Red Hat Is On Track To Become A $1 Billion Company

Oct 13, 2011

Red Hat has acquired Gluster, a company that uses software to tackle storage problems in a new way.
We had the opportunity to talk to Jim Whitehurst, CEO of Red Hat, about the acquisition, how Gluster's product works, and what it means to be steering a company into the $1 billion revenue mark.

BUSINESS INSIDER: When people ask, "What is Linux?" what do you tell them?

JIM WHITEHURST: Linux is basically the first example of user-driven innovation creating something of this size and magnitude.  When you think about 10 million lines of code, there's going to be many cases where users drive innovation.  I think we're entering an era where the big info companies are the machine pool vendors of the last age.
In the info age, the Intels, Googles, Amazons, for the first time, because of open source, are seeing significantly more innovation happening from users.

BI: In the world of Linux, where does Red Hat fit in?

JW: We believe we're the catalysts for communities building technology in an open source way.  We are the largest contributor to Linux, but represent less than 20% of contributions.  We're working with Googles and Facebooks, and on the other side, the big banks and stock exchanges.  We're about 80% of the share of paid Linux, so we're the most important commercial distribution of Linux.

BI: Is the economy helping or hindering open source?

JW: Open source is a huge beneficiary of the economy.  It's not a software category, its a production system for creating software.  Software is $20 billion business. I don't care how it grows, I care about how much share I take in the category.  Do I care if the middleware market grows at 5% or 15%? No. I care what share I'm taking.  The reason a down market is reasonably good for us is that we don't rely on market growth. We rely on share shift.  Also, we have a superior value prop -- lower costs for functionality.  And third, our model -- we don't sell licenses, we sell subscriptions to update and support, and people pay that annually.  In down markets, we generally do very very well.

BI: It seems like the average person is totally unaware that huge cloud providers like Google and Amazon rely so much on Linux and that Linux doesn't really get much of a "mindshare." Do you think Linux gets a fair shake when it comes to name recognition?

JW: It doesn't bother me.  It's not just Linux, it's an open source stack that makes up typical cloud environments.  Google would not exist if it were not for open source. Same for Facebook.  So the fact that we don't have a public face doesn't bother me as long as the people who need to know, know.

BI: What do you wish more people knew about Linux?

JW: Almost every major stock exchange uses it. Half of the world's trades happen on Linux.  They're not using Linux because it's low cost, but because it's the most reliable.  We sell it as "it's cheaper but better."  Some people think, "it's that hobbyist stuff, it's that cheap stuff."  But the most technically sophisticated clients in the world use Linux.  You don't run mission-critical operations on Windows. You just don't.  Submarines, missile defense systems, and stock exchanges run high end Intel chips on Linux.

BI: Talk to me about Gluster.

JW: The thing that excites us about storage is that we're having an explosion of data.  Smartphones consume data, yes, but they also create massive amounts of data.  By 2020, data will grow 40x.  So we saw a huge need for software storage that has radically cheaper economics. And we see that in Gluster.
The technology allows a data center to use cheap storage in a scaleout fashion.  Pandora is a customer, and let's say a song gets very hot.  A million people want to hit this one file, and it understands that and makes more copies, and then when it slows down, it creates less storage.  So applications look and say, "There's one name space," but really you can have as many disks as you want, and it creates them for you.  People have worked at this for a while, and the problem always is failure of architecture and performance issues for scaling out.  This uses an algorithm to tell you where to go and you get the ability to have a virtually infinite scaleout possibility without losing performance.

I said to the CTO there, "How did you come up with this?"  He says, "We were doing research on supercomputing, not storage." So they're coming from a completely different place and that was key here.

BI: What sets your business model apart from others?

JW:  The nature of innovation is fundamentally changing.  One of the fascinating things about open source, you can actually build models on abundance instead of scarcity.  Economic models around the world are built on scarcity....books for example are copyrighted so there's a profit model.  Open source kind of turns that on its head.  Instead of looking at abundance as a bug, lets treat it as a feature.  Let's make this freely available and focus on the power of abundance.  People can see something and add a layer to it.

There are very few software companies who have achieved a billion dollars in revenue, and we're open source. At the end of this fiscal year we're looking at over $1.1 billion.  We're seeing a high 20% growth rate year over year.

BI: Are you surprised by that number, or did it seem inevitable?

JW: I think in the last couple of years, it's become inevitable.  When I joined 3 years ago, Linux was the promise of computer science.  Look at our customer list from 3 years ago, it was stock exchanges and telcos, the sophisticated guys.  We didn't think we would have the mainstream companies.  We've made this product ubiquitous.  We're building relationships to make this consumable for traditional enterprise.  So now, it's higher performing, significantly lower price, and once you get to that point where you've addressed the obstacles, it's almost an inevitability.

A few years ago, it was said, "Can you make this business model work for traditional enterprise?"  And that's what we've done.

Source Business Insider

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