Red Hat explains its $250 million purchase of a hot Google-backed startup (RHAT)

Alex Polvi CoreOS

Red Hat announced it will pay $250 million for CoreOS, a Google-backed developer technology startup.
CoreOS is one of the most visible companies in the market for Kubernetes, a Google-created technology for managing software containers.
CoreOS CEO Alex Polvi tells Business Insider that not much is going to change, and they'll keep working on their existing product lines and software offerings.

On Tuesday, Red Hat announced the $250 million purchase of CoreOS, a hot startup that competed in the market for "software containers," a trendy developer technology.

Since its founding in 2013, CoreOS raised $48 million in venture capital — likely making this a solid exit for its high-profile bunch of Silicon Valley investors, including Kleiner Perkins, Intel Capital, Y Combinator, and GV (formerly Google Ventures).

Indeed, CoreOS has a history with Google: In 2015, at the same time as it announced the investment from GV, CoreOS made a big bet on supporting Kubernetes, a Google-created developer technology. Since then, Kubernetes has become a predominant standard in the market for software containers, raising the profile of CoreOS.

"We made the right bets along the way," CoreOS CEO Alex Polvi told Business Insider on Tuesday.

Polvi points out that CoreOS and Red Hat have long had a business relationship, and says the acquisition will let them keep doing what they've been doing "in a bigger and better way."

This is actually the second time Polvi has led a company to an acquisition. In 2010, he sold his company Cloudkick to Rackspace for a reported $30 million, after raising a relatively modest $2.75 million.

CoreOS was one of the first and most visible companies in the container space, seen for a long time as the chief rival to $1.3 billion startup Docker, which basically invented the market. Indeed, in 2014, the two of them had a public falling out over the future of containers.

Think of these "containers" as a metaphor. Shipping yards put goods into a bunch of shipping containers all the same shape and size because it makes them easy to stack onto boats. Software containers are a standard way to package up software, so it all runs the same way whether it's running on your laptop, a corporate server, or in a massive cloud like Amazon Web Services.

Red Hat CEO Jim Whitehurst

In this metaphor, Kubernetes is the gantry crane that lifts and loads these containers: It helps IT departments and developer teams keep all their containers moving smoothly across their infrastructure. As containers grow in popularity, so too has Kubernetes as a way to manage them.

This is the root of Red Hat's interest in CoreOS. CoreOS originally rose to prominence as the developers of a custom, lightweight version of the Linux operating system designed for smart gadgetry like DVD players.

However, it turned out that the CoreOS software was ideal for lightweight software containers, too, ultimately leading it towards Kubernetes. Now, in addition to the CoreOS software, Red Hat offers Tectonic, a Kubernetes-based container management system of its own.

Red Hat supports Kubernetes in its own server-side software products, and offers its own Kubernetes-based container management tools. It turns out that CoreOS, in developing its own container offerings, made it super-easy to keep a Kubernetes system up to date with the latest security patches and other updates — bolstering Red Hat's play.

"A lot of their operations have been around making things easier," Matt Hicks, a senior VP of engineering at Red Hat, told Business Insider on Tuesday. He says CoreOS technology is "kind of complementary in terms of how we work together."

In particular, Red Hat is excited about how CoreOS and its Linux distribution make it easier to keep a bunch of Kubernetes-managed containers up-to-date in terms of security patches and new feature updates.

"We think our largest customers will benefit from this," Red Hat VP and general manager Ashesh Badani told Business Insider.

According to Polvi, there's not going to be much change in the game-plan in the short-term. But in the long-term, expect to see deeper integrations between Red Hat's whole product suite and the CoreOS offering.

"Over the coming months, we'll set the longer-term roadmap and figure it out," Polvi told us.

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