Whitehurst: Free OSS Red Hat's biggest competition in Asia

Red Hat still faces a major challenge convincing organisations to pay for its services, especially in markets such as China where there is widespread use of free, open source alternatives, says CEO Jim Whitehurst.
Written by Eileen Yu, Senior Contributing Editor

SAN FRANCISCO, USA--It may be the first open source vendor to churn US$2 billion in revenue, but Red Hat's market share in Asia remains small and it still faces a major challenge convincing organisations to pay for its services.

The vendor in March reported US$2.05 billion in revenue for its fiscal year 2016, with subscriptions accounting for 88 percent at US$1.8 billion. Just four years ago, it crossed US$1.113 billion in revenue, becoming the first open source vendor to do reach a billion dollars.

Daphne Chung, IDC's Asia-Pacific research director of system infrastructure software research, noted that Red Hat had been able to make Linux enterprise-ready and was successful at doing so, helping companies resolve issues with skillsets and business capabilities.

But while it led the market ahead of other open source vendors, it was far behind other competitors in the wider software market, where it competed against the likes of IBM, Oracle, and SAP. Chung told ZDNet in an e-mail interview. Against such players, Red Hat had a much smaller market share, she said.

"No doubt, Red Hat is a huge open source software success story and I don't think anyone would dispute that," she said. "But, if you think along the context of the total market, it's a different picture."

The IDC analyst added that Red Hat's revenue from Asia-Pacific, compared to its total worldwide figure, also still lagged behind other large software vendors.

The smallest of three regions, Asia contributed roughly 13.13 percent of Red Hat's overall revenue, while EMEA accounted for 22.93 percent and the Americas pushed 63.94 percent of totals revenue. In comparison, 20.7 percent of IBM's total revenue came from the Asia-Pacific region, while EMEA accounted for 32.02 percent.

To boost its growth in the region over the next couple of years, Chung said Red Hat would have to make its offerings "more consumable", for instance, by providing integrated products that did not require a great deal of skills to deploy and manage.

The need to hide or manage the complexity for corporate users was an especially important requirement for open source vendors, the IDC analyst said.

Asked if Asia still lacked the skillsets to deploy and manage open source environments, Red Hat President and CEO Jim Whitehurst said while this might be true five years ago, it was no longer a significant challenge in some parts of the region, particularly, in markets such as Japan, Korea, China, and India.

Speaking to Asian reporters here at Red Hat Summit 2016, Whitehurst revealed that the vendor's key challenge instead was an apparent preference to depend on free, open source software. Many organisations in China, for instance, were comfortable using free alternatives and managing these on their own.

He recalled a recent visit where he met with the CIO of a major insurance company, which was using Ceph widely across the organisation but getting its support from the open community. Such scenarios were not uncommon in China, where selling and persuading organisations about the value of its model was the biggest hurdle Red Hat faced, he said.

The Asian market also was among the largest contributors to OpenStack, second only to the US, and clearly had no lack of skillsets in this space. Historically, too, skilled engineers in China could be hired cheaply.

He also pointed to India as another market with a sizeable free open source community that Red Hat had to sell against, with its own Linux supported version. He explained that the vendor's proposition here was for organisations to let the vendor deploy the main open source infrastructure, on top of which the organisation's engineers could then build their own applications.

"So we need to demonstrate there's value in paying Red Hat [to manage their open source infrastructure] than [hiring their own engineers]," Whitehurst said. "Our biggest competitor, really, is people who use free versions of open source. We need to convince them of the value Red Hat brings."

And the vendor would look to do so by expanding its portfolio into what he described as "next-generation" areas such as containers, for which a host of new product releases were unveiled at the summit, artificial intelligence, and machine learning.

With technologies in this next-generation realm still evolving, it was still unclear how products eventually would take form and how the open source community, for instance, would drive the development of container, he said.

Whitehurst, however, underscored his confidence that the management of containers at scale would grow to become a billion-dollar business for Red Hat.

At the summit, and in the past year, the open source vendor had heavily touted containers as "transformative" and critical to enable businesses to achieve application agility, management efficiencies, and consistency across the stack.

Its plethora of container announcements this week were largely based on its OpenShift container platform and spanned across developer to production environments and hybrid clouds. These included OpenShift Container Local, which encompassed a Container Developer Kit, OpenShift Container Lab to allow organisations to test and assess containers in non-production server environments, as well as new security and storage features aimed at simplifying the deployment and management of containers for businesses.

While it was clearly betting big on containers playing a key role in its future growth, Whitehurst said Red Hat was unlikely to go into the managed services business, preferring instead to partner with the likes of Rackspace.

"What we're good at is open source software and we think we have a lot of opportunities in many more categories to get involved in open source software products," he said, pointing to segments such as big data and software defined networking. "We would much rather focus on that and work with partners to offer managed services."

"We don't run data centres and would prefer to find good partners such as systems integrators and OEMs that are good at that and work with them to do that. We still have plenty of markets to go into so there's no lack of opportunities."

Based in Singapore, Eileen Yu reported for ZDNet from Red Hat Summit 2016 in San Francisco, USA, on the invitation of Red Hat.

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