Red Hat CEO: Everyone is freaking out about Amazon — here's how to handle its frightening power

Jim Whitehurst, Amazon

CEOs these days are terrified of a new phenomenon: Amazon swooping in on their business.
Red Hat CEO Jim Whitehurst experienced this first-hand six months ago when Amazon launched its own version of Red Hat's flagship software, Linux.
The two companies were, and still are, close partners. And so far, Amazon hasn't hurt Red Hat at all, Whitehurst says.
Whitehurst shares his advice for how to deal with Amazon's frightening power.

Amazon has become the poster child for a new kind of business reality: the internet company who partners with you on the one hand, and competes with you on the other, Red Hat CEO Jim Whitehurst tells Business Insider.

As he talks to his CEO customers, which include 90% of the Fortune 500, "everyone is really freaked that Amazon is going to come into their market. And can they really compete?" he said.

They have reason to fear. Amazon's business interests include just about everything from books to original TV shows to cloud computing and enterprise IT to groceries and on and on. And with its scale, it can swoop in and be an instant contender in almost any market, as its acquisition of Whole Foods last year proved.

Whitehurst experienced this phenomenon first-hand about six months ago.

That's when Amazon quietly released Linux 2, its own version of the popular operating system for computer servers. In doing so, Amazon went into head-to-head competition with Red Hat, the largest maker of Linux.

So far, Amazon's entry has been a non-event for Red Hat. Red Hat has delivered a couple of good quarters since Amazon's entry, including signing 169 deals worth more than $1 million in its last quarter alone, a 50% year-over-year increase, it said. And the stock is up about 34% since January, after Amazon launched Linux 2.

Whitehurst says that companies are turning to Red Hat because they want protection against a market dividing between three big players: Amazon Web Services (AWS) the biggest cloud of them all; Microsoft, a solid No. 2, and Google, coming on strong.

"What I'm hearing from customers is, 'Hey if we get down to three major cloud providers that's a very bad world, a concentrated supplier base and that typically doesn't lead to good pricing,'" he said.

Red Hat has its own cloud offering, but its version of Linux is also available on all of the big cloud providers, and on many small niche cloud providers as well. That means a corporate customer using Red Hat's Linux can more easily move its applications from one cloud to another, or move them from a cloud onto their own servers in their own data centers.

"The cloud providers are saying, 'Come run on our cloud and we'll give you the infrastructure for free [aka Linux].' We're saying, hey, 'Pay for the software and we'll abstract the clouds away,'" meaning make it easier for them to use any cloud supplier or all of them at once, he says.

But Red Hat and Amazon are also very close partners

"Amazon is a great partner," Whitehurst says. "We have a great relationship with Andy and we're doing a lot of things together and we're driving a ton of business together," he said referring to AWS CEO Andy Jassy. "But we compete. I mean, they have Amazon Linux 2."

Whitehurst says that Amazon isn't the only big threat of this kind, either. "Amazon is just the easiest whipping boy. But honestly, what about Google or Facebook?"

Google, for instance, has been known to be a partner one day and a compete the next. Just ask Apple or Yelp or Expedia.

And Facebook is working on a slew of new businesses, from payments in Messenger to a Slack competitor, taking on its own customer advertisers. It's also disrupting the data center and telecom equipmentt industries by building its own equipment and sharing its designs.

The solution for freaked out CEOs, Whitehurst says, is to chill. "Be more open-minded about the opportunities ... and less worried about the threats," he says.

Instead of looking at a black-and-white world of friend vs. foe in the old-school business style, embrace the new ambiguities that Silicon Valley companies are introducing to the business world.

Go ahead and be a partner and a customer and a supplier and a competitor, all with the same giant internet company.

"Don't be paranoid to the extent that you end up not participating in new markets," he says. This tactic is working, so far, for him.

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