Open source software giant Red Hat has acquired Irish technology company FeedHenry for €63.5m in cash.
Dublin: 18.09.2014 10.45PM
Phil Andrews, Red Hat’s vice-president for Northern and Eastern Europe
There was a time when the open-source software movement was considered a little too risqué for the established order of the multibillion-dollar IT industry. Buttoned down, conservative IT buyers could never be fired for forking out excessive fees on software licences, because it was considered good practice.
Open source was a community of software developers who collaborated on building programmes and sharing their creations openly and freely on the internet, leaving the source code open to be tweaked or improved. Rather than charging licence fees, creators built businesses around providing services like maintenance and security, thereby enabling them to undercut major IT giants like IBM, Oracle and Microsoft.
As a result, open-source software proponents were seen as roguish dare-devil pirates intent on disrupting the established order of things.
Today, the heart of many technologies is open source, such as the Android operating system. Android now sits on 80pc of smartphones worldwide, according to technology research and advisory firm Gartner, and open source is the driving force behind apps, social networks, video games and next-generation hardware, like wearable computers.
One of the trailblazers for the open-source movement has been US enterprise software player Red Hat, which pioneered its own version of the Linux enterprise software environment in the 1990s.
A donation from the aunt of Bob Young, Red Hat's founder, funded the company. She became an instant millionaire when the company floated in 1999, achieving the eighth biggest first-day gain on Wall Street at that time.
After beating the open-source drum for 20 years, Red Hat is now a US$1.6bn per year software giant and its technology is considered crucial for the day-to-day operations of systems in sectors like education, utility services, financial services, telecommunications, and central and local government.
According to Phil Andrews, Red Hat's vice-president for Northern and Eastern Europe, as Ireland emerges from the financial crisis, IT spend is set to grow as businesses see real competitive advantage to be gained.
“Red Hat Linux is recognised as the standard operating platform in 75 of the top 100 banks in the world," Andrews said.
Open source is no longer avant garde, he added. What Red Hat does is take commoditised technology and uses open source to develop alternatives businesses can use. The company doesn't sell licences, it charges a maintenance contract for what a traditional software company would do in terms of maintaining the lifetime of the systems.
“What Red Hat has done is take an open-source operating system called Linux and we've made it an industry standard for most of the major corporates and governments in the world," Andrews said.
“We've created a business model that allows us to move from just doing an operating system to provide other things that chief IT decision-makers need, like virtualisation, system management, middleware, storage technologies and now cloud management technologies.
“Businesses no longer have to pay huge licence fees to get high quality software."
According to Andrews, there three types of IT decision-makers: traditional chief information officers (CIOs), who are still wary of open source but are fed up with paying large licence fees; CIOs who are focused on the next generation of cloud systems and are already embracing open source; and the laggards, who still fear open source.
“The fact is open source is tried and tested and most large organisations are running mission-critical projects on supported platforms. Our last quarter saw us record revenues of US$397m, driving us towards a US$1.6bn financial year - you don't get to that level without a high level of adoption of the technology," said Andrews.
In Ireland, Red Hat has 50 employees in Cork who support international operations and target businesses and government through three local channel vendors.
Globally, Andrews said the IT world is 50-50 divided between open source and legacy software models, and the challenge will be converting the next 50pc.
“A lot of IT budgets are 80pc 'lights on' and 20pc given over to innovation. Traditional systems are beginning to crumble and many are making the move from old Unix systems to x86 servers, and that's when the decision is normally made to remain traditional and pay large licence fees or embrace open source and free budget up for innovation," said Andrews. "Traditional sectors like utilities and government have sweated their assets for years and are ready to make the move as they need to modernise for cloud."
Ireland, Andrews said, is a market ripe for disruption. The Irish Government is gearing up for next-generation cloud projects to modernise its systems and cut costs. For Red Hat, that is a big opportunity - the company already has a footprint in Ireland because most of the major banks and telecoms companies, and a number of government institutions, use its technology, as well.
“The economy is starting to become visibly healed," Andrews said. "It's gone from intensive care back to business as usual and as a result there is a growing appetite for innovation."
A version of this article appeared in The Sunday Times on 2 February