Red Hat's CEO sees no need for acquisitions

If anyone can be called an evangelist of the commercial value of open source software, it's Matthew Szulik, [cq] chief executive officer of Red Hat. He has guided the company to profitability as other Linux startups have gone down in flames around him, all the while managing the difficult task of succeeding in both the open source software community and the enterprise data center.

Today, Red Hat is unique. After all, where else would you see the chief executive of a 1,000-employee company take to the stage during a keynote address and belt one out with a local gospel choir, as Szulik did at his company's Red Hat Summit 2005 in New Orleans this week? And that unique blend of open source credibility and enterprise marketability has become the standard for a whole new generation of open source companies, including JBoss, MySQL and SpikeSource: a successful business built on free software.

IDG News Service sat down with Szulik in New Orleans this week to ask him about Unix, Microsoft and whether he's thinking of buying one of those up-and-coming open source suppliers.

Sun had been hinting for a while that it was working on a major acquisition, and at one point even suggested that they might consider purchasing Novell. Did you breathe a sigh of relief this week when you found out they were purchasing StorageTek?

No. I've come to the conclusion that when people make big forecasts about big acquisitions, they usually become underwhelming.

What about the issue of consolidation? This is happening so much in the software industry right now. Is that going to happen with the Linux industry as well?

I don't think so.

You don't think you or Novell are going to get picked up by a larger company?

Well, I couldn't speculate on that, but I don't think the industry of open source is at a point of maturity. I don't think the economic models are exhausted, as, in my view, they are in the proprietary software business. So I have a hard time reconciling the economies of scale that that would create.

I had a chance to speak at Harvard a month ago, and I met 20 CIOs who manage IT budgets of $500 million or larger. So these were very, very serious IT executives. And many of them had small deployments; nothing strategic. My take-away from that was, "Holy mackerel! This is still a market at a very early stage."

So if you believe that, what would we consolidate besides pretty robust technical talent? Now, when you look at our last two acquisitions, we consider those to be highly strategic. One was in the area of file systems, which of course is incredibly important. And the Netscape [directory server] asset was an asset that we had been tracking for four years. We had been paying attention to that asset because of the lack of domain experience in building directories [and] the strategic importance of being able to deliver advanced levels of security, certificate management. This is highly strategic for our company.

And then you look at what's happening as you get databases and application servers. Is that really a compelling business for Red Hat to think through? That's not clear to me right now, and I don't hear our customers asking for it, quite frankly.

So where do you see Red Hat getting traction beyond being an operating system provider?

In 2004 there were US$19 billion, globally, in Unix systems sold. So when people say, "Are you going to grow past an OS company?" I say, "Don't get bored with this Unix-to-Linux migration. It's still in its infancy."

We want to continue to be pragmatic and not be overzealous and give into the siren call of Wall Street: "Go buy company X," or "Go buy company Y." And then we have an enormous integration problem: Witness our competitor. You miss out on the speed with which the industry is moving while you're trying to integrate a disparate culture, a disparate set of people that may not have the same motivations as you.

Who do you worry most about as a competitor right now?

Microsoft.

Why Microsoft? You were just talking about Unix-to-Linux migration.

I think it's economic models, and which economic model and which development model will win. As you have seen other large economic changes in this industry, it really goes to economic models, business strategies and people.

When I look at the Unix competitors, HP seems to be de-emphasizing their Unix business. We continue to take share away from Solaris. I think the next deepest competitor that has always provided a roadblock is Microsoft.

Red Hat's critics have charged that open source reduces the amount of money that can be made by IT vendors. How do you respond to that?

Did Microsoft take money out of the IT industry when we moved from mainframe computers? No. I think Sun Microsystems and Microsoft and other entrepreneurs at that time took enormous personal risk and created great companies recognizing that sea change.

I've seen a lot of CEO's give keynotes in my time. I've never seen a CEO sing with a gospel choir. Why did you do that?

You and I go to enough of these things, and you watch a boring white guy like me get out on stage, who's forty-something, and delivers a message that 97 percent of the audience pays no attention to. These people have flown in from all over the world. It's Red Hat: They have high expectations of something that's unique and positive.

Second of all, we're involved in a global community. This is not about extermination of your competitor. So to see a white guy up there with an African-American gospel choir should send a message to people about the importance of community.

And, I think most importantly, it's not to take ourselves too seriously.

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