Editor’s note: Red Hat delivered again on revenues and earnings with a quarterly report Thursday that topped Wall Street expectations but must replace CTO Brian Stevens. So what are the key factors driving growth and bigger deals? What will help red Hat recover from Stevens’ departure to Google? Analyst Krista Macomber offers an inside look.

HAMPTON, NH. – Red Hat (NYSE: RHT) is strengthening its alliances with developers and partners to raise its profile through OpenStack cloud infrastructure and management

Red Hat continues making incremental progress in driving higher-value and higher-profile engagements with customers by evolving its expertise in open source operating system (OS) and middleware platforms and addressing customers’ hybrid and heterogeneous cloud orchestration and management pain points. As a result of Red Hat’s focus on cross-selling its Linux OS and JBoss middleware installed base into newer areas such as virtualization and systems management, Red Hat accelerated its year-to-year revenue growth from 16.7% in 2Q14 to 19.1% in 3Q14 — reaching $446 million. However, Red Hat’s professional services business continues to lag behind its subscription business in year-to-year growth; Red Hat’s sales opportunities remain platform-led, as the company builds credibility in areas such as cloud consulting. TBR believes engaging partners and developers around a Red Hat-based open, hybrid cloud to enable cloud-, mobile- and big data-focused applications will be critical to the evolution of Red Hat’s core infrastructure business and its expansion in infrastructure management.

  • Accelerated enterprise production adoption of OpenStack will determine Red Hat’s future performance

TBR notes interest from IT departments in OpenStack as the basis of their software-defined and cloud-enabling environments. Considering the market perception of Red Hat as strategic to the ultimate success or failure of OpenStack, driving maturity and enterprise product adoption of Red Hat OpenStack infrastructure software is critical for Red Hat in maximizing its opportunities as customers migrate to cloud-, mobile- and big data-focused IT platforms.

We believe the addition of capabilities such as improved workload placement and regional-specific security controls to Red Hat Enterprise Linux (RHEL) OpenStack Platform 5 will keep the platform popular among an initial customer base of enterprises with advanced cloud expertise, telcos, ISPs and public cloud providers. Charlie Peters, executive vice president and chief financial officer of Red Hat, noted during the company’s 3Q14 earnings call that Red Hat’s more than 80 public cloud provider partners are the fastest-growing part of the company’s channel business and instrumental to rapid portfolio monetization. “The rapid revenue growth from these public cloud partners, which we recognize immediately and contains no deferred revenue, helped us to meaningfully exceed our second quarter revenue guidance,” Peters said.

Additionally, TBR believes that Red Hat’s efforts to make it easier and faster to drive proof-of-concept and production deployments of its OpenStack infrastructure software will help the company reduce the OpenStack skills gap and experience barrier to more wide-spread customer adoption. Historically, Red Hat has had limited market awareness, due to its focus on base-layer OS and middleware platforms, but high-profile partnerships around Red Hat’s OpenStack capabilities such as those with Cisco and Dell will further expand the market’s awareness of Red Hat.

  • Red Hat must overcome go-to-market hurdles to grow its hybrid cloud market share

Evolving its core Linux strengths to apply in cloud-, mobile- and big data-focused IT platforms is a core focus for Red Hat, but recent announcements indicate Red Hat’s strategic, push to establish hybrid and heterogeneous cloud management credibility. Acquisitions including ManageIQ and InkTank augment Red Hat’s internal R&D investments, enabling the company to more rapidly round out its ability to manage heterogeneous and hybrid cloud environments. However, TBR notes a number of complex go-to-market dynamics for Red Hat to overcome, which could threaten the vendor’s long-term stance in this marketplace.

  • RED HAT ARCHIVE: Check out more than 12 years of Red Hat stories as reported in WRAL TechWire.

In early September 2014, Red Hat’s CTO, Brian Stevens, left the company to lead Google’s cloud business. Stevens brought enterprise credibility to Red Hat, helping the vendor emerge as a multifaceted provider of software infrastructure and management technology spanning from Linux to OpenStack management. As Red Hat works to find its niche in the cloud, TBR believes that losing Stevens’ engineering expertise to Google — which is investing in areas such as application containers that Red Hat has been working to leverage as cloud differentiators — threatens Red Hat’s portfolio road map. Building inroads to increasingly prominent line-of-business decision makers while continuing to engage IT decisions makers, protecting its loyal base of application developers and leveraging strategic alliances with technology partners will help Red Hat mitigate this threat and continue to drive cloud market share gains.

  • Red Hat applies its roots in open source software development to tap industry demand for accelerated business outcomes

As Red Hat’s revenue and headcount grow, Red Hat is making investments and executing strategies that reflect its larger scale and multifaceted portfolio. In this regard, Red Hat is not unlike its peer VMware, which shares similar roots as a single-segment, subapplication software vendor and is working to capitalize on industry trends of cloud and mobile computing and the growth of big data to deepen its customer relationships. TBR believes that Red Hat’s differentiation and core strengths will continue to lie in its open source roots, which mesh well with customer requirements for open, flexible and optimized IT infrastructure and management that accelerate their business outcomes.

CIO and developer loyalty are critical to accommodating cloud-, mobile- and big data-driven disruption to IT infrastructure requirements and go-to-market models. Red Hat has a new focus on coaching CIOs to work with their line-of-business counterparts to elevate IT from a cost center to an enabler of business advantage. However, TBR believes that Red Hat is still maturing in its ability to bridge point product releases with broader, cohesive messaging that leverages technology speeds and feeds as supporting evidence to demonstrate how Red Hat enables business value, rather than as the focal point of conversation. We believe that Red Hat will find a more natural segue to raise its profile as a cultivator of next-generation innovation through investments such as its new research space for technology startups in Silicon Valley, Calif., and the formation of an early access program for ARM 64-bit software development for its partners. As a result of these initiatives, it will be difficult for competitors to shake Red Hat’s entrenched and engaged base of software developers, despite the ongoing competition to capture the loyalty of developers and operators during 2014.

  • In the race for cloud-based mobile application development leadership, Red Hat will tout its differentiation around open PaaS

As fuel for its strategy of accommodating next-generation application life cycle requirements, Red Hat announced prior to its 3Q14 earnings call its intent to acquire enterprise mobile application platform provider FeedHenry for $82 million. Mobile computing has disrupted traditional models for worker productivity and customer engagement in today’s marketplace, and organizations increasingly seek the agility and cost-effectiveness of cloud in developing next-generation applications. Consequently, FeedHenry’s ability to support mobile application development at scale in public and private cloud environments will round out Red Hat’s capabilities in cloud-based PaaS solutions.

However, mobile application development is a high-profile and increasingly crowded marketplace. Mobile application developer loyalty is an important focus for vendors ranging from Red Hat to HP, as mobile applications increasingly influence business outcomes for customers. Articulating the unique value of integrating FeedHenry’s competencies around open, cloud-based mobile application development with Red Hat’s broader OpenShift PaaS strategy will be critical to market awareness and customer adoption for Red Hat.