How Red Hat Decides Which Open Source Companies to Buy

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BOSTON. It’s a classic business school case study – when do you decide to buy a company and when do you decide to build it on your own?

When it comes to open source technologies, the decision is even tougher since the technology by definition is open. It’s a challenge that Linux leader Red Hat grapples with all the time. This week, Red Hat decided to go the buy route, and acquired middleware player Fusesource for an undisclosed sum. In an interview with InternetNews, Red Hat CEO, Jim Whitehurst explained why he decided to acquire Fusesource and how he goes about the buy versus build decision making process.

“Every company needs to know what they’re good at and we think we’re good at catalyzing open source communities,” Whitehurst said.

Fusesource’s technology is what is known as an Enterprise Service Bus (ESB) and it’s something that Whitehurst admits his company wasn’t doing well. When he set out to find an ESB technology, he didn’t look for the leading company, he went looking for the leading community. In the ESB case, that leading community is the Apache Camel project. With that community identification done, the next phase of the buy versus build process is all about talent.

“Can we hire enough people that we can do it ourselves or is there a company that has a lot of great talent?” Whitehurst said. “They [Fusesource] have ten committers in Camel, so it just made sense.”

Fusesource isn’t the only company in the ESB space, both Mulesoft and Talend are active as well. In Whitehurst’s view, neither of those companies have a community built the way Camel has been built.

“If you honestly believe that robust community builds better softer, than this makes more sense,” Whitehurst said.

Which Firm Will Red Hat Acquire Next?

When it comes to deciding which company Red Hat might acquire next, there are a number of factors that Whitehurst considers. For one, the company needs to fit in the space in which Red Hat operates. Then within that space, there is an effort to find a company that has a good number of community members, such that Red Hat needs to acquire the company, versus simply hiring a few people. Fundamentally, though, it is all about the people.

“When you buy an open source company, if the people aren’t coming and passionate about staying then you spend a lot of money for what? Because you don’t get a lot of intellectual property,” Whitehurst said.

Case in point is Red Hat’s 2011 acquisition of Gluster for $136 million. Gluster now forms the basis of Red Hat’s Storage product, which had its first official release this week. The people behind Gluster all wanted to work for Red Hat, which made that acquisition easy.

“With Fusesource the key thing wasn’t really price, it was — will the guys commit to staying and do they want to be part of Red Hat,” Whitehurst said.

Looking forward, on Whitehurst’s radar are technologies such as Software Defined Networking, Big Data and Analytics. During Red Hat’s Summit event this week in Boston, Red Hat highlighted its work with Software Defined Networking vendor Nicira. Red Hat also partners with MongoDB on the Big Data side as well as Jasper for analytics.

While Red Hat might be interested in a particular company, not everyone is interested in being part of Red Hat. Whitehurst commented that some companies might just want to go the IPO route.

Building OpenStack

While Red Hat has acquired its share of companies, there are also cases where it can build on its own. The case in point for that is the open source OpenStack cloud platform. In the past year, Red Hat has become a major contributor to OpenStack and a platinum member of the nascent OpenStack Foundation.

“We looked at OpenStack and said, we don’t need to buy anybody,” Whitehurst said. “There are a very dispersed number of contributors, so we said we’ll go hire a few contributors, get people contributing and that’s all we need to do.”

Watch the full interview below:

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of the IT Business Edge Network, the network for technology professionals Follow him on Twitter @TechJournalist.