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Red Hat

Executive Summary

Red Hat Inc. refers to an American software company involved in providing open-source software products to the worldwide community. Established in 1993, the company has its headquarters located in Raleigh, North Carolina. The current strategies of Red Hat include expanding their customer base by investing globally. The company also strategizes on continuing to offer cloud-computing technologies to compete effectively. Some recommendations that Red Hat needs to follow include providing user-friendly applications and liaising with system integrators. The current mission of Red Hat is to be the catalyst in communities of contributors, customers and partners in order to create a better technology through open source.

What is Red Hat Enterprise

The technology industry is one of the most competitive sectors of the economy. Firms operating in this industry face various obstacles and their survival depends on how they adapt to changes. Red Hat is one of the key players in the industry, being a worldwide provider of open source solutions to consumers. Some of the popular products offered by Red Hat include the Red Hat Enterprise Linux, which is a core enterprise operating system; Red Hat middleware; and Red Hat JBoss. The firm also offers virtualization, storage and cloud computing products. Unlike other technology companies, such as Microsoft, Red Hat uses the open source development and licensing approach, which deploys a collaborative effort from the global community to improve its software. The company actively engages in such community-oriented development process, frequently in a leadership role. In addition, the community-oriented development process enables the company to improve its technologies (Hendrickson, Magoulas, & O’Reilly, 2012). In relation to this, the paper discusses both internal and external analysis of Red Hat. In addition, this study will also discuss the SWOT analysis of Red Hat.

Background Information

Red Hat Inc. is an open source software market leader for servers, embedded devices, workstations, and mainframe computers with Red Hat Linux Operating system being its core product. Red Hat’s mission is, “Simple open and affordable” while its mission is, “To be the catalyst in communities of customers, contributors, and partners creating better technology the open source way.” The company was founded in 1993 by Marc Ewing and Bob Young. The company represents a fundamental shift in how software is created as it makes the code that makes up the software to be available to all. As a result we have a rapid innovation of the product. The company solutions combine Red Hat Linux, embedded technologies and developer, training, technical support and management services. The open source services are then delivered through an internet platform known as Red Hat Network to its customers. The company has grown since and has more than 7,000 employees all worldwide (Red Hat – Corporate fact sheet).

Competition is very high in this industry and Red Hat faces stiff rivalry from its competitors. This is because it possible for other companies to initiate strategies focused against Red Hat (Red Hat, 2012). Companies, such as Microsoft, have created a formal competitive assessment and a strategy focused against Linux’s open source model, including Red Hat (Hendrickson, Magoulas, & O’Reilly, 2012). In spite of the competition from such companies like VA Linux Systems, SuSe Linux AG, and Turbo Linux Inc., Red Hat has remained the dominant firm due to its software offerings being praised in the industry. The creation of Red Hat Networks in September 2000 made it easier to facilitate joint projects, deploy upgrades and enhance security over the internet.

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Red Hat Industry Dynamics

The open source software model emanated from academic and research environments. Collaborative development of software provides a basis for the open source model deployed by Red Hat (Red Hat, 2012). Software developers develop the code or obtain the components from other vendors under the proprietary software development model. The vendor only authorizes to the user the object code version of the software, having no or limited rights to copy, inspect, modify or redistribute the code. The growth of internet has substantially increased the level and efficacy of open source software development via the presence of collaborative technologies such as code repositories and email lists (Red Hat, 2012). These technologies have allowed large communities of independent software development to collaborate on sophisticated open source projects.

Porter’s Five Forces

Porter advances the five forces model is a simple tool for comprehending the business environment of an organization. Porter’s model helps one to understand the strength of the present competitive status. Firms having a clear understanding of the competitive status can take advantage of the situation. Normally, Porter’s model identifies whether new services or products have potential profitability. The model includes five forces that Red Hat can deploy in analyzing the competitive technology industry.

The first force of the model is the supplier power. This force assesses the supplier’s degree of ease to control the prices. Key input factors such as their strength over the organization and the expense of changing their buyers (organizations) resulting from the supplier’s capability might control prices. As such, the fewer the number of suppliers a firm has, the more the help the firm needs from suppliers. Few suppliers in the market tend to be more powerful since they might act monopolistically. In the technology industry, suppliers are many; hence, they have limited control of prices. As such, Red Hat has the opportunity of regulating their prices, which will enable them to adapt to competition.

The second force in the Porter’s model is the buyer power. This force examines the ease with which buyers can control the prices of products. Various factors such as the number of buyers, the cost of changing between sellers and the importance of each buyer in the business influences the power of buyers. For instance, few and powerful buyers are likely to regulate prices of a firm. With respect to the power of buyers, Red Hat has an average number of consumers because of competition in the technology industry. This might pose a threat to them because it will need to lower their prices to increase the demand of their products.

The third force is the competitive rivalry, which refers to the number of competitors in the industry. Many competitors offering high quality products are threat to firms offering products of average quality in the same industry. Producing high quality goods and services give firms a competitive advantage. In the case of Red Hat, there are many competitors such as Microsoft and Oracle among others producing the same goods. This denies them a competitive advantage in the market. In fact, few firms in the technology industry seem to have the competitive advantage. This is because the industry is extremely dynamic.

The fourth force is the threat of substitution. It originates from the customers ability to find another seller. It can also result from the ability of customers to acquire satisfaction of their needs without buying from the organization, which faces the threat of being substituted. Red Hat cannot be easily substituted since they offer a wide range of products, which implies that customers cannot do without them.

The last force in Porter’s model is the threat of new entry. The entry of other firms in the industry increases supply, which lowers prices. Low prices reduce profitability. Since the technology industry is dynamic, new entry is inevitable. Apparently, this poses a threat to Red Hat because it will be forced to lower prices in order to compete.

Internal Analysis of Red Hat (SWOT)

The internal analysis of Red Hat involves examining its Strengths, Weaknesses, Opportunities and Threats (SWOT) (Feller, Fitzgerald, Hissam, & Lakhani, 2005). Red Hat has various strengths that are necessary for surviving the stiff competition. A comprehensive SWOT profile of RED Hat Inc. will provide an in-depth analysis of the company’s Strengths, weaknesses, opportunities and threats faced by the company.

Strength

A company’s strengths are the elements that allow it to do great jobs. Some of the strengths associated with Red Hat include:

  • Cost advantage
  • Massive programming expertise
  • Asset leverage
  • Strong brand equity
  • Strong management team
  • Online growth
  • Effective communication
  • Constantly developing programmers around the world
  • Red Hat is the leading server in OS

Red hat has a massive programming expertise which is one of its strengths. The company has huge pool of about 120000 programmers globally. The programmers are distributed worldwide. The open source model is self-scaling since the more important the project is the more programmers will want to be affiliated. Another strength of Red Hat is the research and development activity covered by volunteer labor (Hendrickson, Magoulas, & O’Reilly, 2012). The volunteer labor saves Red Hat huge amounts of money as compared to firms that develop their own operating systems. Some studies indicate that companies developing their own operating systems spend approximately $80 million yearly in conducting research and development studies. Many programmers contribute to Red Hat out of personal interest or as a hobby. The quick release rate of software is also the company`s strength (Koch, 2005). Red Hat releases patches and fixes very quickly. For instance, their software version of 2.0 might iterate about 34 versions within two years. The culture of sharing gives Red Hat a competitive advantage over other companies. The GNU General Public License has encouraged programmers to share.

Weakness

A company’s weaknesses are the areas where the company needs to gain more expertise. Some of the company’s weaknesses are:

  • Low market share
  • Poor communication
  • Red Hat Inc. has no online presence
  • Not diversified
  • The company lacks innovation
  • Overreliance on independent developers

Red Hat faces various weaknesses, which makes it vulnerable to elimination from the industry (Red Hat, 2012). The first weakness of the company is the lack of “ownership.” Many software users want some accountability and a proprietary firm seems more tangible than “open source.” This is because these proprietary companies can position themselves as trusted caretakers. For example, Microsoft uses a marketing technique known as the Fear, Uncertainty, and Doubt (FUD). The technique uses gossip and casts doubts on individuals who intend to change their technology product`s supplier. Another weakness of Red Hat is the less user-friendliness because of its weak Graphical User Interface (GUI) (Koch, 2005). Red Hat might have been developed for programmers instead of the non-technical users.

Opportunities

Opportunities are the strengths a company can use to leverage on its business. Red Hat Inc.’s opportunities include:

  • Acquisitions
  • Expanding on its products and services like in net books or smart phones
  • Expanding abroad on the emerging markets

The company has various opportunities that need exploitation. The first opportunity is internet connectivity (Red Hat, 2012). The productivity and number of open source programmers increases with the increase in internet connectivity. The availability of internet connectivity has enabled Red Hat programmers to contribute on daily basis. The increase in internet connectivity will continue expanding Red Hat and other open source projects by availing the software to a larger number of people worldwide. Internet components, such as websites and email lists, have also encouraged the growth of open source. Many distributors are another opportunity that Red Hat possesses. Distributors provide Red Hat software packages with various integrated tools and they act as an intermediary between customers and the quick development of software. In addition, Red Hat distributors escalate the operating systems’ evolution by adding features as they compete against each other. This improves the product and saves on advertising costs. The competitive support structure is an opportunity for Red Hat (Red Hat, 2012). The openly available source code for Red Hat and other open source projects allow sellers to learn the open source platform and provide necessary structure. The quality of support increases because sellers of Red Hat products compete to provide support. In addition, the support structure of Red Hat is self-scaling. This implies that the more users that become accustomed to the open source software, the more they learn and become able to support each other.

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Threats

Threats are the situations that can lead the company to lose its business. Red Hat’s threats include:

  • Competition from other service providers like personal PC
  • Availability of cheaper alternative technology
  • The recent economic slowdown and depression
  • A government’s external changes in taxes, politics, and even change of government
  • Lower cost of imports other companies outside the US

The company faces threats that pose some risks of elimination from the industry (Hendrickson, Magoulas, & O’Reilly, 2012). The first threat is the risk of fragmentation. Code fragmentation occurs when many incoherent versions of the code of the project are evolved. This might take place when programmers attempt creating alternative ways for a code to play a more primary role than in the base product. The lack of compatible applications is also a threat to Red Hat. The number of software written to Red Hat is increasing at an unbalanced rate compared to the rate of other operating systems. Many companies choose software that meets their requirements before choosing an operating system that suitably supports this software. As such, the more famous the software, the more the users being trained (Feller, Fitzgerald, Hissam, & Lakhani, 2005). The Red Hat Company needs to convince the users of its application that their applications are compatible to other operating systems. Corel is one of the companies that have released an application compatible to Red Hat. Sun Microsystems released the StarOffice, which is compatible to Red Hat. Another threat is the need for version regulation. Version regulation can emerge as issue if the system demands integration and involvement. As such, Red Hat programmers need to ensure that integrated application versions are compatible.

Competition is a crucial threat to Red Hat. This is because it possible for other companies to initiate strategies focused against Red Hat (Red Hat, 2012). The success of Red Hat has labeled it as a competitor in the industry. Companies, such as Microsoft, have created a formal competitive assessment and a strategy focused against Linux’s open source model, including Red Hat (Hendrickson, Magoulas, & O’Reilly, 2012). The Microsoft’s internal strategy memorandum gives an evidence of the strategy against open source movements (Feller, Fitzgerald, Hissam, & Lakhani, 2005).

Strategies of Red Hat

The first strategy of Red Hat is to increase the adoption of its technologies globally (Red Hat, 2012). The rising numbers of users perceive Red Hat JBoss Middleware and Red Hat Enterprise Linux as conventional enterprise technologies meant for critical areas of IT infrastructure. Many users deploy Red Hat JBoss Middleware as a complete middleware. The company seeks to foster further use of its technologies via expanding the depth and breadth of service and product offerings (Red Hat, 2012). The company intends to stick to this strategy by developing products that can support high computing, storage, high performance and messaging. As such, Red Hat proposes that it will bring new management services to aid in marketing, improving the infrastructure of technology and offering expanded services to organizations. In addition, Red Hat also intends to foster users of free application versions to become paying subscribers by assisting them comprehend the value of subscriptions offered. Another business strategy for Red Hat is to continue expanding their cloud computing services and products.

The company intends to control and improve its technologies in order to improve performance and private, public, and hybrid cloud computing environments (Red Hat, 2012). Red Hat continues expanding virtualization, storage and other platform products as a strategy. According to Koch, (2005) the company is channeling resources towards developing virtualization suite of clients, servers and management products. This will allow customers to increase their use of virtualization in business environments. The expansion of routes to the market is another strategy. Red Hat expects to achieve this by growing their direct sales channel and networks on universal grounds. Additionally, the company is improving relationships with various system integrators, which will enable it to reach customer relying on system integrators.

Discount

As opportunities arise, Red Hat anticipates continuing to pursue discerning acquisition strategies to expand and complement its products. As such, developing strategic alliances is of great significance. The firm also plans to continue growing its presence in the worldwide market. Currently, Red Had operates in America and Asia and it has over 75 offices internationally. As such, the company plans to spread its operations geographically and exploit the international market (Red Hat, 2012). Lastly, the company plans to continue investing in the creation of open source technologies in areas such as messaging, cloud computing, virtualization, real-time computing, management, middleware and security among others. The strategies of Red Hat are extremely important since they serve as a shield against threats that pose risks of elimination from the industry. Sticking to these strategies will guarantee the survival of Red Hat in the competitive technology industry (Red Hat, 2012).

Recommendations to Red Hat Strategies

In order to remain competitive, the Red Hat Company needs to leverage on some strengths. The first strength that it should capitalize on is the research and development covered by volunteer programmers (Koch, 2005). This will increase the competitive advantage of Red Hat by cutting down production costs. Many companies in the technology spend huge amounts of money paying hired programmers, which increases their operational costs. The research and development studies will also enable the firm to develop products that meet the consumer needs. This will increase their profitability and, hence, their survival in the competitive environment. Red Hat should also leverage on the culture of sharing. Open source software development model eliminates the loss linked to duplicated work. Many computer problems in engineering cut across a wide range of applications and fields. By leveraging on this strength, Red Hat will not experience economic waste that tends to hurt the productivity of companies in the US. It can also acquire a competitive advantage by leveraging on this strength (Red Hat, 2012).

In relation to strategies, Red Hat needs to concentrate on developing user-friendly operating systems. This will enlarge its customer base, which will increase its profitability. Currently, many people shy away from using Red Hat due to its command line nature, which requires proficiency. In addition, many people also feel that Red Hat only meets the needs of programmers and is useful in mission-areas such as large organizations. Developing a strategy that will lead to a production of a user-friendly applications and software will increase the company`s profitability.

Conclusion

Red Hat operates in a competitive environment that requires the deployment of strategic management. It has various strengths that are competitive advantages. The first strength of Red Hat is the massive programming expertise. Other strengths include research and development, volunteer labor and quick releases. The company also faces some weaknesses that pose risks of elimination. Examples of the weaknesses include lack of “ownership” and less user-friendliness. Opportunities available to the firm include internet connectivity, many distributors and competitive support structure. Threats that also pose risks include competition, fragmentation and lack of compatible applications. The company has initiated various strategies that will ensure survival in the competitive technology industry.