Jim Whitehurst, who was chief operating officer at Delta Airlines before becoming CEO of Red Hat, has led the open-source software company to new heights.
Annual revenue, which totaled $523 million when Whitehurst took over the helm at the outset of 2008, is expected to be more than triple that – approaching $1.8 billion – for Red Hat’s fiscal year that ends in February.
The Raleigh-based company prospered during the recession, and it has continued to thrive as the economy has slowly improved.
Wall Street has taken notice. Red Hat shares have nearly tripled during Whitehurst’s tenure.
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Amazingly, the company is built on a foundation of free software.
It makes money by charging customers for maintenance, support and related services, such as training and consulting.
Red Hat’s workforce has been expanding at a 20 percent clip in recent years. Today it has more than 1,000 workers downtown, where it moved its headquarters from N.C. State University’s Centennial Campus in 2012, and about 6,900 worldwide. Ninety-four percent of Fortune 500 companies use Red Hat software.
Staff writer David Ranii interviewed Whitehurst, still boyish-looking at age 47, in his 18th-floor office last week – just a few days before he planned to dress up as Adam Levine for a special Red Hat version of the NBC reality show “The Voice” as part of a weeklong, in-house celebration of the company’s culture.
“If you don’t show you are willing to laugh at yourself, you don’t get people willing to try things and know, if they fail, they’re not going to be ostracized,” Whitehurst said. “A big part of our culture is, fail fast. Try new things. We’re open to people doing that. That kind of came out of the open-source movement.”
The following excerpts from his interview have been edited for space and clarity.
Q. Red Hat has become a well-known brand locally with your name plastered on the amphitheater down the street and on your downtown headquarters, but many people still don’t understand your company and its software. How do you explain it to the uninitiated?
A. No individual really uses our software ... it’s sold to large corporate customers. It’s not like something you would see at Best Buy.
(But) you could not go through the day without touching our software. If you are using an ATM machine, if you’re making a stock trade, banks, telcos, billing systems, probably your payroll system wherever you work and your paycheck is getting cut, (it’s) running Red Hat software.
The thing that makes our business complex is that it’s all built on what we call open-source software. The source code for all the software is free. Tens of thousands of people contribute code. Some of those are hackers who want to do it for fun. A lot are companies like IBM and Google, who have things they need to add to the software for themselves.
What’s made Red Hat successful, and uniquely successful, is that we have figured out that when an enterprise (that is, large companies) buys software, they generally need a high degree of stability. You don’t want your billing system to crash or a stock exchange to go down.
We take this open-source code, we do heavy hardening testing, and then we commit to supporting it for a defined life. In the case of Linux, it’s 10 years. ... So you know three or four years in, if something happens ... we’re there to support you.
We got our start with Linux, and it still represents a large percentage of our revenue. But our growth is coming from a whole set of other technologies – middleware, virtualization, cloud.
Q. What has driven that expansion?
A. There’s just been an explosion of open-source software out there. ... As IT users have become more sophisticated, they often want to contribute and drive their own road maps. Certainly that’s true of banks and telcos, but when I say users, I also mean people like Google and Amazon and Facebook ... solving their own technology problems.
There’s actually more open-source code being generated than proprietary (code).
For Red Hat, we have a model of taking open-source software and hardening it for enterprise use. ... It’s almost an embarrassment of riches in the sense that we have this rich field of software that we can say, well, that piece of code that was written by Google, that has applicability to enterprise customers.
Our biggest strategic question is, how do we limit ourselves? Because we could end up doing too much. ... How many things can we do at once?
Q. The pace of technological change has accelerated so much that today’s success story can quickly become tomorrow’s also-ran. How do you and your team deal with the pace of change in order to avoid such a fate?
A. Andy Grove once said only the paranoid survive. We obsess about that a lot and really try to keep our ear to the ground.
But importantly, too, it’s fundamental to our business model where we don’t sit and say, where do we think the world’s going to be in five years and let’s start writing software to get there. We actually look and say: Who are the technology leaders? What are they doing, and how do we get involved in that?
For instance, probably the biggest phenomenon now in cloud computing is something called OpenStack, which is basically an operating system for the data center. ... We were not involved in the first couple years of OpenStack, but as soon as we saw it emerge as a clear leader ... we jumped in. We’re now the largest contributor to OpenStack. And we’re bringing it to market.
Q. Speaking of change, Red Hat’s workforce has been growing rapidly. What challenges does that present in terms of maintaining your corporate culture?
A. Really our source of competitive advantage is a capability around working in open-source communities. And that capability is tied to our culture. So ensuring that our culture actually does continue to persist even as we grow is really important.
First off, we hire a large percentage of our employees from ... employee referrals. Nobody knows a Red Hatter like a Red Hatter. Second, we have a very rigorous onboarding process. ... It really spends a lot of time on heritage, culture.
We then have ongoing ... events. This week is actually our (We Are) Red Hat Week. It’s one week a year that’s all about celebrating our culture. We do videos, we do skits, we have offices that do things together. We did a 5K fun run here yesterday. ... We have food trucks coming today, a whole set of things all week long.
It’s generally around Halloween week because ... the first version of Red Hat Linux was released 20 years ago on Halloween.
Q. Red Hat has logged an impressive 50 consecutive quarters of revenue growth, including 10 straight quarters of mid-to-high teens organic growth, percentage-wise. What are you counting on to keep that momentum going?
A. We are in a fundamental paradigm shift in computing, and there have only been a couple of those.
There was the move from the mainframe to what we call client-server, which for the uninitiated is basically ... we went from mainframes with dumb terminals to PCs.
We’re now moving to a whole different platform that’s primarily mobile cloud, meaning applications are written mobile-first. ... Most applications are now either written for a browser or they’re written for mobile devices.
That paradigm shift is fundamental for Red Hat because, typically, in a paradigm shift new winners emerge. In the mainframe era, it was IBM. In client-server, it was Windows and Intel.
In this next cloud mobile era, it is developing in a very open way. Clouds run Linux. Other than Microsoft’s cloud, every other cloud runs on an open-source stack – open-source virtualization, Linux operating system, open-source development tools.
As Red Hat is by far the leader in open source, we benefit across our whole product suite.