Three months after International Business Machines (IBM) Corp. completed the acquisition of Red Hat Inc., president and chief executive officer (CEO) of the open source software company, Jim Whitehurst, insists that his strategy remains the same, even as IBM’s market capabilities and size help his company achieve faster growth.
In an interview in Bengaluru, Whitehurst and Red Hat chairman and Nexus Venture Partners co-founder Naren Gupta spoke about the company’s India plans and explained why they continue to see open source models as the future. Edited excerpts:
It has been a year since the deal was announced and three months since it was closed. Has the Red Hat strategy changed since?
Whitehurst: Red Hat’s strategy remains unchanged. We are an open source software company looking to deliver open source platforms. Every line of code we have is open source. That will continue to be true. Even for employee contributions, IBM changed its entire contribution policy to match that of Red Hat. The logic of the deal was more around how IBM’s go-to-market capability can help us scale faster. Earlier, we just didn’t have the size and scale to really be able to deliver these huge platforms for telcos. IBM is working hard to better optimize their software to run on our platforms.
Gupta: In many ways, the Red Hat-IBM deal extends the benefits of open source. We were doing well ourselves, but certainly we can accelerate whatever we are doing in partnership with IBM.
How is the deal panning out in India?
Whitehurst: Great. While we have credibility in open source, when it comes to running big mission critical systems, people trust IBM. Telcos around the world are a great example. Taking our stack together with IBM allows us to take that credibility and propel our business quickly. In India, IBM has a strong brand.
Typically, merger deals take a toll on employees, either in terms of morale or concerns around layoffs. How are you addressing that aspect?
Whitehurst: We were very clear from day one that RedHat is a distinct unit. There have been no layoffs and no changes in benefits. I still have a finance department, a legal department, and an human resources department. Everyone at Red Hat reports to me and I report to Ginni (IBM chairman, president and CEO Ginni Rometty). We’ve actually accelerated our hiring and we are accelerating our business. That’s true here in India as well.
How did you manage to convince IBM that you need to be a separate unit? There are few parallels—VMware and LinkedIn to name only a couple.
Whitehurst: I spoke with Pat (Gelsinger, VMware CEO), Michael Dell (chairman and CEO of Dell Technologies). I also spent a lot of time with Jeff Weiner (CEO of LinkedIn) and Satya (Nadella, Microsoft CEO) who were all very generous with their time, talking about how they helped VMware and LinkedIn to remain separate companies.
To some extent, it helps that IBM’s model is similar in terms of the nature of the company around revenue and margin. We’re a subscription model, so I pretty much know how my revenue will shape up each quarter. As we’re operating on a different set of metrics, it’s easy for us to go back to IBM saying here’s what we’re going to deliver in terms of revenue this quarter. So, a lot of friction points haven’t been there. The one exception is that we no longer have equity to give. So, we give IBM equity instead of Red Hat equity.
Gupta: I think IBM is being very smart about this thing. The reason they bought Red Hat was to leverage the innovation.
The pace of innovation is rising in technology. You’re going to see more models such as the Red Hat-IBM acquisition model. People are realizing that a lot of the innovation could be compromised if you merge two organizations.