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Red Hat: An analyst day in improving times

Red Hat's analyst day highlights a good financial condition and lays out a road map of things to come.

NEW YORK--It was a larger and cheerier crowd that attended this year's Red Hat's analyst day at the New York Stock Exchange on Tuesday.

That shouldn't be surprising. At last year's meeting on October 7, Red Hat management had the dubious honor of ringing the closing bell on a day that saw the Dow Jones Industrial Average drop over 500 points.

This meeting took place in a time of what's probably best described as cautious optimism about the state of the economy. And in the context of Red Hat financial results that have continued to show growth at a time when so many companies in IT industry and elsewhere have not.

For the quarter ending August 31, its profit jumped 37 percent relative to the year-ago quarter, besting analyst estimates.

The day included a fair bit of discussion related to financial minutiae, as you'd expect for an event pitched primarily for financial analysts. However, it also included an overview of Red Hat's strategy and its technical direction. Here are a few things that caught my eye.

Jim Whitehurst, Red Hat's CEO, spent a fair bit of time talking about what boils down to fine-tuning of its go-to-market execution such as:

  • Value of subscription. This includes what he called "education and compliance," essentially a euphemism for getting people using Red Hat Enterprise Linux (RHEL) without paying for it to purchase a subscription. It also encompasses improving renewal rates for those cases where RHEL has been preloaded by a system builder and bringing a greater focus to articulating the value of RHEL relative to free substitutes such as CentOS.
  • Routes to market. This refers to a continued build-out of the channel so that system integrators and others who recommend and install systems for less sophisticated customers will specify Red Hat as part of their solution. This stands in contrast to how, historically, Red Hat was mostly pulled into accounts by technically-savvy users and IT departments.

The message I took away from this is that Whitehurst isn't looking to change Red Hat's direction in any major way but sees a fair number of areas where more focused execution could lead to financial improvements. Later in the day, we also heard that Red Hat is taking a more systematic approach to which products it allocates development dollars for work such as internationalization.

For his part, Paul Cormier, executive vice president of products and technologies, reiterated Red Hat's belief that virtualization (which should be taken as hypervisor in this context) belongs in the operating system. This argument has been in evidence for a while as my fellow analyst Stephen O'Grady discussed after last year's event. 

It stands in stark contrast to VMware's desire to make the operating system irrelevant. Or, to put it another way, VMware's ambition to make the VMware ESX and ESXi hypervisors the model for a new type of operating system. This is too fraught a debate to tackle here; I largely agree with Stephen's take in his post.

However, one of the interesting outcomes of this battle is that Red Hat has been cozying up to Microsoft, the other big gun on the "hypervisors belong in the OS" side. This includes Red Hat's announcement Wednesday "that customers can now deploy fully supported virtualization environments that combine Microsoft Windows Server and Red Hat Enterprise Linux."

This sort of interoperability is certainly a customer desire and both Red Hat and Microsoft can legitimately present it in those terms without anyone smirking. However, the enemy of my enemy is also my friend, at least up to a point.

I also took note that Red Hat finally seems to be making some progress on the management front.

The product in question is RHEV Manager (RHEV-M); it's covered in detail in this video from the Red Hat Summit in September and is currently being tested by customers.

One reason I think it's important is that Red Hat apparently, if belatedly, recognizes that it is. CTO Brian Stevens admitted that RHEV-M "has been a huge missing ingredient."

The one customer speaker at the analyst day was Dave Costakos of Qualcomm and he focused on his company's experiences with testing RHEL-based virtualization and the associated RHEV Manager which he describes as "hits the mark."

I caught up with Dave at a break to get a bit more detail. He told me that they wanted a Web-based interface, which RHEV Manager has. He also liked the integration with Active Directory and other directory systems, and the role-based access controls. He said that it could perform the provisioning operations that Qualcomm requires and otherwise meets their needs.

Management has historically been a relatively weak part of Red Hat's offering that was mostly focused on updating packages. This is really a reflection of the broader Linux and open-source ecosystem in general. Projects like Nagios and, more recently, GroundWork notwithstanding, management doesn't play well to the strengths of open source. It touches too many parts of an IT infrastructure and requires too much cooperative work with the vendors making the things that need to be managed.

It's reasonable to ask whether Red Hat is too late to win big with RHEV Manager and its associated KVM-based virtualization play. But it had to attack management from some angle unless it was prepared to just cede that area of differentiation and potential point of control to system makers and others.

Finally, no technology discussion today would be complete without at least a mention of cloud computing. Brian Stevens jokingly called it a "shiny thing that people are looking at how to monetize."

The cloud discussion covered several angles, not least of which was standardization efforts such as Deltacloud. Like most other standardization efforts, this focuses on what is often called Infrastructure-as-a-Service; Amazon EC2 and S3 are perhaps the best known examples. Stevens admitted that it's going to be much harder to define a standard set of higher-level services (platform as a service in the vein of Microsoft Azure) that are portable.

Red Hat's distinctive play in the infrastructure cloud essentially circles back to its approach to virtualization. In cloud infrastructure as imagined by Red Hat, the operating system matters in important ways.

That's because applications matter; indeed, applications are ultimately what matter most. And in on-premise computing, one of Red Hat's greatest values and differentiators is the vast number of certified applications that it runs. This certification matters to users because, if they encounter a problem, it means that they can call the application vendor to get support. Otherwise, they'd get a "sorry, that's not a supported configuration."

One can argue whether the software layering of which the historical operating system is a part is the most appropriate choice for cloud computing. Fellow CNET blogger James Urquhart dives deeply into this topic in a pair of recent posts.

However, whether it's the way it should be or not, it is for now. And for Red Hat to be able to enable users to carry the certification of applications into a cloud model is a significant differentiation.