 Live in San Francisco for Red Hat Summit, this is Silicon Angles theCUBE, our flagship program where we go out to the events, extract a signal from the noise. I'm John Furrier, the founder of Silicon Angles. I'm joined by my co-host Stu Miniman, filling in for Dave Vellante, who's back east. Our next guest is Jim White, her CEO of Red Hat, CEO and president. Welcome to theCUBE. Great, thank you for having me here. Excited to have you here with us at the Red Hat Summit. We're proud to come and represent you guys. Great event, 10 years in the running. Really exciting opening act, yesterday with the confetti flying on the stage after the keynotes and that. Just a factoid. Those were literally the same confetti cannons that were used at the Super Bowl this year. Unbelievable. And people were rocking like, oh my God, opening night. And I know, I heard there's more coming. So big celebration, obviously Red Hat's storied history, well documented, but now we're in a transformation. And you're seeing a lot of industry skeptics get silenced. You're seeing new people coming on board, Cisco first time here, IBM 10 years. What's your take on it? As you are at the helm of Red Hat as a company, which is software, open, transparent, tolerant, all those great things. And with a huge public community, how do you look out across the landscape and how do you manage the business? Well I think there are two major phenomenon that are happening at the same time. The first off is that the birth and growth of the big web 2.0 companies are basically driving just an explosion of the amount of open source code that's out there. Right, if you think back before those large users existed, almost all the code that existed came out of large enterprise software companies. And a little bit of open source technology that existed out there was really kind of hacker hobbyists. But as the large web 2.0 companies have grown, they wanted to drive their own destinies and they're doing that in open source. So I think part one of what's happening that we're seeing in front of us now is that innovation is moved from being primarily driven by vendors to be primarily driven by users. You look no further than big data. Virtually everything happening in big data is happening in open source. And it's not because of vendors, it's because of Google and Yahoo and others. Put that together with the fact that Linux now has been around for 20 years and Enterprise Linux has been around for 12. And we've demonstrated that you can actually have a stable version that can run nuclear submarines and stock exchanges. And so the innovation that's coming out of web 2.0 with just the 20 years of work to make open source consumable I think are coming together and really opening up new markets. So the transformation on the business side, we heard Cisco on stage talking about that every company now as a technology company used to be software geeks would do their thing and some other geeks would do their thing. Now everyone is essentially has to be disciplined at some level in software. So that's becoming more of a global trend. With the cloud forces some new economic pressures, also enables new business opportunities which now is a convergence between business drivers, technology trends, and the people equation. So how do you, as someone who's operating this, reconcile that and what do you say to customers when you're saying a red hat of old was the red hat of open source software is now the red hat of, is it cloud? Well, it really is becoming cloud, right? So we've been on exactly the right of journey going from what I would say is the early days when technology solutions were custom tailored to really the industrialization of IT where the core infrastructure, compute network storage are becoming commoditized. And so building a solution is no longer about chips all the way up through the app. It's literally just the app that's expected to run on commodity hardware. You know, a simple analogy is you think about 100 years ago a transportation solution entailed building a railroad car or building a tailor made truck. Today a transportation solution is going to a FedEx or UPS to design a way to use common carriers. You know, containers, traditional roadways, air freight to move product. Nobody's redesigning a better truck. There you use the systems that are out there and cloud's a little bit like that. Think of it as a transportation system. Now applications can be built. It's no longer about building a whole infrastructure, it's just building the application that runs on. So do you see the speed of agile, the speed of business as we say in theCUBE and open source being somewhat incompatible or compatible? I'm not sure if that's the size of open source compatible. But open source, some say it was slow but efficient and there's a speed requirement. How do you get the engine of speed going on the software side to compete with all the needs in the business? Well, what I think we're seeing now is open source is driving a lot of that. You know, if you look at whether it's DevOps, continuous deployment, those are all things that have come out of the web 2.0 movement which is all built on open source. So if you look at the tools and technologies to do that, they're being driven by open source. I actually find it fascinating, I would say half my conversations with customers are less about specifically the technologies that Red Hat delivers and much more about wanting to understand the innovation model and how to deliver and deploy at the same speed as the web 2.0 companies. So Jim, when I think back to, said you have 20 years that Linux has been going, it took the enterprise a while to get on board. When I talked to enterprises back in the 2000s, the guy in the back room was definitely doing Linux and it slowly percolated its way up. To go from that to actively being a contributor to participating in it, I think that I saw the Future of Open Source survey that just came out recently and they said over half of all enterprises in the next year or two will be actively contributing to open source project. That's a huge cultural change. How do you see companies moving to that adoption? Well, I don't think it's a whole lot different than we saw at the beginning of the Industrial Revolution. At the beginning of the Industrial Revolution, people who made the machine tools were king. But if you think about who ultimately won in the Industrial Revolution, it's people who took the machine tools and optimized mass manufacturing, the Fords and General Motors are the winners that you think of. And so they're the ones who use those tools and the people who built their careers in manufacturing, you know, the Sorensons at Ford who moved around, you know, those built their reputations on manufacturing. So what we're seeing today is developers want to build their own personal brand and reputation. And you can't do that if you can't contribute to code that the people can see. And so more and more, especially web 2.0 companies, but now we've had investment banks and traditional companies are putting policies in place to say, I want my developers to be able to contribute, not so much because they want them to give away their code, but because they're saying it's the only way they can keep the best and the brightest, the best and the brightest purgers want to do it. I was talking to a traditional commercial bank in the UK a couple of weeks ago. You can't get much more traditional than this saying that they now have a policy that they want their developers to contribute, again, to retain the best and the brightest because people want to build their own personal brand and you can't do that if people can't see your code. So I'm wondering if you could speak to what you're seeing around the country, around the world when it comes to innovation. We're here sitting in San Francisco, Silicon Valley's right here. There's people that said, hey, North Carolina company, they've done a bunch in Boston. How much innovation is in the valley versus everywhere? Well, it really is dispersed, I have to say. So the interesting thing you see in the valley is the core technologies around cloud have initially happened here because it was really heavily driven by the web 2.0 companies. But if you really look at the web 2.0 companies, they have specific applications that were built to run in a cloud model, stateless, the application scales, built to handle failure, right? Most traditional enterprises don't have that luxury, right? They have a whole set of applications to run. And so the innovation's happening around how to take the power of these cloud models but build them in a way that have greater robustness to be able to run stateful applications is something that's primarily happening in enterprises. And we see a lot of people contributing to components to make that happen. You know, we sit in kind of both worlds, so OpenStack's phenomenal and can do a lot of things, but we still are having to bring some of the high availability features that are required for the traditional application. So it really is a mix. Matter of fact, just one funny story, one of the big web 2.0 companies, the name that you all know and use a lot well, I was actually meeting with their engineering team and they were talking about the power of the model and how they scale out and servers coming from Quana and getting directly plugged in. And I actually asked them, I said, well, don't you have HR systems and financial systems you have to do? And they're like, oh yeah, but wow, that's tough. We have a separate group deal with that. The outcasts. Exactly, so the traditional applications, the plumbing, it's just different, right? And so, but that's what traditional enterprise IT has to do. They say even in the bowels of Amazon somewhere, there's those financial systems. Well, that's IT, exactly. I mean, that shows that we're going to a consumerization model. That points directly to the app driving the focus. Yep, absolutely. Well, I got to bring back your previous life at Delta. You had an amazing run there in your career from the financial turnaround of Delta and then become CEO of Red Hat. Two different businesses once. Both have people involved in communities. So obviously, people writing code, people writing planes. I want to ask you on the business model side, Red Hat's a completely different business. So how does Red Hat maintain that discipline? I mean, the subscription business model, it's very simple, tried and true business model that takes some discipline. At the same time, you have the cloud, it's a new opportunity to virtualization, maybe change pricing. How do you look at the evolution of the business model, maintaining the purity of Red Hat while being innovative on areas you need to be? How do you, what's your outlook on that? Well, I think the first part, and this is a general observation, whether it's Delta, Red Hat, or any business, the most important thing that a company needs to do is be able to understand deeply, articulate, and drive to its source of competitive advantage. Because competitive advantage is a rare thing and when you have it, you need to drive it, you need to drive it hard. And so Red Hat's source of advantage is the ability to catalyze communities both upstream on the development side and then commercial ecosystems that are built around our commercialized versions or the consumption model around open source. So we take that and we are very disciplined. When we think about areas to go in, we don't start off saying, oh, there's an area where there's functionality that's needed. We start off saying, is this an area where there's a ecosystem of innovation where Red Hat can add value? And is this an area of technology where Red Hat can build a commercial ecosystem to make it valuable to our customers? And your core competency areas? With those are our core competencies and if we can't, we don't do it. Like I'm asked all the time, why doesn't Red Hat do a relational database? There's a need for one. Doesn't fit with our model. Why aren't we involved in Hadoop? Doesn't fit with our model. Why do we love OpenStack? It fits perfectly. You have hundreds of contributors who all want to be a part of it. Hardware's touching software so it's easy to build a commercial ecosystem. But we are very disciplined around the model and that's the most important thing to do. So question on OpenStack, when do you expect that we'll see meaningful revenue out of OpenStack? Also be careful with the subscription model, revenue versus commercial traction because we start off the subscription model. We first sell and then we collect billings and then that reflects itself in revenue. We're starting to see material POCs this year. We've had some wins. We said in our fourth quarter we had our first million dollar OpenStack deal, which is, that's in production, it's real. I think what we'll see throughout this year is growing and growing and growing POCs. By Q4, I think we'll see some real deals of material six, seven figure size closing. Those will then turn into revenue in our next fiscal year. But without a doubt we're seeing it happen this year. You'll start to see things going in production this year in small ways and growing off of those bases. Okay, we got some questions from the Twitter sphere community from SiliconANGLE, Wikibon. The question is, you guys do a lot of deals in the quarter, congratulations, blah, blah, blah. And some other questions. So here's the question I like. Why aren't there more $1 billion open source software companies out there? Well, I mean, my simple flip answer is selling free software is hard. Now, in all seriousness, our model, and we talk about this model a lot, the functionality itself is free. If all we were delivering is the functionality we wouldn't exist or we'd be a professional services company. So our business model is taking the power of that open source model. But then every, depending on the products, periodically two to three years, we freeze the spec. And we move those bits over and we commit to supporting those for 10 years. People seem to forget, and I'll take Linux as an example. Once the communities come out with a release, they forget about it and move on to the next one. But if you're running your ERP system on a version of Linux, you want somebody to fix bugs. You want people to enable new chip sets. And Intel's enabling new chip features, upstream in Linux, but not in a four-year-old kernel. If you're running a stock exchange on a four-year-old kernel, you want that. And that's what we do. I think a lot of people look and say, well, open source, great technology, I'm going to take it to market, but what are you taking to market? And so I literally, I have dinners, used to be quarterly, it's now a couple of times a year with CEOs of open source companies from the valley and I buy it because we're the biggest one, right? But basically- Of course, Bob Beard and Steve are from Gordon News Works. Oh, of course, of course. But we actually tell this, talk about our business model and the power of our business model. I think that people misconstrue the value that the code can offer with the value their company can add and getting really crisp on those things is important. And I do think in the Hadoop space, whether it's Hortonworks or Cloudera, we'll see another open source. Well, I wanted that, you went right there. It's exactly where I wanted to go because obviously Cloudera has been kind of invested by Intel, a little bit different approach. You kind of see where Intel's going with that. They promote more sprawl of commodity hardware, whether it's open compute or build your own. Beautiful thing for Intel. I buy that. But Hortonworks is completely different. They are more like you guys in the sense of, you know, when I talk to Rob Bearden, the CEO, he's like, we're disciplined on subscription renewals and the ratios of professional services. But that begs the question, can there be a Red Hat model for other areas? Some people say there'll never be another Red Hat of anything. Oh, I certainly think we'll see another Red Hat. That very well, I mean, I think the most likely candidate right now would be in Hadoop. You know, there's a Cloudera model, which is an open core and then built proprietary around it. There's the important model, which is very much like the Red Hat model, pure to open source with a supported snapshot version with the full enterprise support around that. One of those, or both of those, will certainly get there. There's that much value. Mongo is another area where we can see that happening. There's clearly the need for a next generation, no SQL database. That certainly is something we get to do. You're kind of seeing the polar tricks of the business strategy play out. You have, you know, the open core is one vehicle and the Red Hat subscription is another. Is there another approach that you see in the market? The third pure play would really be the Drupal model, which is offered as a service. So it's fully open source. The entire model's open source, but the primary go to market is sell it as a post-admitted service. Okay, so I think those are the three and obviously we've been successful with ours and we'll see how the other two play out. So I got to get your take on the event here. So great vibe here, 10 years. The world's changed since 2008. Share your perspective. I mean, when you come onboard Red Hat it's completely different. We just had the great recession I think you might have known before or after it hit. I don't know when it hit in 2008, but it feels like it hit the whole year. But that was an interesting time and a lot has changed since then. The Facebook platform was just launched that year earlier. YouTube was just a couple of years old at that time. iPhone was announced a half a year earlier. What's changed from your perspective? You're the CEO and leader of Red Hat which is now in this massive inflection point. Share with us your perspective. Well, two things. I'll start off with the open source view of that world and I'll talk more broadly about as a business executive and technology that we've seen. First off, how the perception of open source has radically changed. Back in 2008 when I joined open source was seen as a almost as good dramatically cheaper alternative. So whether that was the JBoss application server was seen as a good J2E application server almost as good as others, a lot lower cost. And X86 and Linux is an alternative to risk, much lower cost. Now, if you look at it, open source is actually perceived and you see it in the surveys is much more about driving innovation. And again, that's because the Web 2.0s are driving it forward. You rarely talk to guys who say, ooh, it's scary or what about indemnification or what about bugs and security? All of those we've worked through and I think people feel good about those. So now it's very much it's at the leading edge and as you see at the table. More broadly than that is a business executive though. In the same way, if you want to say the platform of the internal combustion engine allowed us to have plane strains on automobiles. The platform of a core cloud type infrastructure has led to, along with the platform of the mobile device at the end of the world. And the tens of millions of apps that are out there is fundamentally changed to the way functionality is being developed, deployed and consumed. And that's just radically changing everything about information technology. It's just something to be a part of. If we look in the Linux space, I think the numbers are, you guys have two thirds of the revenue there. Look at OpenStack, you guys are the number one contributor. How do you guys balance out how much you, Red Hat, drive the innovation in some of the new adoptions versus leveraging the community to be able to drive things forward? And obviously I'm sure it changes over time, but for something like Linux, do you guys end up having to do most of it yourselves now since you're such a major player? So well, we are a major player, but I always talk to people, don't confuse the innovation model with the consumption model. So our enterprise model and our very large share as you bring it up in Linux or in our other categories is part of the consumption model because we do have a strong platform there and there's value to standards. The upstream consumption model though and the communities we get involved in are ones where it's valuable to a lot of people. So if you look at Linux, yet we are two thirds or more of the paid consumption model, we still represent a low double digit share of contribution to the Linux kernel. We're between 11 and 18% depending on the release. So you have Google and Facebook and IBM and Intel and a lot of others in a community that see value in doing it. Same thing with OpenStack, one of the things we're excited about is you have this big community. We're about far the largest contributor. We're still less than 20% of all contribution. So we like being the largest contributor in the areas where we are, but if we're 90% of the contribution, then we're really, it's not an open innovation model, it's just giving away the source code and that's not what we aspire to do. Okay, Jim, thanks so much for coming on theCUBE. We really appreciate you. Jim Widers, the CEO of Red Hat at the helm. Red Hat lighting up hardware, lighting up the cloud, lighting up the software ecosystem of OpenStore. Certainly a tech athlete, great to have you on theCUBE, get your perspective 10 years here at the Red Hat Summit event. Got the spring in your step, you guys are doing a great job. This is theCUBE, we'll be right back after this short break.