Red Hat CEO To Partners: 'Each Of You Has A Piece Of $4 Billion'
Red Hat is going to need a lot of help from its partners.
A week after reporting that the open-source software leader crossed the $2 billion threshold in revenue in 2015, CEO Jim Whitehurst revealed an ambitious goal of becoming a $5 billion company in five years.
The technology is there that will propel his vision, and the company's open-source culture is a unique differentiator, Whitehurst told roughly 250 partners attending its North American Partner Conference in New Orleans on Tuesday. But some number crunching reveals the immense challenge ahead for the software vendor from Raleigh, N.C., in dramatically scaling its business, and why the channel is essential to realizing that goal.
In his keynote address, Whitehurst told partners that Red Hat has 9,000 employees, but to make $5 billion the way it's going now, it projects needing 20,000 in five years. With attrition, that means hiring 17,000 people.
"We would really love to have your help so we don't necessarily have to bring that many people into the company," he said.
If partners help alleviate the staffing dilemma, "the single largest challenge we have as a company," they will have to generate $4 billion of the $5 billion in annual revenue.
"Each of you has a piece of that $4 billion," Whitehurst told attendees.
Red Hat's CEO didn't talk much in the keynote about the specific products that will underlie the growth he expects to see. (He shared his thoughts on the next-generation of open-source technologies, and how they will drive a wave of enterprise adoption a day earlier in an exclusive interview with CRN.)
But where he sees a source of opportunity, and at the same time what makes Red Hat uniquely capable of helping companies survive the digital disruptions upending so many legacy industries, is in Red Hat's culture itself, and "how it grew up," he said.
The problems enterprise customers are having -- existential for many -- and the capabilities they need to address those problems are "just naturally in the open-source DNA," Whitehurst said.
It's not just about technology, but process and culture, he said, and "that’s why I think the opportunity is so big."
Only five software companies have ever achieved $5 billion in revenue: Microsoft, VMware, Oracle, SAP and Salesforce. As Red Hat aspires for that milestone, its CEO is thinking about the durability of his company's model, and what the sources of competitive advantage are in the software industry.
Economies of scale don't come into play like they do with physical products. But Whitehurst believes Red Hat has a couple of tricks up its sleeve.
First off, it can replicate what has been a sustainable advantage for Microsoft and VMware -- leverage a platform.
Red Hat Enterprise Linux, while not proprietary, is "an extraordinarily valuable strategic asset" as a platform for building an ecosystem and leveraging innovation, Whitehurst said.
It's RHEL that positioned Red Hat to seize the opportunities presented by OpenStack and Docker containers -- technologies on which next-generation architectures are built.
Secondly, Red Hat enjoys a capabilities-based advantage in open-source methodologies that no other company so far has been able to master, Whitehurst told attendees.
"From involvement upstream to how we productize and support," Whitehurst said, working with open-source is "very deeply tied into the culture of who we are and how we act."
Brian Peterson, vice president of systems at Forsythe Technology, a Red Hat partner based in Skokie, Ill., told CRN the channel is transforming, and no IT solutions provider has seen more change in the past few years than Forsythe.
The margins derived from reselling products are being driven down by commoditization, and it's the services side of the business that's really driving growth at Forsythe and across the channel, Peterson said.
With Red Hat's products, that's even more pronounced, "because using open source has serious value to the customer, but it's not easy," Peterson told CRN.
While open-source solutions save customers money, the challenges in implementing and servicing them typically mean more, and higher-yield, engagements from solutions providers, he said. That's why Red Hat's ambitious goal of more than doubling sales in five years, if achieved, will be such a boon for its hundreds of North American partners.
Red Hat growing to $5 billion in revenue will signify a significant rise in adoption of many open-source solutions, according to Peterson, and that bodes well for the kinds of services-focused channel businesses that most VARs are becoming.
The revenue growth partners see from their Red Hat practices could be significantly higher than Red Hat's own, he said, because services revenues usually offer a multiple on sales revenues.
Scott Ancha is vice president of engineering at Dasher Technologies, a systems integrator from Campbell, Calif. that partners with Red Hat and will be vying for a piece of the expanding pie Whitehurst described.
After Whitehurst’s keynote, Ancha told CRN that the Red Hat product line has rapidly matured, empowering its channel to offer comprehensive solutions to clients to modernize their infrastructure.
Dasher specializes in implementing OpenStack, a technology Red Hat sees as a major vector of growth.
"Dasher made a big bet investing early in OpenStack partnerships and training in hopes that there would be high adoption rates with these technologies. The interest and movement toward these solutions is now undeniable," Ancha told CRN.