This week, IBM announced its plan to acquire Red Hat for $34 billion dollars. Given the size of the deal, conversations started at our office – people were discussing whether this was a tipping point for open source software and the businesses built around open source.
Our question was simple: Is open source finally becoming mainstream?
The Growth of Open Source
Open source software refers to any software project whose source code is available to the public. Individuals and companies are free to use, modify, and build upon this source code without paying and without fear of litigation down the road.
People used to mock open source software as being a "niche" phenomena. That may have been the case, but that cannot be said today. By contrast, open source is everywhere now.
There are open source operating systems (Linux), open source web browsers (Mozilla Firefox), and open source alternatives to every software category from content management systems (Drupal) to tools for sales, marketing, project management, finance, education, and more.
Numerous venture-backed companies also follow an open source model. Docker, the company that popularized containers, has raised over $270 million. Automattic, the Bay Area team behind WordPress, was recently valued at over $1.1 billion. Other notable examples include Databricks (built on Apache Spark), GitLab (built on Git), Redis, and Nginx.
The same holds true in the public markets. Open source public companies include document-oriented database provider MongoDB to Cloudera, which recently announced plans to merge with Hortonworks. And how could we forget Oracle. The Community Edition of MySQL is open source, while Oracle Corporation owns the Enterprise Edition of the relational database management system.
And, of course, there's Red Hat and IBM.
The Red Hat Acquisition
Red Hat is a brand synonymous with both Linux and open source. Founded in 1993, the company has been public since 1999 – surviving both the dot com bubble bursting and the global financial crisis.
The Raleigh, North Carolina-based company offers subscriptions for training and support, enabling enterprise customers to take full advantage of open source software. Today, Red Hat works with 90% of the Fortune 500 to solve their complex business problems.
In fiscal year 2018, the company had total revenues of $2.9 billion and $250 million in net income. The public markets valued Red Hat (NASDAQ: RHT) at a healthy $21 billion dollar valuation before the news of IBM's planned acquisition.
Their valuation is well earned. Red Hat is the leader in helping large organizations modernize their infrastructure, which is becoming an increasingly important position as more enterprises embrace open source and the cloud.
Billions of smartphones, tablets, and computers run a flavor of Linux. Linux also dominates the cloud: Current estimates from The Cloud Market show Ubuntu Linux and vanilla Linux as the #1 and #2 operating system on Amazon Web Services. Both operating systems are also growing at a faster rate than Windows, the third most popular option on AWS.
As the adoption of both public and private cloud accelerates, Red Hat may provide the perfect combination of customer relationships, technical expertise, and trust. At least that's the $34 billion dollar bet IBM is making.
The Future of Open Source
In short, the future of open source software is bright. Open source as a movement is growing and maturing, particularly with increasing adoption in the enterprise. Today, 83% of hiring managers say that finding open source talent is a priority, with Linux being the most demanded skill category (The Linux Foundation).
Another recent study found that 78% of companies are using "open source software for running their vital operations" (source). Moreover, the Linux kernel is "one of the largest and most successful open-source projects that has ever come about" (source). Android, which runs a modified version of the Linux kernel, powers more than 1 billion active devices each month!
Because open source software must suit the needs of many, the development cycle tends to be faster and more closely attuned to the needs of the end customer. In many cases, that customer is the developer actually writing the new features!
We expect open source software to become more prevalent and a more common sighting, even in mission-critical situations in finance, law, medicine, nonprofits, and government.
Developers have embraced open source software for decades. Open source software powers billions of devices, entire companies are built around supporting open source projects, and – perhaps most importantly – open source technologies drive real business results.
Leveraging open source software allows companies to avoid paying high license fees and stops them from facing vendor lock-in. In addition, the open source movement has been largely miscategorized by analysts and pundits. Fortune 500 companies are not finding open source software in code repositories and using it "as is".
Rather, individual developers and teams within an organization can see the source code, read documentation, test features, and understand current offerings. Development team then have the freedom to integrate exactly what they need from open source projects into their enterprise applications.
The shift to open source software represents a new way to dip your toes into the water without the bureaucracy and lengthy legal contracts typically associated with enterprise software.
As internal and customer-facing applications become increasingly complex, leveraging an open source team is also a great way to ensure that products stay secure. Large organizations often contribute back to the open source community, either through donations or by releasing their updated source code back to the public.
With all of its benefit, open source is here to stay. The recent rise in open source companies and news coverage is indicative that the open source model has become more understood and accepted by business leaders across all functions and departments.