The VAR Guy

By most accounts, Red Hat Enterprise Linux and JBoss middleware are both solid successes. But can two newer initiatives — namely, Red Hat Enterprise Virtualization and OpenShift — also gain critical mass, particularly among cloud computing partners? Here are The VAR Guy’s early educated guesses.

For those who are late to the Red Hat story, the company is on track to become the first $1 billion open source specialist within the next year or so. Red Hat Enterprise Linux has successfully pushed beyond traditional servers and is gaining momentum on cloud-centric servers, while JBoss middleware has caught on with sophisticated IT consultants.

Two More Initiatives

So far, so good. But Red Hat isn’t satisfied with its one-two punch. The software company is now busy building out its Red Hat Enterprise Virtualization (RHEV) and OpenShift business efforts. The VAR Guy thinks RHEV is a winning long-term strategy but it’s too early to predict whether OpenShift will gain critical mass. Here’s why.

RHEV is a natural extension to Red Hat Enterprise Linux. Indeed, the Red Hat virtualization strategy leverages KVM (kernel-based virtual machine). No doubt, VMware continues to lead the virtualization market — commanding an 85 percent (or more) share. But it’s a safe bet that Red Hat’s Linux customers and partners will kick the RHEV tires.

Long term, Red Hat CEO Jim Whitehurst thinks VMware will suffer Sun Solaris’s fate. Much in the way that Linux leapfrogged Solaris market share, RHEV will leapfrog VMware, Whitehurst predicted a year ago.

Fast forward to the present and Whitehurst’s prediction has yet to come true. VMware shares are trading within 10 percent (or so) of a 52-week high. Earlier this week, VMware acquired Digital Fuel to accelerate its cloud efforts. And most impressively: VMware is larger and growing faster than Red Hat.

Indeed, VMware’s Q1 2011 revenues jumped 33 percent to $844 million. In contrast, Red Hat’s most recent quarterly announcement (Q4, disclosed March 23, 2011) revealed 25 percent revenue growth to $244.8 million.

Glass Half Full?

Still, The VAR Guy has an educated hunch that RHEV will gradually gain momentum before gaining critical mass somewhere around 2013.

Already, Red Hat points to several channel partners that are succeeding with RHEV. They include Mainline Information Systems (a major IBM business partner), Shadow-Soft (a cloud consulting firm), Unilogik Systems (an Oracle certified partner) and Zinc Solutions (a website design and managed hosting firm).

Admittedly, Red Hat will need hundreds of additional RHEV partners before it can chip away at VMware’s market dominance. But the open source KVM approach coupled with Red Hat’s Linux installed base seems like a solid formula for long-term success.

The Jury’s Out

Meanwhile, Red Hat is also building OpenShift, a platform as a service (PaaS) initiative. Red Hat promises OpenShift will allow developers to write applications that can run on any cloud infrastructure.

OpenShift is both intriguing and ambitious. According to industry pundit Dana Blankenhorn:

“OpenShift, the company’s platform as a service (PaaS) offering, has more people working on it than any other Red Hat product, and is in direct competition with platforms from VMWare (VMW) and Microsoft. It supports many operating systems and frameworks, not just those that Red Hat makes, and it has a clear development roadmap.”

That may be true. But can Red Hat really keep pace against much larger software companies (Microsoft, VMware) with much larger development teams (again, Microsoft and VMware)?

Hmmm… The answer may reside in Red Hat’s community strategy. A growing list of companies has promised to back OpenShift. But OpenShift itself remains a work in progress — offering an Express Developer Preview and a Flex Developer Preview. Longer term, watch for Red Hat to officially launch the OpenShift Power initiative.

How Red Hat Typically Wins

Generally speaking, Red Hat and its channel partners have enjoyed the most success when they’re busy disrupting established markets. Examples include:

• Red Hat Enterprise Linux disrupting legacy Unix markets.
• JBoss disrupting legacy middleware offerings like BEA and IBM WebSphere.
• If that pattern holds true, Red Hat Enterprise Virtualization could eventually chip away at VMware — though it’s too early to predict RHEV victory.

In stark contrast, the cloud market is still emerging. There are no clear long-term leaders, and standards are still evolving. As a result, Red Hat can’t really “disrupt” the cloud market since the market itself is still being created. So, Red Hat OpenShift will need to compete with a lot of cloud noise and vendor posturing — a difficult task for any software company, even Red Hat.

Disclosure: The VAR Guy has owned 150 shares in Red Hat for about a year.

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