Red Hat Needs a Market Message to Match Its Broad IT Solutions Portfolio

C. Drake
C. Drake

Summary Bullets:

  • Red Hat has been expanding its business model beyond infrastructure, to focus on solutions that support enterprise DevOps initiatives and container and hybrid cloud management.
  • Ongoing challenges facing the company include growing competition and the need to strengthen its market message about the full range of solutions it offers.

With Red Hat’s total revenues increasing by 18.5% in the six months to August 31, 2016, and with over 50% growth in the number of deals valued at over $1 million in the same period, the open-source software solutions vendor has stepped up its efforts to keep the international analyst community briefed on its latest achievements, initiatives and future plans. At a Red Hat Analyst Day in London – the first such event outside the traditional setting of the vendor’s annual U.S. summit – Red Hat unpacked its vision of the ‘open hybrid cloud’ future and expounded on a large and varied portfolio of enterprise solutions that stretch from traditional products such as Red Hat Enterprise Linux and Red Hat Virtualization for physical and virtual data center environments, through to solutions for building and managing cloud architectures and for managing the entire lifecycle of applications within a hybrid cloud environment.

Red Hat now boasts over 350 customers of its private cloud solution, OpenStack, with notable clients including Verizon, Telefonica, Orange, China Mobile, Betfair and Penn State University. The significant number of telco OpenStack customers reflects the importance of this market segment for Red Hat, with telcos in different global regions using Red Hat technology to deliver private and public cloud services to their own clients.

However, Red Hat’s commitment to helping enterprises with the process of digital transformation means that a major focus of its business is on providing the architecture, tools and support that enterprises need to operate their IT in more innovative and agile ways than before. Therefore, a key priority for Red Hat is the delivery of solutions that advance enterprise DevOps initiatives and facilitate container management, IT automation, microservices, analytics, security and hybrid cloud management. One such solution is Red Hat’s PaaS offering, OpenShift, which is designed to support developer efforts to rapidly create, host and scale applications within a cloud environment. OpenShift customers, some of which include Barclays, Vodafone and Atos, can choose to host the OpenShift software on-premises or utilize it online as a service.

Earlier this year, ahead of its annual summit, Red Hat announced the launch of Cloud Suite, which bundles its virtualization, private and public cloud offerings together with OpenShift (for container and application management) and Red Hat’s hybrid cloud management solution, CloudForms. Referred to as Red Hat’s ‘Swiss army knife’ for cloud management, CloudForms supports self-service provisioning, compliance enforcement and unified management across a hybrid IT architecture. An integral part of Cloud Suite, CloudForms also forms part of the Red Hat management solutions portfolio, which includes Ansible (for IT automation) and Insights (for monitoring, analytics and proactive response planning).

Despite experiencing strong revenue and customer growth, the continued expansion of Red Hat’s strategy and business will not be without its challenges. For one, there is the need to shake off its traditional image as an infrastructure provider, rather than a provider of solutions for managing IT infrastructure. During one of the feedback sessions, the point was made that Red Hat had grown in a relatively short space of time to do so much more than it used to, yet its message or story to the market is still catching up. Secondly, Red Hat’s expansion into a larger range of solution segments is raising the level of competition it faces across its different business activities. Coupled with increased competition from a new wave of Linux distributors, Red Hat will need to continue on its innovation path in order to remain competitive. Although application development and emerging technologies such as OpenShift and CloudForms are experiencing stronger sales growth than Red Hat’s traditional infrastructure products, this segment still accounts for just 17% of total revenue, indicating plenty of room for further diversification. In addition, Red Hat should focus on its message to the market and look for further ways of diversifying its customer base and reducing sales dependence on North American and West European markets.

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