2014 Is the Year of Serious Cloud Computing. Here's Why.

Red Hat CEO Jim Whitehurst sees 2014 as a game-changing year for cloud computing. In this exclusive interview, he explains why.

Feb 15, 2014 at 7:00AM

"2014 is going to be a defining year for the technology industry," says Red Hat (NYSE:RHT) CEO Jim Whitehurst. "This will be the year when cloud architectures go from experimentation to deployment, where big data goes from promise to production, and when we get our first glimpse at how these innovations could potentially change our world."

Sounds like a big idea to me. So I hopped on the phone with Whitehurst to discuss this game-changing trend.

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Jim Whitehurst, CEO of Red Hat. Image provided by Red Hat.

"For the last couple of years, we've been talking about the cloud," he said. "But realistically, it's only been about customers starting to toy around with it. You're finally seeing these things go into production. So now, when I talk to CIOs of large companies, they are seriously talking about using Amazon.com (NASDAQ:AMZN) to run applications. Not just running development and testing, but truly moving to production in the cloud."

Jim told me that Amazon is seeing an influx of "brand new users" to the AWS cloud platform. More than 50% of Red Hat Enterprise Linux on AWS growth is now coming from new accounts rather than expanded use of old ones. In other words, a lot of IT operations have done their homework on cloud computing, and now they're ready to run production code in specialized cloud environments like AWS or Rackspace (NYSE:RAX) cloud platform OpenStack.

The "vast majority" of Linux instances on AWS so far have run so-called "community" version of the operating system. These are typically license-free installations without tech support or service level agreements, like Red Hat's Fedora flavor, openSUSE, or Debian. These platforms are also popular for development and testing work in traditional corporate data centers, because their low cost allows your company to experiment without making large investments.

But when moving into production, "they're much more likely to put in on Red Hat Enterprise Linux" or other professional-grade Linux versions. You know, the kind that comes with license fees, support contracts, and pre-qualified hardware. And now Red Hat is collecting million-dollar monthly revenues from RHEL installations on AWS or OpenStack (low single-digit millions, but it's a start), which is another sign of production-level IT work moving into the cloud.

"Literally, in the last 6 months, I've had CIOs looking more closely at Amazon or at OpenStack, and now they're asking me, 'how do I really operate it? How does this make the lives of my operations teams different?' And that's frankly new talk that I didn't hear a year ago." 

The Foolish takeaway
That's the word from one CEO in the technology food chain. If Jim Whitehurst is reading the signs correctly, the business of providing cloud computing services should indeed take off in 2014 as enterprise IT shops start paying for production-level support.

If so, leading Linux vendor Red Hat stands to gain a lot from the transition. I'm personally invested in this megatrend via Rackspace shares, and that's another small-cap that should take off in this new era of enterprise computing.

As for Amazon, well, the online retailer is simply too big for its online services to move the needle very far. Smaller players with a tighter focus on the exploding trend often reap larger rewards.

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Anders Bylund owns shares of Rackspace Hosting. The Motley Fool recommends Amazon.com and Rackspace Hosting and owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days.

We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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