Q&A: Red Hat's Jim Whitehurst Maps The Road To $5 Billion

In a recent Q4 earnings call, Red Hat CEO Jim Whitehurst informed investors that the Raleigh, N.C.-based software vendor reached a significant milestone in 2015: $2 billion in annual revenue.

While that's an impressive take for a company dealing exclusively in open-source technologies, Whitehurst's keynote at this week's partner conference in New Orleans looked well beyond that number.

Before sharing his long-term goal with partners, Whitehurst took some time to talk to CRN about why he believes his company will get to $5 billion in sales in the next five years.

[Related: Red Hat CEO To Partners: 'Each Of You Has A Piece Of $4 Billion']

That ambition is rooted in the potential Whitehurst sees for the future of the open-source movement; next-gen technologies that Red Hat is betting on big like OpenStack, Docker and Kubernetes; and a network of partners capable of delivering those open-source solutions to the enterprise market. To illustrate his points, Whitehurst generously peppered in thoughts on industry partners and competitors (for Red Hat, they're often the same), including Microsoft, VMware, Google, Pivotal, IBM and AWS.

Open-source has become the default methodology for building next-generation architectures that will serve the cloud and mobile era, he said, and that's why Red Hat can more than double its business in half a decade. Here, a Q&A with Whitehurst:

CRN: So you recently announced hitting $2 billion in revenue last year, which is kind of astonishing, given the nature of Red Hat's business. And the theme of your keynote ... is going to be the new goal you've set for the company of reaching $5 billion within five years. What is going to allow Red Hat to accelerate its growth going forward and double the size of the business?

J.W.: Red Hat's first decade, or really I'll say the first decade of RHEL [Red Hat Enterprise Linux], and RHEL came out in 2002, was very much about demonstrating open-source could be a viable alternative to traditional software.

So if you look at whether it was RHEL versus UNIX or Windows, or the JBoss stack versus WebSphere or WebLogic, we kind of got to the point where people said, OK, that's a viable alternative. What we're seeing in the cloud-mobile era, which I look at like client-server as just kind of one thing, the architecture of that, open source is the default choice.

If you say the default choice in the mainframe era was IBM and there were some alternatives, and the default choice in the client-server era was Wintel and there were some alternatives, the default choice in the cloud-mobile world is clearly open source.

What that means for us is we have a really nice tailwind of CIOs and senior IT leaders to come to us to talk about the pace of innovation. Because if you look at the major things happening in computing now, in terms of innovation, it's almost all happening in open source. Big data and analytics, everything is happening there. Containers, cloud management, orchestration, automation, all those things are happening first in open source. I'm not trying to pick on a partner because they're a great partner, but there's still not native support for containers in Windows, right? It's a Linux-based thing.

At a high level, what I would say is we built a nice multibillion-dollar business being a viable alternative, but what's really going to drive us to the next level is the fact that open source is the default choice.

Now that doesn't mean that Red Hat is the default choice. Open source is the default choice and our role is to make it consumable for enterprise customers. A big role that we play is to make this innovation that's happening largely at Web 2.0 companies consumable for enterprise customers.

So, you've passed this inflection point where open source is no longer merely an alternative. It’s the driver of innovation. But it took almost 15 years since the launch of Red Hat Enterprise Linux to reach $2 billion in sales. How do you more than double that mark in just five years?

It's basically a five-year plan, $5 billion. It does imply an acceleration in our growth rate. And a lot of that is because we are at the center of key trends, whether that's private cloud infrastructure, telco NFV [network function virtualization], containers and all the components around containers, and how you manage all of that in a hybrid cloud way.

Again, the default choice is open source, so we have a seat at the table with CIOs as they're thinking about the future. That's very different than when we were a viable alternative and were helping the purchasing people and the data center people carve out costs, which is perfectly fine. But now it's much more. As we're building out next-generation architectures, that’s primarily an open-source question.

That's why you see Microsoft starting to embrace open source more. It's not because, I think, they want to give away software. It's that developers are using open source so you've got to open source .NET to be relevant.

And Microsoft is also offering Red Hat Linux in their cloud.

Right. Think about PaaS. IBM is using Cloud Foundry. We're obviously using Kubernetes and Docker. That whole next generation of infrastructure is going to be open.

What products do you see driving Red Hat's growth?

At the IaaS layer, OpenStack, and we're seeing tremendous traction. OpenStack has been around for a while but it's just now reaching a level of maturity that we see enterprises running material large workloads.

The problem before, I think OpenStack kind of went through this hype-cycle and then kind of dipped down. Because it was open source, so many vendors wanted to jump on it and get there early, they were putting out alpha-level code. No vendor if they controlled that code would have put it out that early, but people were jumping forward on it.

I think now that's matured and there are only several companies offering an enterprise distribution, a lot of the others have winnowed down. We believe we were clearly the leader of that, and that's going to be a core component of infrastructure at our enterprise customers.

The interesting thing about it is that's kind of scale-out, stateless workloads. That’s also now dragging us in as a VMware replacement on stateful workloads because we had the same technology architectures in terms of the hypervisor -- KVM -- and RHEL; they're both components of our scale-up stateful workloads -- we call that RHEV [Red Hat Enterprise Virtualization], and our scale-out OpenStack.

A lot of people will say, "Hey, I'm a big VMware customer, but I want to talk to you about my scale-out, next-gen workload OpenStack stuff." And then they say, "Wow, why am I paying for VMware when I can use a similar management plane to look across both these things?"

So both sides of that business are growing because of OpenStack. And then where really CIO interest is -- I don't want to say peaking, but is exploding -- is around containers.

Is that specifically focused on Docker?

Yes. Docker is the dominant format and Docker itself is basically a specification for containers. The container itself is a Linux container, it’s a series of technologies in Linux that allow you to isolate an application and specify the amount of resources it can have, and guarantee amounts.

So we're one of the largest contributors to Docker, so we certainly support that format. We have several products that actually leverage Docker, including our PaaS, which is OpenShift, which is a Docker-Kubernetes combination for running and orchestrating applications and then a developer tool chain on top.

To go back to OpenStack, people have been saying for a while now that the challenge in working with that technology is finding the engineering talent. More than a year ago, you acquired eNovance, an OpenStack services provider, which I think was recognized as a really prescient move from a vendor to seize OpenStack talent. Is the dearth of talent still holding back the technology?

So we've now trained over 10,000 engineers. We have 10,000 Red Hat-certified OpenStack engineers out there. The technology matures, the level of engineering talent you need starts to drop. So at some point, it's matured enough and the number of people that have been trained, those lines kind of cross. And we're still not fully there, but we're getting much closer. That’s why you have some customers running pretty big installs of production applications. Also telco with NFV is kind of a killer use case that's really helping drive it forward.

It's interesting in that I think people have been frustrated to some extent over the last several years, but there's no real alternative unless you want to go back to proprietary stack, and very few enterprises want to go back to a proprietary stack.

To some extent, the positive thing I'd say about VMware is they have a really strong technology road map and vision. The problem is, bluntly, they have the wrong innovation model. Nobody wants to create the next Microsoft, and Microsoft has obviously gotten more open, but in terms of somebody who controls a layer.

And when I say nobody, I mean customers and vendors. So there's a lot propelling OpenStack in the vendor community and with customers, and OpenStack is that kind of default choice that everyone's behind. Even though it's taken a little longer than people thought to ramp, now that it's matured, we're starting to see big deployments. People are waiting for it versus thinking about what their alternatives are.

What are the big themes you want to discuss with partners here in New Orleans?

OpenStack finally hitting the point where we have great use cases that we can show them, big financial services applications, good momentum there, that, in terms of dollars, [are] starting to really ramp nicely.

And on the innovation side we can talk about OpenShift, we call it Atomic Platform. Container management, how you manage and secure them, and obviously all of that kind of wrapped in hybrid cloud. And the whole message of: build to this infrastructure and you can run it on-premises, you can run it on Amazon, Azure, Google. That’s part of the value we provide.

Also again, no one wants to get locked in to Amazon, either. So in the same way RHEL kind of abstracted you from the server vendor you were running on, our broader platform abstracts you from the deployment model, again on a cloud provider or on your own data center, and that's kind of a key part of the value.

When I talked to you a year ago, during your last partner conference, you said you found the open-source business model mind-bending. How has it bent your mind more since then?

It continues to be mind-bending. Technology in general and digital disruption is basically starting to disaggregate products across the board. One could argue the reason GM made a billion-dollar investment in Lyft is they're thinking, "Wow, I thought my product was the car, but it's actually transportation."

All of sudden, you start saying, maybe the product is different from what I thought it was.

Red Hat is a little of that around software. When you were buying a piece of software, you thought you were buying functionality but you were buying a lot of things. There was an assumption of a life cycle, assumption a vendor was going to stand behind you, an assumption that that vendor has built relationships with other people in the community. So if you're running SAP on this, that all works together, a whole bunch of things that you're buying, not just functionality.

So what's mind-bending about the whole open-source model is, we're basically pulling out a chunk of that, which is the functionality itself, the source code, and we're providing everything else around that.

The hard part is, you have to explain that message, which is, you're still buying everything else, but we just de-aggregated a component. But slicing out that component changes the nature of the whole system. All of a sudden it becomes a user-innovation model, where all of a sudden Google and Amazon and Facebook are working together and driving road maps.

You talk about open-source and the de-aggregated system, but it's hard to talk about that without then coming around and saying, what you're also getting is a user-driven innovation model versus a vendor-led one, and all the characteristics associated with that. That's really why I think we're seeing open-source drive innovation. It's nothing fundamental about the source code that’s open. It’s the fact that users are driving that model.

Then you get to vendor incentives. For us, we have no incentive to drive upgrades in terms of versions because we don’t charge for that. It's a subscription because we don’t charge for the code itself, and so if a new feature comes in, we'll put it in version 4.7 of a product versus rolling version 5 because we don't get paid on an upgrade. That's one of the things that customers say they love is, we never force an upgrade cycle on people.

Where it gets mind-bending, you can break it out and say, first order, the source code is free. But then you say, well second order, it fundamentally changes how the software gets developed. And third order, it fundamentally changes the vendor incentives and therefore what you deliver and the value propositions around that.

What do you want your partners to leave here thinking about uniquely this year, as opposed to maybe last year or previous conferences? Drill home on one message.

I think the key message is even clearer than ever before: The next-generation architecture, for this cloud-mobile architecture, open source is the default choice. Period. Full stop.

If you want to be relevant for your customers going forward and talking about new workloads, you have to have a point of view and value added around open source, because that's where the world's gone. You cannot do a big data implementation without using open source. There's just not a big data equivalent of Hadoop, or Cassandra, or Spark.

Because it's become the default choice, you got to figure out your value proposition. And of course, our self-serving answer to that is Red Hat can help you do it. We've been doing it for a long time. We know how to do this, we have programs, etc. But more broadly, even in areas we're not in, if you want to talk to your customers about big data and how you can help them there, you better have figured out open source and a strategy around it.

Does it feel good to say this business was ahead of the curve?

I wish I could say we were really that good. To some extent I kind of reflect back, I think we got a little bit lucky.

The Web 2.0 companies just kind of took control and started driving the heartbeat and kind of blew past vendors in terms of cadence and innovation and we just happened to be there to catch it.

A lot of what our DNA is, we do ultimately have to pick which communities to get involved in. OpenStack is a classic example. When we decided to get involved in OpenStack, we weren't even one of the early people there. We were external, kind of getting beaten up for observing it.

But the reason we do that is, we don't know how to run a data center better than people running data centers. We waited to see what architecture and participation emerged, and even when we chose OpenStack, CloudStack was more mature, as a technology, feature for feature, line them up Chinese menu, CloudStack all the way.

But I think what we're good at is seeing which projects have the best architecture participation, which have the right neutral, non-vendor control, etc., etc., and getting involved and helping with those. The brilliant thing that NASA and Rackspace did is, they said, "We're willing to give control over to a completely neutral foundation." And that’s what got all of us to jump in and get involved and actually work well.

Again, not to beat up on a competitor, if you look at the Cloud Foundry Foundation, Pivotal's got control. Nobody's contributing code. Because you're not going to contribute code when somebody else really controls it. So it's just to say a lot of what we do is think about what's the community participation and is it truly neutral.

Even something like Kubernetes where, yeah Google's driving the majority of the contribution, it's truly an open-source project. It’s a meritocracy and we're a massive contributor to that. And we fight with them all the time. Sometimes we win and sometimes not, but it's the engineers working, it's not Google corporate and Red Hat corporate having conversations about it. It's truly a user-led engineering project. And so that excites us.

I don’t want to just sound like we're the people that take this stuff and make it consumable. That's a lot of what we do, but we do ultimately decide which projects to get involved in, we help with the governance, we try to be good upstream as well. Which comes around back to this DNA. We're generally willing to partner with anybody.