 Live from Boston, Massachusetts, extracting the signal from the noise, it's theCUBE, covering Red Hat Summit 2015. Brought to you by Red Hat. Now your hosts, Dave Vellante and Stu Miniman. Welcome back to Boston, everybody. Stu and I are going to wrap up here at Red Hat Summit. We're at the Heinz Convention Center. A lot going on here. Keynotes, theCUBE has been running all day. We got a crowd chat going on at crowdchat.net slash Red Hat Summit. Check out siliconangle.tv. All the videos from theCUBE will be up there from here and other, you know, zillions of other shows that we've done. Check out wikibon.com for all the research. Siliconangle.com has all the news of the day. Lots going on, Stu. Lots going on in infrastructure. This is kind of cloud and Paz week. We saw our pure scored EMC, CMO, all kinds of little chatter going on there. Maybe we should talk about that a little bit. It's sort of a tangent from this show, but this really is sort of Paz and Cloud Week. We're at Oracle on Monday, Docker, Con on Monday and Tuesday, and now Red Hat Summit. The timing is not coincidental, right? I mean, the market forces are coming together in a way that really underscores that the time is now for these trends, these technologies, the compression of the cycle is happening in front of us. So Dave, you know, we've been on the road for almost three months now and we go to so many of these different shows and just reflect back for a second because there's some shows I go to and it's like, you know, they're talking about like a product or a couple of products. Some, it's kind of an ecosystem. You know, some, it's kind of a vision. You know, this show has a very different vibe. It's my second year here at Red Hat Summit. You know, the atmosphere, it's kind of laid back. You know, it's, you know, executive show up and you know, nice pair of jeans. You know, they're not wearing button-down suits. You know, they've got the Red Hat cufflinks, the red shoes or, you know, heck, the emcee for the show's got a Red Hat tattoo. I mean, you know, he talked about commitment. You know, we're going to interview and Jim Whitehurst tomorrow. I'm really excited about that. His, you know, business background, him teasing apart, you know, the open source ethos and how Red Hat really helps to catalyze the marketplace. Talked about it in their intro today. The network effect that Red Hat gets by being part of the open source community, helping to drive that change is immense. As you look about what is, you know, relatively a small company. I think he said, what's it valued at $15 billion now? They're targeted to do $2 billion worth of revenue this year and I mean, a major player and a lot of pieces of infrastructure in this application change. The word that I heard out of the analyst session today was that what Red Hat wants, is Red Hat wants a seat at the table and a seat at more tables and more strategic as to where they play. So it's not just, you know, a Linux company and, you know, we've lived through kind of this Linux revolution. So, you know, people at this conference, I mean, this is, you know, ground zero for really the open source revolution. You know, we've said so many times that, you know, software is eating the world and open source is eating, you know, a lot of what's happening on software. So your first time at the show, Dave, I'm curious, you know, what you've gotten from the vibe so far. Yeah, but I mean, I'm kind of feeling like I'm late to the game, right? But I've certainly watched the Linux progression that was there in the Unix open system days and the promise of Linux was always that it would, you know, sort of be the single platform of binary compatibility and that sort of never happened. As Paul Cormier was pointing out, it became, you know, stovepipes and then, you know, the kind of the same thing happened maybe to a lesser extent but similar in Linux and we're hearing, oh, well, this one doesn't work with that one and IBM's got its own and Oracle has its own. But the ball is moving in the right direction and the direction is clear, it's open. And it has been, frankly, stew for 20 plus years. The interesting thing to me is it's now pushing down into the infrastructure. When you look at what's happening with the software defined data center, software, what we call software led infrastructure, seeing open source, I mean, Sun tried this in storage. Sun tried to do a Judo move on EMC and said, okay, let's open source storage. That was sort of Jonathan Schwartz's move. Everybody laughed at it, said, oh, that's stupid, you were at EMC at the time. But in fact, Red Hat is attempting to execute on that and, you know, given the state of cloud and open systems or open source today, looks like Red Hat has a much better opportunity than Sun ever had. Yeah, boy, David, it's funny, you look back at some of the things we're doing, I mean, Solaris containers. We're there at Sun. Architecturally, it might not have been the best of the time, but some of the ideas that they had at Sun, we're delivering on today from a lot of environments. I have a lot of friends that worked at Sun back in the day and what they did in storage, what they did networking. I mean, Java, there's so many things that came out of some that have now proliferated. But yeah, as you said, Dave, Red Hat is here, has a play in a lot of environments. They've built a robust ecosystem, but it is different, it's a different partnership than some of the other shows that we go to. You know, we were at EMC World, you're at IBM, you know, companies that know how to partner and execute, but, you know, Red Hat isn't necessarily trying to be the, you know, let me pull them all away together. It's about co-creation, it's about participation with the users and their partners and everyone else involved because they're all contributing to the code and they're all contributing to it. And Dave, I tell you, in the keynotes, I'm sometimes a little jaded on these keynotes. I do love some of the messaging they talk about, you know, how we're improving education, how 3D printing can help, you know, create prosthetics. I mean, those are, you know, phenomenal use cases to help make a better planet. So, one would hope and think that Red Hat, at this point, is pretty much acquisition proof. I mean, it can remain independent at $15 billion market valuation. To me, this industry needs an innovator like Red Hat that's growing at 15 to 20% a year that's expanding its dams, getting into new markets, pushing the old guard because essentially still we have an oligopoly in the enterprise. It's, you know, we know who they are, IBM, Oracle, HP, Intel, Cisco, Microsoft, SAP, EMC, VMware. Right, did I miss anybody? I mean, those guys pretty much control the chessboard. Little guys come in, they nip at their heels when they get, you know, to be too much of a pain or they fill a gap, boom, they grab them. I guess Dell, throw Dell in there. So, you need a company like Red Hat that's going to guarantee continued innovation through the community. And the other observation is when you're a company that's growing up from a smaller base, you can create a business model that is profitable, that doesn't rely on a perpetual license model, that doesn't rely on an upfront big chunk of cash. You're seeing the shift in some companies now. Oracle's a good example, shifting from upfront perpetual license to a ratable model. Well, that's painful for a lot of these big companies. Red Hat doesn't have that problem, they don't have that baggage, and so they're very comfortable with their margin model. Margin model is actually quite high, but they're comfortable with that ability to give it away for free and make money up on the back end. Hortonworks has a similar model, but it's not profitable yet, it's just early days. It's still intriguing to me that we don't see more of this given all the open source innovation, and I suspect the answer to the question of why don't we see more billion dollar software companies that are pure open sources because the market is very, very fragmented. Linux was the one sort of area that allowed Red Hat to consolidate around that OS and build an ecosystem and a product suite around that. And one would think that big data, a dupe is potentially big enough to do that, we'll see with Hortonworks, but even Cloudera, who started all the big data movement, decided to go with a hybrid model, an open core model because it saw that as a faster path to profits. And I think unquestionably, it is a faster path to profits, but the question becomes the long game. Who wins in the long game? Can a company like Red Hat get to the point where it can be beyond a couple of billion? Can it get to be 10, 15, $20 billion company and attain that incentive, at that point where it can attain that market power of the cartel? Yeah, it's a great question, Dave. And one of the things that helps Red Hat where they're going is the developers, Dave. So Linux is something that most developers are familiar with and it really is the, you talk about skating to the puck, it's like the pucks kind of come back into a realm where Red Hat plays here. The challenge is, how does Red Hat actually monetize all of this? So Red Hat's a leader in OpenStack, but where are we actually going to create value and revenue inside OpenStack? Is it going to be a distribution model like we saw with Linux? Absolutely, Red Hat customers, if they're expanding into OpenStack are going to look closely at what Red Hat's doing, but maybe I just go to Rackspace and I start consuming services from them. Maybe I go to an IBM or an HP or a built OpenStack solutions or I buy storage solutions that are leveraging OpenStack. How much money can Red Hat actually make there? And OpenShift, we just had a phenomenal conversation with Amadeus there. Obviously they bought into the Linux ethos, that they're doing a ton with it, but it is a challenging market. I think Derek Collison really laid out where the Paz marketplace is and definitely there's opportunity there, but is it billions of dollars for Red Hat? Can they monetize that? Back to the OpenStack, even Dave, while Red Hat's doing a ton there, most companies are using, in the development opportunities, they want free Linux. So they're using Ubuntu, they're using CentOS, which Red Hat bought. Red Hat is when it goes to production. So how much does Red Hat contribute before they start reaping the benefits from the revenue side? We said they want free Linux. Explain that. So they don't necessarily want to pay for all the wrapping support and everything like that because when I'm just developing it, I don't necessarily need the care-feeding, patch-up grades and things like that. I'm playing with it in a sandbox. But can I get that from RHEL? Or can I get that from Red Hat? So absolutely, they have Linux distributions, but am I going to pay Red Hat for that subscription service? Is the question I had to, not whether or not Red Hat's going to be there? No, but can I get the free version and not pay the subscription? Sure. So what's the difference? Why is, I mean, if people talk about Ubuntu, I mean, somebody told me a couple of years ago, Ubuntu is going to disrupt Red Hat. Red Hat keeps growing like crazy. But canonical, we've had, you know, execs on, what's your take on that? Yeah, so I think we're going to dig into it, tomorrow probably with Jim. It was a good case study in the book actually because there are customers that are using RHEL that aren't paying for the subscription. So there's companies that are using other Linux's that they try to get onto them, customers that are using it kind of for free and will run into environments where they want support. They need to, you know, move to reasons why they would have it or there's customers that paid for it before that let it lapse. You know, we all have, you know, understand the subscription models as to how those work. You know, Red Hat has to prove as a subscription model, you know, why they have value, why the customers want that. They've got a pretty good renewal rate, as you said, they're growing at a sizable clip and that subscription is, you know, the main thing that they're doing. I mean, Dave, Dave, you've told me many times, you know, subscription is, you know, it's that new client acquisition and that growth of what you're doing and then expanding where they can add products onto it, things like CloudForms, OpenShift and other pieces that they're going to develop. Well I think it's a business. Red Hat can get huge operating leverage because if you look at the financials, their renewal rate from a revenue standpoint is over 100%. So they're able to cross sell, when they renew, they're cross selling new PAS services into their Red Hat Enterprise Linux subscription base and the average price is going up. So they're able to renew at a higher than 100% renewal rate, if you make sense, what I'm saying, right? So, and their gross margins are very, very high. They're software like gross margins, notwithstanding they have some training their training is like any services gross margin, 30% but their subscription gross margins are software like gross margins. So this company as it adds new services, you know, can be very, very profitable. The challenge for Red Hat of course is TAM and that's why the Cloud, that's why they love OpenStack, that's why the PAS announcements, that's why they're acquiring companies like Gluster and going hard into new areas like storage because they need to expand their TAM as you get to be a bigger public company. People want more, you got to feed that beast. The TAM is pretty big, you know, it's a very, very large opportunity for them. So the big question I have, Stu, is it coming off the sort of Oracle, Docker and Red Hat Summit this week. So coming off Oracle, the story is end to end from silicon all the way up to the app. We're going to give you the full stack, fully integrated, it's going to run better, it's going to be more reliable, it's going to be faster, it's going to be, you know, more compliant, better security and logically that makes a lot of sense but we heard from Gitmer that the open source community is going to be able to replicate that capability. That's going to be an interesting thing to watch. I think for someone like Amadeus who seems to be, you know, very much focused on open source, I think that they are going to be, you know, going to make it a requirement. You know, we've done surveys that show about 15 to 20% of the people say, we've got to have open, open source, sort of open stack type of environment. Others, the big chunk will say, you know, maybe what, 50% will say, we're willing to trade the threat of lock in for integration and function and reliability and comfort. And then there's a bunch that aren't sure. Well those undecideds, you know, could sway into the open source camp and that's obviously good news. I think that's what's going to happen. I think the proportion of organizations that are going to rely on and ultimately insist on open source is going to increase dramatically that to me portends well for the integration story. It's still going to be harder to get that level of integration from the open source community for some time. But really that's the advantage that these guys have, is that ability to leverage the community. Yeah, so Dave, just a comment on that. I mean, the architectural discussion I've had for most of my career in IT is, you know, do you build in hardware or do you let software take over? And over the long haul, software always wins because you've got the power of Moore's Law there. And even if you can get a temporary advantage from hardware, that hardware, you know, will be caught up because of what Moore's Law can take over. I think in many ways, if you talk about open source, you know, if I've got the network effect of community and I have hundreds, thousands or millions of people contributing to that effort, you know, you can do much more than what can be done inside any single organization. You know, I spent a bunch of time at innovation events, you know, a student of it and believe in it. And we all know that there are many more smart people out there, you know, than just what you have inside your organization. If you can tap into that, that is hugely powerful. That is the wave of open source. You know, I'm a believer and, you know, most of the people are here at this conference, you know, understand long term, that's where it's going. And absolutely, that's where, you know, most of the innovation is happening and even the companies that are building the whole stacks, boy, they're baking in a lot of components that they get from the open source community. Talk about companies, you know, Google was built on open source, you know, Amazon leverages a ton of open source. They might not be, you know, in many ways they're so different from Red Hat who contributes back 100% of what they do, but everyone is reaping the benefit from open source and, you know, that's part of the, you know, huge benefit of it. Yeah, and then the other interesting, I think sort of storyline here is, we're seeing, and we heard this this morning, we're seeing that, you know, seven, eight years on what happened in the hyperscale world hits the enterprise. Question one, is that cycle compressing? As you get all these enterprise companies trying to replicate what Amazon, Google, and Facebook, and Microsoft are doing, will that cycle compress number one? Number two is everybody's making the assumption that, you know, hardware doesn't matter anymore, and I don't agree. I agree with Tom Rosamill, infrastructure does matter. The infrastructure, you know, we don't want to see it, but the plumbing matters and it's going to affect performance, it's going to affect reliability, availability, recoverability, and so, you know, we know, Stu, that the hyperscale guys are doing a lot of custom stuff in hardware. Meanwhile, the enterprises rotating to so-called commodity hardware. I can almost guarantee it's going to come back. You're going to see more specialization. And Dave, you know, we've spent a lot of time batting this one back and forth because a lot of it, it's integration and leveraging, you know, commodities, a bad word, standardized components. Even Amazon, you know, my take on it is they hyper-optimize their configuration. Sure, they've got two guys that spend, you know, their every waking hour trying to, you know, tweak a power supply to get, you know, an extra 1% power efficiency or save a couple cents off it because they can get millions of dollars of savings if they can do that at the scale they are. But, you know, they're not creating, you know, their own processors. They're taking, you know, standard networking chips, standard compute chips, building it into an environment that works in their data centers rather than a general purpose environment because that's the challenge we have today is, you know, if I'm a server manufacturer, you know, it might need to sit in a pretty cold data center or a pretty hot data center and data centers around the world it also for different sorts of voltage as opposed to Amazon can say, I'm going to buy something, I'm going to build, you know, 10,000 or 100,000 nodes of it and I only have to build it for one environment and therefore they can have much tighter requirements. So I mean, Dave, I'm a hardware guy by training so absolutely I think it does matter at some point especially that integration point that we have. So I think it can be done through testing, through, you know, well-defined interfaces and, you know, that pull of open is going to be hard to fight. Well, but the model is how you control, deploy, you know, provision and manage that infrastructure and that will be done, is being done, must be done through code and then the next wave as Furrier always talks about is, you know, data as the code and so will the data prescribe, you know, what workload, what app, what gets put where in a truly heuristic model? That's always been the holy grail of IT. It's really the only way you're going to cut labor out of the IT. And we're seeing that with Converse Infrastructure. It's sort of the beginnings of all this. That's just going to accelerate. So, but so back to Red Hat, Stu, good event, but roughly 5,000 people here. Yes. Lot of developers, lot of people in the partner ecosystem, great keynotes, all Red Hat and partner, right? No outside guys, no Condi Rice, no, like big names, no Bill Clinton, is that right? Yeah, no, no, no. So it's, you've got to have somebody with the open source ethos to contribute. Kind of reminds me of, well, kind of reminds me of re-invent in a way. Lot of good Amazon content. Lot of good customer content. Dave, you know, probably the top two developer friendly shows that I've been to. Yeah, that's a compliment. If you look like re-invent, you're stoked, right? All right, I think it's a wrap, Stu. We'll be back tomorrow. We kick off the keynotes at 8.30 AM, Eastern Daylight Time. Stu and I will be back on it a little after 10 o'clock with our kickoff of day two. This is theCUBE. We're live from the Heinz Convention Center in Boston. This is Red Hat Summit. We'll see you tomorrow. Thanks for watching.