Why Red Hat is misunderstood amid public cloud worries

Folks need to realize that Red Hat's take on the hybrid cloud is a bit different than many enterprise technology players. The difference shows up in strong growth for Red Hat.
Written by Larry Dignan, Contributor

It's not too often that a flourishing enterprise technology company grows 18 percent to 22 percent for the last six quarters and is treated like it's about to roll over.

Welcome to Red Hat's conundrum. The company delivered a strong second quarter and landed 55 deals worth more than $1 million.

Yet Red Hat is continually having to hurdle the proverbial wall of worry about the public cloud and how it will ultimately lose revenue as enterprises move away from running their own datacenters.

Those worries are one reason Red Hat shares have been flat to down year to date.

Here's the problem. Red Hat habitually describes its software -- notably Red Hat Enterprise Linux, OpenShift, and its OpenStack efforts -- as key to the hybrid cloud. As a term, hybrid cloud typically refers to a legacy vendor trying to sell you more datacenter gear and software. The catch is that Red Hat's hybrid cloud is different relative to the crowd.

Jim Whitehurst, CEO of Red Hat, was asked about public cloud cannibalization on the company's earnings conference call. He explained how Red Hat runs on multiple clouds just as it does servers.

"There's no question that there are concerns about the public cloud and whether it is good or bad for Red Hat," said Whitehurst in an interview. "To some people a move to the public cloud means that Red Hat is legacy."

Here's the catch. Public cloud deployments don't necessarily hurt Red Hat, which runs on most public clouds including Microsoft's Azure. "The value proposition from us is the same as it was when we ran on HP and Dell servers," said Whitehurst. "We're no longer tied to hardware so we'll have engineers on site in Redmond now. When customers buy subscriptions from Red Hat we don't care where it runs."

In fact, the public cloud may even help Red Hat. Oracle CTO Larry Ellison went on a rant about Amazon Web Services. He noted that AWS has lock-in and bashed the cloud provider's database efforts like RDS and Aurora. The two primary takeaways from Ellison's rant are:

  • If Ellison is that wound up about AWS, then the cloud provider must be snatching some database workloads from Oracle.
  • And Ellison has a point about lock-in with cloud providers.

Large enterprises know the lock-in risk with cloud providers. These tech leaders may also find Ellison's rant against AWS a bit comical since Oracle has been known to enjoy a smidgen of lock-in too.

Any customer that bets on a cloud stack and uses proprietary APIs is going to have some form of lock-in. That's why OpenStack is such a popular movement.

Now let's take those nuances back to Red Hat. "What we're seeing is that large customers see value in running everywhere," said Whitehurst. "These customers want a standard operating environment and want to take Linux with them as they go cloud."

Worrywarts about Red Hat will argue that a move to the public cloud means that AWS will get the Linux business. Not necessarily. "As more goes to the public cloud the more relevant we get," Whitehurst argued. "If you are moving to Amazon you have to architect it so you're not locked in. Large enterprises feel burned out about being locked in."

In other words, Red Hat is that anti-lock-in abstraction layer. Tools like Red Hat's OpenShift can move workloads around.

But what if AWS becomes a threat to Red Hat? Whitehurst is fine with it. He notes that in a private cloud and datacenter world half the infrastructure is run on Windows. "I'd rather compete against Linux on AWS than the Windows half I don't have and won't get," he said.

Indeed, workloads move to Microsoft's Azure and then Red Hat has a decent chance to run on top of that cloud.

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