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Red Hat could cash in with open-source cloud juggling act

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Open ... and Shut The good open source lord giveth, and it taketh away, and no one knows this better than Red Hat.

As Red Hat chief executive Jim Whitehurst declared at this week's Open Source Business Conference in San Francisco, California, open source and its children – including cloud computing – are laying waste to the economics of how traditional enterprises do business, forcing them to gravitate to information to compete. Red Hat's role in this tectonic shift? Arms dealer.

Or machine tool manufacturer. But I'm getting ahead of myself.

Cloud computing is all the rage these days, but it's really a natural consequence of the open-source trend that started decades ago. Cloud computing is essentially impossible in any major way without open-source software at its heart, a point Google has stressed for years. The economics just don't work without high-quality free software with minimal licensing friction.

Red Hat is in the business of building and giving away this open-source software. At one level, Whitehurst said, cloud is just the standardisation of compute, storage and network. It sounds dull, but it is the foundation for so much more that happens. He compared the current technology standardisation - whether represented through cloud or open source - to the introduction in the 1800s of the auto lathe.

The auto lathe enabled industries to standardise simple things like nuts and bolts, which up until this point were different between manufacturers. That standardisation led to huge businesses like Ford and Caterpillar.

Few, of course, remember the machine tools makers. Even now, most of us will recognise the Hyundai brand, for example, but almost no one knows the vendors who sell the machine tools that contribute to building Hyundai cars.

Red Hat is different. As noted above, it's one of a select group of vendors that actually thrives on standardisation, and its business depends upon it fostering communities around such commoditised, open-source software. Red Hat provides the underlying infrastructure for a large number of global businesses, including public cloud services, and now makes over $1bn each year doing so.

But Red Hat opens everything, whether it's the source code to its new PaaS offering, its bread-and-butter Red Hat Enterprise Linux offering, and even the cloud-based service offering, RHN Satellite Server.

Completely open. Yet still generating $1bn in revenue each year.

It's interesting to see where this technology standardisation pushes business, generally, and not just Red Hat's business. As Whitehurst noted, the technology industry is currently in the midst of a virtuous cycle of imploding costs of technology with the componentisation and standardisation around cloud that is forcing differentiation to migrate to information and data, a point well captured by Brian Proffitt in his summary of Whitehurst's keynote. This is true whether one's business is agriculture or finance or retail. It's not just true of Facebook, Oracle, or other so-called "technology companies."

We see this in the explosion of interest in Big Data, but that's just the sexy, Silicon Valley way of articulating the shift toward information-driven businesses. Those businesses can only afford to be so information-driven, however, because of how open source and other technology forces have dramatically lowered the cost of computing and communication. As the World Economic Forum suggests, data is the new oil (warning: PDF):

At its core, personal data represents a post-industrial opportunity. It has unprecedented complexity, velocity and global reach. Utilising a ubiquitous communications infrastructure, the personal data opportunity will emerge in a world where nearly everyone and

everything are connected in real time... As personal data increasingly becomes a critical source of innovation and value, business boundaries are being redrawn. Profit pools, too, are shifting towards companies that automate and mine the vast amounts of data we continue to generate.

Standardisation isn't just shifting the basis of competition to information. It's also changing how information is exchanged within the enterprise. Whitehurst went back to the history books to cite Ronald Coase's Noble-prize winning research on why enterprises exist at all. When the distribution of knowledge is expensive, it makes sense to aggregate workers.

But as both the cost of computing and the latency of communication drops to zero traditional enterprise bureaucracy is much less important. You don't need an org chart to function anymore.

Just ask developers, which were the first to break down the walls of their data centres to not only work with peers at other companies on open-source projects, but also have democratised access to data centres by relying more and more upon public cloud infrastructure like Amazon Web Services. As open source becomes the primary way companies choose to develop and release software - some survey data suggest the vast majority of software will be released as open source within five years - Red Hat's ability to corral communities around code will net it ever more revenue.

This shift will move beyond developers, however. As Whitehurst declared: "Open source changes the role of IT, the role of vendors," and most everything else. Red Hat, sitting at the nexus of several of the world's most important open-source communities, and as a primary cloud driver, is in a position to benefit handsomely from this shift to Big Data-driven businesses.

No wonder Whitehurst left the stage with a smile on his face. ®

Matt Asay is senior vice president of business development at Nodeable, offering systems management for managing and analysing cloud-based data. He was formerly SVP of biz dev at HTML5 start-up Strobe and chief operating officer of Ubuntu commercial operation Canonical. With more than a decade spent in open source, Asay served as Alfresco's general manager for the Americas and vice president of business development, and he helped put Novell on its open source track. Asay is an emeritus board member of the Open Source Initiative (OSI). His column, Open...and Shut, appears three times a week on The Register.

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