Rivals Microsoft and Red Hat Reach Linux Deal

Microsoft Corp. and Red Hat Inc., longtime rivals from conflicting camps of the software industry, plan to collaborate in the cloud.

The companies are announcing a partnership Wednesday to make Red Hat's version of the Linux operating system available to users of Microsoft Azure, the software company's cloud service.

Under the deal, Microsoft agreed to designate Red Hat's Linux as its "preferred" option for enterprise-style computing jobs on Azure. In addition, personnel from both companies will work together in Redmond, Wash.—Microsoft's hometown—to offer technical support to customers.

No financial elements of the deal are being disclosed.

Microsoft, best known for the Windows operating system and other personal computer programs, established itself in an era when companies held the underlying source code used to make software as a trade secret.

Red Hat, by contrast, is a standard-bearer for open source software, which is typically available in free versions whose programming instructions can be viewed, modified and distributed freely. The company sells a popular Linux version that many users prefer because it comes with regular updates and bug fixes.

While Microsoft fought for years against Linux and other open source programs, the company has gradually relaxed that stance to court startups and corporate programmers that have embraced such software.

Another motivation is making Azure more competitive in the market for cloud services, which handle computing workloads for other companies that might otherwise have to buy their own hardware. Though Microsoft already supports some versions of Linux on Azure, it hasn't previously offered Red Hat's variant.

"You've seen Microsoft change quite a bit," said Scott Guthrie, executive vice president of Microsoft's cloud and enterprise division. "Ten years ago, people would never have imagined" some of the company's recent partnerships, he said.

The deal should benefit both software makers as Red Hat's corporate customers move to Azure, said Al Hilwa, an analyst with International Data Corp. "These are the first-class travelers on the cloud," he said.

The deal's unusual joint technical support structure is designed to make sure customers get problems resolved without having to go back and forth between separate service teams, the companies said. Besides Linux, Microsoft plans to allow Azure users to take advantage of other Red Hat programs such as JBoss.

Red Hat, based in Raleigh, N.C., already benefits from being offered on Amazon.com's cloud service and competing platforms. Analysts at Deutsche Bank estimated in a research report issued Tuesday that Amazon accounts for almost half of the roughly $100 million in revenue Red Hat gets through cloud services and predicted that a deal with Microsoft could lift both companies' stock prices.

But the rapprochement doesn't mean the two competitors agree on all fronts. Microsoft is known for aggressively seeking royalties from its software patents. Red Hat, by contrast, has publicly pledged not to enforce its patent rights in ways that could discourage the development of open source applications.

"We both know we have very different positions on software patents," said Paul Cormier, Red Hat's president for products and technologies. "We weren't expecting each other to compromise."

Write to Don Clark at [e-mail]

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November 04, 2015 08:25 ET (13:25 GMT)

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