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.
But as companies look toward moving to, in the long run, public or private cloud, job one is to modernize your infrastructure so your applications are running on a modern infrastructure that is cloud-capable. And guess what? That's Linux. Propelling our business forward is companies saying, "I ultimately want to run these applications in some type of a cloud context."
Generally today, most people are thinking private cloud, but -- hey, I can't do that if it's running on Solaris. We still have a lot of legacy migration going on, just purely as people prepare to move workloads to the cloud. When [you realize] all clouds but Azure run Linux, it just makes sense that people are going to migrate those workloads to Linux.
IDGE: Michael Tiemann, your VP of Open Source Affairs, was quoted recently as saying that every dollar of software Red Hat sells displaces $10 of proprietary junk that never really worked in the first place. Do you agree with that and can you expand on what he means by that?
Whitehurst: Well, a lot of these people selling software are partners, so that might be a little bit strong. But there is good data to say that our stack replaces large chunks of proprietary software. And unlike a lot of companies that say, "Ooh, here's another need, let me add another product," we continue to build more and more into our core offering. So what he means by that is, depending on whose data you look at, the server operating system market is a $20 billion market.
We are the second largest operating system behind Windows, yet our total revenues are only a billion. Obviously our Linux revenues are less than that. So we are a single-digit share player in terms of server operating system revenues. But we're certainly a solid double-digit player in terms of server operating system installations. That, on its face, demonstrates that we provide a tremendous amount of value.
But more than that, if you think about it over time, we've added SELinux for security. We added MPIO, which does multipathing, so you don't have to buy that separately. We added in -- again, this is all in the core operating system -- we added in the hypervisor, so you don't have to go buy VMware separately. We continue to add more and more into our core offering without ever changing our price, raising price, making them separate products. That means if you buy Red Hat and you avail yourself of those additions, you don't have to buy multiple different products.
We've put in a lot of identity management into the core operating system as well. So it's not just that I can replace Solaris or AIX or Windows with Linux, it's all the other components of software [we provide]. We just build that in and continue to provide that for free as we add more and more value to the subscription. So I would argue that easily we're providing $10 of savings for every dollar spent.