Red Hat Invests in Core Offerings to Address Next-gen Applications, Including AI

In late May, Red Hat welcomed customers, partners and industry analysts to the Boston Convention and Exhibition Center to showcase new innovations around OpenShift and Ansible. A key theme at the event was helping CIOs do more with less, a message that particularly resonates in this economy as customers vie for self-service software to automate processes and fill skills gaps without increasing their IT bill.

Red Hat’s Backstory Will Shape Its Entry Into Next-gen Applications

Evidenced by the widespread adoption of Red Hat Enterprise Linux (RHEL), which is trusted by roughly 35,000 customers, Red Hat has a rich history turning upstream, open-source projects into commercial products. Red Hat launched OpenShift in 2011 by essentially layering Kubernetes on top of RHEL, and what was once viewed as an enterprise Kubernetes product has evolved into a modern application platform, supported by a series of plug-ins and control plane capabilities that add inherent value over traditional Kubernetes runtimes.

 

Over the past decade, Red Hat has grown its OpenShift customer base to north of 3,00, as enterprises use the platform to build, modernize and manage both traditional and cloud-native applications. However, in the span of just a couple of years, against the backdrop of a pandemic, the IT landscape has shifted, forcing Red Hat to adjust its open-source portfolio and business model to a new set of delivery methods, workloads and consumption models.

 

While the market appeared initially skeptical that an open-source company born inside the data center could accommodate these changes, in those two years, we have seen Red Hat push into the edge space through multinode OpenShift clusters and offer managed cloud services on the platform.

 

Now, with AI promising to unlock a new wave of applications and related business opportunities, Red Hat will use its expertise in productizing open-source technology to help customers build and manage intelligent applications.
 

Announcing OpenShift AI

Despite all the recent hype around AI, customers have been showing interest in running AI and machine learning (ML) workloads on OpenShift for quite some time, which prompted the 2021 release of OpenShift Data Science.

 

With foundation models promising to unlock a new stream of developer productivity, there is a clear opening for Red Hat to use its understanding of application pipelines to help customers build and manage the models that will ultimately power the next wave of enterprise apps.

 

At the event, Red Hat announced OpenShift AI, a series of tools and capabilities designed to help customers deploy models, monitor the accuracy of their models, and improve the performance of an AI model in production. As such, Red Hat is not trying to create the next AI algorithm, but rather is aiming to be the platform that helps customers build and run AI models. One example is using AI models tailored to certain domains, such as Ansible, that run on trusted code and therefore help to eliminate some biases customers might experience with more generic large language models (LLMs).

 

While it is still a little too early to predict how customers will react to these generative AI innovations, Red Hat has landed a big use case with IBM (NYSE: IBM), which developed a series of foundation models, as part of what is now WatsonX, on OpenShift AI.

Red Hat Strengthens Value Prop of OpenShift With New Developer User Interface

At the Summit, Red Hat announced Developer Hub, a portal with enterprise-compliant APIs and templates designed to improve developer experiences on OpenShift. We view the launch of Developer Hub as a key step in further freeing developers from more mundane tasks like cluster management, so they can ultimately focus on creating new code.

 

Getting in front of more developers with services like Developer Hub will be key to Red Hat’s continued success, helping it to not only sell OpenShift to more of its RHEL customers but also land new business from companies that are underwhelmed by the lack of developer-friendly features in some of the market’s native tooling.

AWS and Microsoft Azure Emerge at the Center of IT Deployments, and Red Hat Is Partnering Accordingly

At TBR, we talk extensively about how the leading hyperscalers — Amazon Web Services (AWS) (Nasdaq: AMZN), Microsoft (Nasdaq: MSFT) and Google Cloud (Nasdaq: GOOGL) — partner with pure play PaaS platforms, as well as some of the associated opportunities and challenges.

It is hard to dispute that one of Red Hat’s true marks of success has stemmed from the company’s ability to go to market as a neutral DevOps platform that is compatible with all leading cloud platforms and even makes its services, including the new Developer Hub, available on Kubernetes platforms outside OpenShift. This position has allowed Red Hat to evolve its relationships with the major hyperscalers, offering natively integrated cloud services, including Red Hat OpenShift on AWS (ROSA) and Azure Red Hat OpenShift (ARO). This is attractive to customers as they can use their spend commitments with AWS and Azure and offload the management of their application development environments to Red Hat, and AWS and Microsoft, respectively.

 

We suspect most of the business flowing through these integrated solutions comes from self-managed deployments and is driven by AWS, followed by Microsoft. Red Hat does not offer a first-party integrated service with Google Cloud as it does with the others, likely for two reasons. First, Google Cloud’s lack of relative maturity compared to AWS and Microsoft does not make enough of a business case to support this integration. Second, Google Anthos offers capabilities like orchestration, logging and observability, making it a complete Kubernetes platform that is more competitive with Red Hat OpenShift versus Amazon Elastic Kubernetes Service (EKS) and Azure Kubernetes Service (AKS).

 

Naturally, AWS and Microsoft welcome this type of relationship with Red Hat, as a customer deploying OpenShift will drive more IaaS consumption for the hyperscalers compared to EKS or AKS. Google Cloud would similarly like to maximize its customers’ Google Cloud Platform usage, but the company has placed big bets on Anthos and is using the multicloud control plane to differentiate from AWS and Microsoft.

 

As a result of these dynamics, we do not see Red Hat’s relationship with Google Cloud going in the same direction as its relationships with the other two hyperscalers, and suspect both companies will remain focused on supporting customers via managed services, at least for the foreseeable future. This includes Red Hat’s fully managed OpenShift service, OpenShift Dedicated, which runs on Google or AWS infrastructure and is fully managed by Red Hat.

Conclusion

As the IT landscape evolves and continues to emerge as a core component of business decision making, Red Hat is solutioning to address new use cases, leveraging existing assets while offering customers new tools they need to both simplify operations and develop applications more consistently.

 

New offerings unveiled at the Summit, such as OpenShift AI and Developer Hub, underscore this strategy and are designed to help customers get better at building and modernizing their existing assets and steps Red Hat can take to empower developers, through foundation models, seamless user interfaces (UIs) and sandbox trials, may also be enough to convert some RHEL customers to OpenShift as they look to take advantage of generative AI.