Red Hat faces stiff challenges to move beyond its core technology

Red Hat wants to build a developer base and collect a critical mass of partners as it looks to the future

By John Fontana, Network World
September 26, 2007 12:34 PM ET

Clad in his pajamas, Red Hat co-founder Marc Ewing arrived at work at 11 a.m. one day in 1998, unlocked the office for a new employee, and promptly left to go back to sleep.

For a guy who developed the Linux distribution in his spare bedroom it just seemed natural. Today, however, such sleepy days are but a dream at Red Hat.

Moving forward
Red Hat faces a number of key challenges as it moves into the future. Here's a look at a few:

Challenges	Strategies
Gaining a place in the middleware market.	Against stalwarts such as BEA, IBM and Oracle, Red Hat is looking to expand its JBoss platform to include all elements of data integration and business intelligence — look for an acquisition of a business intelligence vendor.
Gathering support for virtualization platform.	While VMware dominates, this market is still ripe to carve out a sweet revenue stream. While the Red Hat Xen virtualization engine is viable, the company's focus will be on adding virtualization management wares to the mix.
Developers, developers, developers.	Steve Ballmer's Microsoft battle cry, but Red Hat is looking to combine developer tools, its Linux operating system and JBoss middleware much like Microsoft did with its platform and .Net but with an open source flair.

Click to see: Red Hat's challenges

The company is a powerhouse in the open source community: It owns 80% of the Linux market and posted $400 million in revenue for fiscal 2007 -- a 44% increase over the previous year -- and has $600 million in cash stashed under its blazing red fedora.

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Last week’s second quarter 2008 earnings showed a 65% increase in net income and a 28% climb in revenue over the same quarter last year.

But Red Hat is moving out of its Linux operating system comfort zone and everyone from Microsoft to IBM to Oracle to Wall Street seems to be breathing down its neck. The company faces stiff challenges to spread beyond its roots, create a middleware platform, build a developer base and collect a critical mass of partners all so it can turn its IT infrastructure platform strategy to gold.

The challenges start with investments in strategic technology areas led by middleware to support intranets, service-oriented architectures (SOA) and online services; and server and desktop virtualization as part of Red Hat Enterprise Linux (RHEL) 5, which was released in March.

The company for the first time is courting wayward Java developers, and six months ago launched Red Hat Exchange to certify applications from other open source software vendors and back them with Red Hat support services.

Red Hat also is carrying the torch among its open source peers in denouncing Microsoft’s cross-patent licensing deals with open source vendors such as rival Novell.

In addition, the company has expanded its reach with 58 offices around the globe and is bulking up its client list as evidenced by 42,000 new customers added in fiscal 2007.

And it has started fiscal 2008 with contracts inked by Virgin America, Singapore Airlines, Swisscom, the French Ministry of Education and the Swedish Association of the Pharmaceutical Industry.