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Red Hat CEO On Recession, Virtualization, Ballmer

Jim Whitehurst says his firm has encountered a "perfect storm" of conditions furthering its growth in recession.

Jim Whitehurst, CEO of Red Hat, says the deep recession "has been a perfect storm in a positive way" for his company, bringing more customers seeking lower infrastructure costs. Best of all, Red Hat's formerly sputtering JBoss unit's revenues are now growing faster than the company as a whole.

"With our recurring revenue model (annual subscriptions), we're not trying to fill the well up every quarter," Whitehurst noted in a breakfast meeting Wednesday in Palo Alto, Calif. As Whitehurst starts his third year as CEO, Red Hat reports that $164.4 million of its $193.3 million in revenue last quarter was from subscriptions, with some of Red Hat's top Advanced Server customers renewing their subscriptions for amounts of 127% of their previous contracts.

Whitehurst said many Linux conversions have been from Unix in the past, but during the recession, "more and more conversions [come] from Windows users." Red Hat Enterprise Linux now runs on 15% of the servers in the data center, he said. (Microsoft sees Windows Server on 70% of new servers in the data center.) Customers are coming to Linux "we say because of its high value. But it is open source and lower cost," which has a distinct appeal in hard times, he noted.

The downside is that the economy killed off many new application projects, and new projects tend to favor the use of Linux, Whitehurst noted.

Both Microsoft, with Windows and Windows applications, and Oracle, with Oracle Enterprise Linux (based on Red Hat Enterprise Linux) and Oracle applications want customers to buy a vertical stack of software -- applications and operating system -- from a single vendor.

Whitehurst says a vertical stack is the wrong approach. "Somewhere, Oracle has some customers that run that stack. What we hear customers saying is, 'We want a horizontal solution to the problem,'" or a general purpose operating system that works with more than one vendor's applications. With that strategy, Red Hat "has emerged as the clear number two operating system vendor," he said.

The modular nature of Red Hat Linux and JBoss is a plus as companies consider the impact of adding another commercial operating system or application server. Whitehurst claims the CTO of a Fortune 10 company told him recently that his company chose a three-year subscription for RHEL and JBoss over alternatives, not because of a savings on the initial license cost so much as "the hardware and other support costs of implementing a big, bloated piece of commercial software."

Whitehurst is hoping a similar story will emerge with Red Hat's backing of KVM as the open source hypervisor of choice. He sees Red Hat competing with VMware to virtualize the enterprise. KVM was produced by the Israeli firm, Qumranet, which Red Hat acquired in September 2008. KVM is the hypervisor that has been built into the Linux kernel and was made part of the RHEL 5.4 release in early September. Red Hat also supports use of the open source Xen hypervisor.

KVM embedded in the Linux kernel uses the kernel's scheduler and memory manager, unlike standalone hypervisors. That gives RHEL a performance advantage when used as a host for virtual machines.

Whitehurst thinks that within a few years customers will want virtualization to be a part of the operating system, not a separate layer of software. That stance, he admitted, brings him closer to Microsoft's position than most other vendors. "Twenty years ago, people bought a separate TCP/IP stack for networking. Now it's just part of the operating system. Virtualization will be the same thing," he said.

With KVM in the RHEL 5.4, customers have "better performance and better hardware enablement" for starting up fresh virtual machine servers. KVM has already emerged "with better traction among open source developers" than Xen, he added.

Whitehurst travels to Silicon Valley often from his Raleigh, N.C., headquarters in order to talk to fellow open source code company executives, venture capitalists, and the press. He hosts a dinner for his fellow CEOs on each visit and collects an update on the status of open source affairs.

Red Hat was successful under his predecessor, Matthew Szulik, who brought a maturity to the young company's operations. But it was also more isolated. Whitehurst is ensuring that the major open source players share ties that would allow them to rally to one another's cause, if the occasion ever demanded.

Whitehurst considers the possibility unlikely. In some ways he seems to find dealing with Microsoft, which has expressed open hostility to open source code in the past, easier than with Oracle, a company that owns two open source code companies and is trying to acquire a third, MySQL AB, as part of Sun Microsystems.

"I'm not on Steve Ballmer's Christmas card list yet," quips Whitehurst, but the two companies have found areas in which to cooperate. Both are competing with VMware, so each certifies the other's hypervisor as working with its operating system. He also says the rise of both Google and VMware has diminished Red Hat as a target in Microsoft's sights. It now has new challenges in the operating system and mobile device space without worrying about what Red Hat is up to, he noted.

When it comes to competing in the virtualization market, "our view, sad to say, is more similar to Microsoft's than Oracle's." Oracle, Sun, IBM, Virtual Iron (now part of Oracle) and others saw Xen as a joint way to compete with VMWare through an open source alternative, and most of them brought out their own version of Xen. That was a mistake, said Whitehurst. They fragmented Xen's appeal and subdivided its community.

Now the MySQL database appears about to go inside Oracle, as it awaits final approvals on its bid to acquire Sun. It's possible once it does, Michael "Monty" Widenius, one of MySQL's authors will start promoting his version, MariaDB, as the only legitimate open source MySQL. If that happens, "the code will fork, which is one of the worst things that can happen to open source code," he said.

A development project with outside reviewers, testers and contributors is stronger when the code remains intact, instead of "fracturing the community" that surrounds it, he said. If that occurs with MySQL, it would not necessarily be Oracle's exclusive fault, he added.

Whitehurst sees more and more open source firms being acquired by major companies because of the quality of the code produced in open source projects. But he thinks it is better for both the project's developers and the community if an open source company remains independent. Red Hat is such a company, he said, and issued a departing jab at Oracle. "I like the strategic clarity of being pure open source. I do worry about the mindset you have to have as part of a large company," he said.

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