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$3 billion a quarter: the Red dream

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Red Hat announced its third quarter results for fiscal year 2018. Third quarter total revenue was $748 million, up 22% year-over-year. Third quarter Application Development-related and other emerging technology subscription revenue was$162 million, up 44% year-over-year.

What’s their secret sauce?

Red Hat has made many contributions to the Enterprise Open Source world, but it’s most valuable contribution has been its commercial success. A company that started off as a Linux vendor is evolving into a technology company that’s going to play a critical role in the fourth industrial revolution.

With its feet firmly in core infrastructure, Red Has is carefully placing its bets on emerging technologies. We talk about cloud, containers, IoT, VR and what not, but the back-end services run on real systems, and that remains the core strength of Red Hat.

Red Hat registered revenue of $657 million for the third quarter, that’s the lion’s share of total revenue of $748 for the quarter. Earnings from ‘emerging technologies was $162 billion. Thats 44% compared to last year.

It’s a staggering trend. While the core continues to stabilize around 21%-22% growth, emerging technologies are experiencing almost 50% growth.

“Our growing strategic position within enterprise IT organizations is evidenced by the strong cross selling of our broad portfolio of technologies, which led to 30% year-over-year growth in deals over $1 million and over 40% growth in Application Development-related and other emerging technology subscription revenue,” said Jim Whitehurst, Red Hat CEO.

The bets are paying off.

If we put it all together, Red Hat will be touching the $3 billion milestone for annual revenue.”We anticipate exiting the fiscal year with an annualized run-rate of approximately $3 billion for total revenue,” added Whitehurst.

The exponential growth in the emerging technology segment means that in a year of so, Red Hat will be racking in over $1 billion per quarter.

That’s the real story, as my friend SJVN also pointed out. A billion dollar per quarter, from pure open source technologies.

We don’t even have to talk about open source anymore, it has become the defacto software development model. Traditional companies are opening up their technologies and newer companies are starting off with open source. But the cultural change that Red Hat brought to society was the fact that it broke the legacy mindset that you need some secret sauce to be commercially successful.

Red Hat has a perfect mix of technologies and marketing folks. Their technological prowess is very well known. They are among the leading contributors of almost all of the projects that they use in their products.

They also support many community driven efforts that don’t translate into direct revenue. Red Hat employees are among the leading contributors to many community driven projects. As a result, the company has also earned similar respect within the ‘open source’ community as it has earned within the commercial space.

With all of these aspects put together, the result is a  rounded company that’s set to break new records.

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