I think if you asked most people to describe Red Hat, they would probably say, "That's the Linux company." But how do you want CIOs or other technology leaders to describe Red Hat?
IDGE: Red Hat is experiencing very strong growth right now. What's driving that? [In June, the company reported FY13 first quarter results showing 19 percent year-on-year revenue growth and 12 percent growth in earnings per share.]
Whitehurst: I think the growth is really coming from two distinct areas, which is nice, because it gives us some real health in the business. One is what I'll just call "mainstream adoption in the traditional data center." So Unix-to-Linux or Windows-to-Linux migration, WebSphere, or Web Logic migrations to JBoss [middleware], VMware migrations to RHEV [Red Hat Enterprise Virtualization]. Lower-cost solutions to traditional software with mainstream adoption.
Five years ago, our customer list was an all-star list of the most technically sophisticated companies in the world. It was the major stock exchanges and investment banks and telcos and military and intelligence agencies. It was a great list, and they were buying on the merits of the technology, not necessarily on price.
But how come the average traditional corporation wasn't using it? Frankly, we just never spent a lot of time making the product easy to use. We hadn't built out a broad-channeled ecosystem of partners to go to market with. So one of the things that's really driving our growth is that we worked on building those out, we built deep relationships with systems integrators and channel partners. We just continue to work toward getting our fair share by having better products at dramatically lower cost. So that's number one.
Number two is cloud. When I say "cloud," I know that's a generic term, and I actually don't mean people running truly massive private clouds. We have early adopters doing that. DreamWorks is a great example of a massive private cloud that runs on an entire Red Hat stack. They're the exception, not the rule.
IDGE: I want to explore a little bit more about this, what you bring to the market. Obviously, where the software itself is open source, the whole value proposition is around what you deliver to make it easier for the enterprise to deploy.
Whitehurst: Let me spend a minute on that, because I think a lot of companies, even customers of ours, immediately jump to the thought that Red Hat offers support and services on top of free software. That is actually not what we do, or it is a very small part of what we do.
If you look at Red Hat, we have 93 percent gross margin on our subscriptions. In other words, support is seven percent of our cost structure. That looks very similar to any other software company. R&D as a percentage of revenue is 18 percent for Red Hat. It's 16 percent for Citrix, it's 12 percent for Oracle, it's 14 percent for Symantec. So even for being open source, we're spending more as a percentage of revenue on R&D than they are. The obvious question is: Why? Yes, we're getting the code elsewhere. But the real cost is productization. We take that [open source] code and we turn it into a product and commit to supporting it for 10 years, there is massive cost associated with that.
Let me use a simple example. Let's say you're the New York Stock Exchange and you implement your trading platform -- they're a big reference customer of ours -- on Red Hat Enterprise Linux. You probably spent a lot of money to implement that, and you probably want to run it a long time. Well, three years from now, Intel comes out with a new chip, and you want to use that new chip because it will make your trading platform faster. Well, the beauty of open source, Intel enables that new chip in the new kernel. But if you're using a three-year-old operating system, you don't have to completely port your application every time there's a new piece of hardware that comes out.
Red Hat maintains each of those kernels for 10 years. We put something like 150 people against each release that have to stay with that release for 10 years. When someone fixes a bug upstream in the new kernel, we have to track that and backport it and patch it into all the old kernels. When Intel enables a new chip or anybody enables a new piece of hardware, we have to backport that into those old kernels. So we have a massive work structure to maintain those to provide that stability.
IDGE: Thanks for clarifying that. What I was going to drive at with the question here is that as people are going through this transition around cloud and mobility and things like that, how is the services set expanding to help people be more successful in those bigger initiatives around hybrid cloud or more of a private cloud kind of environment? Those are beyond individual servers and less stovepiped projects.
Whitehurst: There are two levels of things that we are doing to help make cloud truly a reality for enterprises. One is obviously we continue to expand our stack of products to make that possible. We have virtualization, we have the operating system, we have the application infrastructure that can sit on top of that. Clearly, storage is an issue. If you can't move your data with your application, then the promise of cloud kind of goes away, and you can't do that with a hardware appliance.
So, we acquired a company called Gluster, which is a software storage technology. You can move your data or leave your data and your application doesn't need to know where it is. So we continue to add layers to the stack and provide services to help our customers do that. So again, people like DreamWorks that have built this soup-to-nuts stack on Red Hat -- from our virtualization to our messaging technologies for applications to talk to each other to obviously the operating system and the middleware, we provide services to companies to help do that as well.
But the second thing that we've done -- and this is really important for making hybrid cloud a reality -- and that is applications certified to an operating system. The two operating systems that have far more certifications than anyone else are Windows and Red Hat Enterprise Linux. And most enterprises aren't going to run an application if it's not in a certified stack -- hardware/software stack. We've been working with major cloud providers to certify Red Hat on those clouds, and therefore applications certified on Red Hat are certified in that environment in the same way they would be if they were on a certified server. If you're an ISV, you certify the Red Hat, and we'll make sure that we've done all the underlying engineering. Whether it's a certain ProLiant HP server or it's the Amazon EC2 cloud, if we certify that instance for Red Hat, then the software vendor is a certified instance for them, for the customer it's a certified instance as well.
That gets to be really important because the concept of "write once and I'm going to be able to move my application around," that only works if you're going to get support from all of your vendors involved in that stack. We do that. It's the place where applications certify. We've also been very, very involved in a project called DeltaCloud. Each cloud has different APIs, whether you run in OpenStack or zCloud or Amazon on EC2 and IBM has theirs. If you write to a specific vendor's or specific cloud's APIs, you can never move that application again. So we've been working on an abstraction hosted at Apache called DeltaCloud, where you can write to that set of APIs, which abstract the APIs of the various cloud vendors, and then you can move your application across to any of those cloud vendors.
IDGE: I want to explore the competitive landscape and really help readers understand how your strategy and your position differ from some key companies. I'll put them into three different groups, and you may love or hate the groupings, and feel free to comment on them, but help people understand you versus these companies. One is the open source companies like Suse and Canonical.
Whitehurst: They are both just operating system companies, where we provide a full infrastructure stack. They can provide an operating system, but they can't really guide you to a cloud or a holistic infrastructure solution because they don't have the other components. Even within the product of those companies, which is Linux, neither one of them makes significant contributions to the future of Linux. They don't hire a lot of upstream kernel people that are doing a lot of that development. So they can't, on behalf of customers and others, drive forward the long-term agenda of Linux.
Finally, they don't have anywhere near the same certified ecosystem of partners that we have. So you can run Ubuntu, but if you run SAP on it and it crashes, call SAP, they're not going to tech support you on it. Canonical hasn't built that kind of network. For a traditional enterprise, they don't offer that same kind of broad value nor a commitment to a 10-year of life without ever breaking binary compatibility across applications. They just don't quite offer that same kind of true enterprise mission-critical class kind of support and all the required infrastructure and cost around that.
IDGE: How do you stack up against the mainstream IT companies, the companies like IBM, HP, or Oracle?
Whitehurst: All those are great companies, and at least two of those three are our partners. But the issue is they offer holistic solutions. In some cases, holistic solutions make a lot of sense, but in all honesty, you're getting more and more locked into single vendor. While they can offer some nice solutions, you're not talking about agnostic vendors that work across all other vendors.
So when I talk about open, I don't mean it's just cheaper, there are free alternatives out there. I mean open in terms of the road map isn't being driven by one company or one R&D department. We absolutely, fundamentally believe by having users deeply involved and the most technically sophisticated forward-leaning users, in solving their own problem, that's going to lead to better ultimate solutions for our customers.
So when I say that over the next five years I'm confident that we will deliver the absolute best stack for cloud computing, it's not because I think our CTO is so bright. He is, we have a brilliant CTO. But it is because I look at the companies who are helping us drive our roadmap and contributing to that, and it's the largest, most sophisticated technology companies in the world -- Amazon, Facebook, they're all built on open source stacks. So it's more of the approach relative to VMware.
Now, versus Microsoft, Microsoft is a walled garden. It's you only use Windows .Net, etc., Azure is a great way to go. If you want kind of more open standards-based stuff, obviously that's a VMware/Red Hat world. And again, we would actually argue even the VMware world, while the technology stacks look similar, our approach to how we deliver functionality within that is the superior way to do it. By the way, it also leads to dramatically lower costs.
IDGE: Continuing with Microsoft, the company has a couple of major transitions that they have to get through, one being the transition to the cloud, the other around the next generation of the operating system. How do you think both of these transitions will affect the open source market and your company in particular?
Whitehurst: Whenever change happens, people look at their alternatives. The biggest factor I would actually argue that has driven IT for the last 20 years is not Moore's Law. It's inertia. When something's running, nobody wants to change it. So the best thing that happens for Red Hat is in very difficult economic times, when budgets are so tight people have to try new things, we do well. The other time we do well is when there are true architectural shifts going on, because as soon as you're going through an architectural shift, you get to reevaluate your technology. What never happens is an application is running fine and even if this technology stack it's running on is expensive, it's still cheaper to keep doing that than migrating the application.
Take a prime example: OpenStack. Others were out talking about what should be in a cloud-based management suite and [when] VMware came out with vCloud Director, people said they had a lead. But we always believed that things like OpenStack, where you have hundreds of companies and hundreds of users involved in driving the road map, is a much better way to go.
We're one of the largest contributors to OpenStack now. But we were very, very quiet and made no announcements about it until recently because we didn't need to. We were contributing code, we were involved in it, we're helping drive the direction. But if we start screaming that we're driving the direction, A) it's not accurate because there are a lot of people helping drive the direction, and B) that's just not the way Red Hat acts. We just announced our OpenStack product, and we are confident that we're going to deliver the best set of cloud management tools between our own Red Hat virtualization technologies and OpenStack, because we're working with the broad communities to do that. So we didn't get all the press that VMware does by making a big splash, or even other people trying to say they're involved in OpenStack. But in the end, we're the second largest contributor; we're the only major company now that's going to offer a supported enterprise version of that.
Our mission statement is to be the catalyst in communities of customers and partners and contributors building better technology the open source way. We never scream about leadership because communities don't like the idea that there is a leader, right? We're are a catalyst and we're a participant. But we're in these communities with some of the biggest, most sophisticated IT users in the world, which is why we think in the end we deliver better technology. That's what's so important about Red Hat: How we do it is as important about what we deliver.
IDGE: I think what you folks have said recently is that you were the third largest contributor to the OpenStack development effort.
Whitehurst: That could be, because it was around a specific release, and I know in some measures we're number two and in some we're number three.
The big thing that slows down innovation and drives up cost is ultimately when you get stuck on a platform and you can't move it, then vendors start charging you more. That's when all those insidious costs start to build. We can deliver the components for a full cloud solution, but more importantly, if you write to a Red Hat stack you can run it in any environment, including VMware's and Microsoft. And it's all certified and will work. That is a very, very differentiated position from our competitors.
Equally important is we're not a "throw out everything you have." We work well with other people's technologies. You have a VMware investment. Fine, that's OK. You can still build a Red Hat hybrid cloud sitting on top of that or with Microsoft, etc.
IDGE: I want to shift gears and talk about a huge trend that our audiences are dealing with, which is around mobile and BYOD. I'm not clear on Red Hat's mobile strategy. How are you helping companies deal with that piece of the big IT shift that's happening today?
Whitehurst: Our strategy starts with our roots. Any application you're going to serve up on mobile, we have the back-end infrastructure in the data center on which it can run. As these applications get more sophisticated and [support] higher-stakes transactions, the full JBoss portfolio, the ability to do high-level transactions with guaranteed performance and all of those components in the backend infrastructure is critical. We continue to make strides on the front end of that, but frankly we don't have a product in the market today for developers on the front end. I will say we do not play on end-user devices, we think there's plenty of selections out there for end-user devices. So you're not going to see a Red Hat Linux running on devices.
What we're focused on now for customers who are writing applications running on our infrastructure is to help make those mobile front ends easy to write and deploy and then make those easy to manage. At this point, we're mainly doing that via partnerships, companies like Appcelerator. We have our platform-as-a-service called OpenShift, where enterprises can go develop applications, and they can write the client application once and run across platforms on someone like Appcelerator. Click a button and deploy on our platform-as-a-service using Appcelerator as the technology for the mobile client.
Tech companies, in general, are full of people who wear jeans and dress casually, but they often act arrogantly. There are a lot of people who think they are visionaries and brilliant, and there are [a few] people like that. I mean, Steve Jobs was a brilliant visionary. But guess what? There are not a lot of Steve Jobs, but there are a lot of people trying to act that way. We just absolutely, positively believe that collaboration leads to better decisions. Every day I come to work and somebody tells me I did this wrong or critiques that or speaks up on some other thing, I actually celebrate it and welcome it. I absolutely believe that we will build better products than VMware, not because we're so great, but because we work with communities of people who are great. If you run the company that way, we end up -- obviously we've done quite well.
IDGE: Jim, I'm interested in your background, working with an airline, which seems -- at least on its face -- that it couldn't be more different than running a tech company. But is it? What did you learn working for an airline that helps you, gives you a leg up as a tech CEO?
Whitehurst: First off, airlines are one of the toughest industries out there. You have to learn how to manage in a really tough environment, and you have to execute and think about every single little thing. In general, technology companies -- once they're established -- spew out cash, and when companies are that successful, that doesn't necessarily breed good management. Many technology companies, over time, don't do all the little things, really rigorous planning. Do we really need to spend that dollar there? Is there a better place we can spend it? Really managing the nickels. We try to invest heavily in our business, but really manage all the way down to the nickels and the pennies to make sure that when we spend money that we're doing it as effectively as possible.
I think rigor around planning and budgeting. If I had to say what have I hopefully brought to Red Hat is discipline around planning and budgeting. Let's lay out a five-year plan, and let's deliver against the initiatives and let's track those initiatives every month, and let's make sure we execute against them. That I think I brought from my experience at Delta, where pennies matter.
But what I do every day is totally and completely opposite of what I did at Delta. Ninety percent of my time at Delta was either out talking to employees, which was important, or it was in my office with numbers in my face. "Why is our first-flight performance at LaGuardia down two percent this week versus last week?" type of stuff. It's a details-oriented business.
IDGE: One of the criticisms regarding OpenStack has been that it's not enterprise ready. Now, with your version, is it enterprise ready?
Whitehurst: We're in tech preview, and we're in tech preview for a reason. This is the key. Red Hat, we're not a little software company that throws something out and says it runs. We run the New York Stock Exchange, we run advanced weapons systems. When we say something is enterprise ready, it really is. We think it's close, but we're in tech preview to make sure that we can work with some of our best customers to really harden it. It's getting there. We wouldn't have put it in tech preview if we didn't think the underlying technology was mature enough to be there.
IDGE: And this is a tough one to answer since you're early into this enterprise-ready OpenStack market, but how do you expect that what you're offering will differ from what comes down the road from other providers?
Whitehurst: My general observation is that most software companies, especially startup software companies, short-circuit the model. Here's what I mean by that: When we come out with a version of Red Hat Enterprise Linux, I'll use that as an example, we commit to supporting that thing for 10 years. We put 100, 150 engineers against that, and they need to stay with that for 10 years because there is no way you can offer true, solid, SLA production-level support without the test harnesses and all of the work that we do to get that ready, but also the commitment that we're going to continue to be able to patch the thing for a long period of time. The security updates, the patching, the hardware updates, all those things we do without ever breaking application binary compatibility.
The issue you're going to have with something like OpenStack is we're going in with our eyes wide open. It will take -- I'm making up numbers now, but call it hundreds of people for us to effectively be able to offer an enterprise version of OpenStack. In our model, at some point we freeze the spec, we move the bits over, we do tons of testing in the test harnesses, just high level, trying to run things at extremes and then ultimately committing to supporting that for a number of years. That's going to take a lot of people. You have startups around OpenStack, but when they look at the cost of development, of putting 100 people against making this thing solid and supporting it for the next x years, most of the companies say, "I can't afford to do that, so I'm going to go with the open source code and I'm going to offer support on top of that." That does not work. That's like building a building on top of sand.