Having established itself as the leading enterprise Linux vendor, Red Hat is in a pivotal phase of reinventing itself as a broader open-source software provider and a long-term technology leader a la Microsoft and Oracle. It's a tall order, and among other things it will take a business plan that lets the company move smoothly through this make-or-break stage.
Coming up with that internal plan lies on the shoulders of 30-year IT veteran Nick Van Wyk. Van Wyk joined Red Hat last year from EMC, taking a newly created role as vice president of operations to optimize Red Hat's subscription model and create better business processes to support the company's channel.
Two weeks ago, Red Hat also appointed him to a new role as senior director, transformation, in charge of examining the company's internal processes and operations to "reposition all of our systems to support the next stage of our evolution," he said.
That stage includes capitalizing on its April 2006 purchase of JBoss and the open-source middleware package that comes along with it, as well as growing from a company with annual revenue of about $500 million to a billion-dollar company. Red Hat, whose affections toward other vendors can be fickle, also is challenged to build out a stronger ecosystem of partners to support not only Red Hat Enterprise Linux OS but also JBoss and any new technologies it brings to the table.
In the current technology business climate, Red Hat is a bit of an anomaly. The company has managed to exist for nearly 10 years with one core competency: a Linux server distribution it supports and provides maintenance for. The company has branched out into other areas of software, such as desktop Linux and virtualization, but for the most part, the server OS has been its bread and butter.
Recognizing it can't subsist long on this diet in an environment of consolidation and diversification, Red Hat made a calculated risk and purchased JBoss. It's now trying to position itself to make the most out of that and possible other new product developments or purchases, Van Wyk said.
"As we move forward, we will more be described as an open source services and solutions company," he said. "That's an enhanced position for Red Hat."
In its present situation, Red Hat has "a base, a critical mass of applications from which to grow," said George Weiss, vice president and distinguished analyst at Gartner. But investors are more interested in what comes next than in how well Red Hat is currently executing, he said.
"It's not a look at the present basis, it's what you can do to instill market confidence that you have a sufficiently scalable business model, and the operating system alone is not going to be it," Weiss said.
Van Wyk knows full well the pressure on the company, and said that during Red Hat's two-to-three-year transformation, the company will be making changes to ensure it can meet both the internal and the external needs of scaling an IT company.
The company is currently examining how it handles a host of functions, among them lead management, partner relationship management, subscriptions, financial systems and technical support. The next step in the transition will be to make changes where necessary to ensure the business is operating efficiently and providing the highest levels of customer service, he said.
"This whole idea of ease -- the ease of doing business with Red Hat, the ease of support, the automation of those technologies, the time to acquire OS technologies, zero time to subscribe -- those are all built into [our goals]," Van Wyk said. "These are things that have been said to us that customers want to have."
Van Wyk declined to go into detail about exactly how Red Hat will execute on this strategy, saying the company won't really have a clear idea of the changes it will make until the initial assessment is complete.
One thing Red Hat should consider is more acquisitions, said Raven Zachary, open source research director for The 451 Group. But Red Hat should move fast to acquire companies that will help them get into new markets -- such as database and data management -- because larger IT vendors are eyeing similar purchases.
"They have companies like Oracle, Microsoft, IBM and SAP competing for the same targets," he said. "Red Hat doesn't have the capital to compete with those suitors. They need to move very quickly before we get into an era where the largest IT vendors are competing for these targets."