The Red Hat Paradox

Alan Royal, Head of Technology Innovation and Business Transformation, Strategy CIO
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Alan Royal, Head of Technology Innovation and Business Transformation, Strategy CIO

History 

When one thinks of Red Hat, Linux emerges as the top of mind software application. The Red Hat Linux software solution paradigm represented, to many, a “crazy” business model in its early days. Prior to the emergence, the likes of Microsoft, IBM, HP, etc. had defined the software development, sales and support model narrative in a clear objectified manner. Organizations paid a monetized licencing fee, and monetized annual support. Modifications to core software were often reliant upon the vendor, based upon established pricing models.  Also, core product upgrades were solely the responsibility of the provider. 

With the introduction of Red Hat Linuxin the mid 1990’s, traditionalists dismissed the adoption of this Linux model out of hand. Introduced was the concept of Open Source Adoption, Free Software, and Subscription Based Pricing. How could it be possible, for an organization, to “open up” their source code for “the masses”, to contribute to the overall operating system functionality in a controlled manner, ensuring software stability?

Top of mind was business model commercially viability. Conceptualizing Linux as a viable enterprise operating system, managed by an organization which embraced open source functionality contribution, revenue generation through support subscriptions, and consulting income, was simply a contra narrative to the likes of Microsoft and IBM that Red Hat business model viability was often dismissed out of hand.   

After organization establishment in 1995, Red Hat went public in August of 1999, the first day of public trading reflecting the eighth biggest first day stock gain in Wall Street history. By 2005, Red Hat was ranked as number one for the second year in a row in CIO Insight “Vendor Value Survey”.. By 2009, Red Hat was added to the S & P 500 stock index.   

Today, Red Hat operates with an open-source business model, open code, development within a community, professional quality assurance, and subscription-based customer support. They sell subscriptions for the support, training, and integration services helping customers use open-source software. Customers pay annual subscriptions for access to services such as their Red Hat Network and support. Directly stated, Red Hat, successfully monetized a game changing software delivery and support model, which many viewed as impossible.

  In this author’s opinion, Red Hat should be one of organizations interim solution provider  

Today 

As it stands, today 90 percent of the Fortune 500 are using one to many of the open source solutions provided by Red Hat. If one goes to the Red Hat website, and requests pricing for Linux, a detail pricing list will appear, seemingly equivalent to what one might find on a Microsoft pricing list, but the differential between the two product narratives could not be more materially different. Metaphorically, with Microsoft you buy the software car and simply drive it. When problems occur, you take it to the dealer and they repair. You own it, along with a standard warranty with extensions available. With Red Hat you subscribe (lease) the car, as well as full access to the engine and all associated parts. Situationally, the upgrades you make to the engine will be shared with others, as well as changes made by others could be added to your engine’s capability. 

In essence, a Microsoft solution is an “objectified” entity, where Red Had is an “un-objectified”, “open”, solution, with free access to subscriber modification as desired. Underlying the open source narrative is the declarative that the innovation of “the collective” is greater than the innovation “of the few”. As such, the Red Hat solution must be viewed as “subjective”. When one looks at publications, which try to provide cost comparative analysis it is like trying to compare apples to oranges. How can one narrate a comparative between the “objective and the “subjective”? The answer is not very well. In surrendering to the prospect of componentized price comparison being impossible, a broader view is often taken in considering the Total Cost of Ownership (TCO). The TCO comparative narrative Is quite accurate at historic comparative analysis, but often inaccurate when applied against futuristic assumption based analysis.  

While Linux and a host of wrap around products is the foundational revenue generator for Red Hat, their innovative target is laser targeted toward “the cloud”. In fact, if one looks at Red Hat’s management blog, in January the published “ELEPHANT IN THE ROOM: WHAT’S THE TCO FOR AN OPENSTACK CLOUD?”, where Red Hat directly acknowledged that TCO would be their comparative measure, and as such, were stepping forward to present their “TCO Cloud Valuation Model” as “the Gold Standard”for Cloud solution valuation, before others could propose the contra narrative of comparative analysis.  

Red Hat declares that with their “commercially supported OpenStack distribution, you only need to support the operations of your cloud, rather than the software engineers, QA team, etc.”. Whitehurst, Red Hat’s CEO, makes it clear that they are placing their strategy reliance on the fact that “open source dominating the cloud rests on the fact that it’s already the foundation for many popular cloud services and enterprise applications”. 

This publication has been written with the intent to not only uncover, and make clear some of the unique aspects of Red Hat, but also offer some unique insight into the Red Hat, “secret sauce” objectifyable value proposition, to the market place. Currently solution providers of all types and shapes are competing for their differential, territory, within the emergent cloud, end to end solution paradigm narrative.  

This author suggests that it is too early for organizations to make a “big bet”, placing total reliance on Cloud Business Viability tied to a single solution provider. Metaphorically, the battle for provider differentiation in the cloud is still raging on. As organizations need to have some level of viability in the cloud (in the here and know) simply spread solution risk across multiple solution providers, with an “interim solution mind-set” to Cloud Technology Strategy. In this author’s opinion, Red Hat should be one of organizations interim solution provider.  

Why? Time and time again Red Hat has demonstrated the innovation tenacity to remain completive and viable where others haven’t. Specificity as to the “how” Red Hat always has defied conventional logic, and remain competitively differentiated, in solution spaces they enter, this author has been unable to uncover. Regardless, this research endeavor has found that through the “subjective” solution delivery model Red Hat places reliance on, time and time again the end result that consistently generates differentiated solution competitive viability. 

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