At the recent Red Hat summit in Boston the company took the unusual step of combining financial analysts and industry analysts in the same meeting. It was interesting to see CFO Charles E. Peters Jr. on stage dressed in Wall Street attire talking financials, and CEO Jim Whitehurst in jeans and red shoes talking strategy. Very few large enterprises have similar diversity among top executives, showing a unique corporate culture at Red Hat.

Whitehurst presented Red Hat’s three top priorities: increasing revenues, community development and decreasing costs. It was a refreshing change from other technology vendors who seem primarily focused on cost cutting. Focusing on the community provides Red Hat a unique opportunity to “crowd source” innovation with active participation of customers & partners in the product development process. This approach also benefits customers, assuring them that they have an influence when product features are prioritized.

Like many technology conferences, Red Hat’s included a significant interest in cloud computing. As a result, the exhibit area featuring the company’s cloud products was very busy. Customers were interested to see how Red Hat’s cloud computing strategy augmented their existing middleware products. The company’s cloud products include OpenShift (PaaS), CloudForms (Hybrid Cloud Management), Red Hat Storage (hybrid cloud storage from the Gluster acquisition) and OpenStack (an IaaS offering still to be released). When combined with Jboss, Linux, messaging and virtualization, Red Hat provides a comprehensive platform on which enterprises can develop cloud infrastructures. At present, very few vendors can offer such an end-to-end solution.

Why are Red Hat and open source so relevant in cloud computing? In recent years, many enterprises have had bad experience by being locked-in to ERP and database platform investments. Security is another roadblock to cloud adoption by enterprises. Here are a couple of relevant examples: Sprint migrated to Red Hat’s open source application server from a proprietary solution, while significantly reducing their expense. Customer ERP investments locked-in to current vendors face significant challenges to migrate off existing products. The adoption of on-premise HR applications and associated migration costs make it hard for CIOs to justify the leap into a cloud delivered solution like Workday.

Cloud computing’s success has been built on open source as proven by Amazon, Google and Facebook. A number of business cases would not have been viable using proprietary software. The availability of open source options makes a unique value proposition possible for start-ups. These successes in the cloud are now being increasingly replicated by enterprises that contributed to Red Hat’s revenue crossing $1B in the past fiscal year, demonstrating its momentum. The opportunity for Red Hat is to take its cloud computing stack and make adoption a no-brainer for customers already using its existing middleware stack.

At the same time, Red Hat has some unique challenges:

• Any new platform needs to have strong developer support. Red Hat will need significant investment to attract developers to their OpenShift platform, without which they risk slow adoption.
• While there is increasing movement to simplify IT investments by integrating hardware with software platforms, Red Hat lacks hardware in their portfolio.
• Proprietary software vendors are jumping into open source with a―me too‖ mentality, with several vendors announcing support of new languages and open frameworks. This could lead to diluting the value of traditional open source platforms like Red Hat.

Cloud computing is evolving at breakneck speed, largely due to a community driven open architecture that embraces multiple languages and frameworks. As a result, technology companies are in a race to be open, while Red Hat has the unique culture of having been “born” open. Time will tell how large Red Hat can grow in enterprise markets, especially in the cloud computing space, building on the momentum of customers defecting from proprietary software.