Hamilton-born Red Hat founder Bob Young reflects on IBM’s $34-billion acquisition

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On Sunday, IBM Corp. announced it was buying open-source cloud development software company Red Hat for US$34-billion, marking one of the biggest acquisitions in the technology business. The company has Canadian roots in Hamilton, Ont.-born Robert Young, who started the company with North Carolina-based software engineer Marc Ewing 25 years ago. Red Hat specializes in Linux operating systems, the most popular type of open-source software, which was developed as an alternative to proprietary software made by Microsoft Corp.

Mr. Young graduated from the University of Toronto in 1976 and spent 15 years in Canada running two computer-leasing companies before moving to the United States. Now 64 and a dual Canadian-U.S. citizen who resides in the United States, Mr. Young stepped down as chief executive when Red Hat went public in 1999 and left the board in 2005.

Today, he is CEO of online self-publishing company Lulu.com, owns the Hamilton Tiger-Cats Canadian Football League team and co-founded the Canadian Premier League, a soccer league that begins play next April. He spoke on Monday with The Globe’s Sean Silcoff about Red Hat, the deal and what he’s up to now.

How do you feel about the deal?

I was very excited. It’s huge validation, not just for the team at Red Hat, but this whole open-source movement that Red Hat came out of and is very much one of the leaders of. This is the second such transaction this year [after Microsoft bought GitHub] that falls into the same category of that recognition that open-source software is the future of software development for all of our infrastructure, from the internet to the cloud.

When you started Red Hat 25 years ago, could you have imagined an exit such as this?

No and yes. Not a chance did I foresee a US$34-billion exit 25 years ago, when I had no idea how I was going to pay my mortgage much less build a business around this thing. But the other side of that was that when we were doing US$1-million a year [in sales], with Marc [Ewing, Red Hat’s co-founder] working out of his spare bedroom, me working out of my wife’s sewing closet, we could see how we could double the business. And when we doubled the business, we could see how it could double again. And then after we could see how this thing could keep getting bigger and bigger. We’d speculate on where does this end? And we realized that if we were right and that this was simply a better way of deploying and using enterprise software, then it was hard to imagine that this wasn’t going to take over the industry, and if it was going to take over the industry, then US$34-billion is a drop in the bucket of what this thing could be.

What is the significance of this deal to the technology landscape?

It doubles down on the importance of Red Hat’s core value proposition that we recognized from Day 1: We weren’t actually selling software, we were selling the benefit of control over the technology you were building your organization around. If there was a problem with the software, you had to go back to [vendors at the time], cap in hand, and ask permission to fix the bug, and they might refuse, saying, “Oh, that’s not a bug, that’s a feature.” Whereas with open-source software, we’re treating our customers as partners in the technology and we give it to them under a licence that allows them to modify the software. … That to this day is the primary value that our customers are loyal to Red Hat … Yet this open-source movement is so big and so important to the industry that IBM recognizes that they have to be a leader in the open-source movement if they are to continue to be relevant in enterprise software.

Are you still a Red Hat shareholder?

I divested most of my Red Hat shares more than a decade ago mostly because I didn’t want to backseat-drive what the team at Red Hat actually were doing, and it’s worked out very well for me. I’ve remained a big fan of the company, but I’m an early-stage entrepreneur person, I’m not an investor or a large-company executive. I used the money I earned on my Red Hat investment and adventure for many of my fun projects including the Hamilton Tiger-Cats and building the new Canadian Premier League.

How much stock do you own today?

I hold on to a trivial amount so that I can be invited to the annual general meeting every year. In hindsight, from a purely financial point of view you might get me to argue that I should have hung on to my Red Hat shares. From a personal point of view, I don’t regret my decision at all, but it does mean I’m not as wealthy as I would have been had I made a different decision. But my life would have been very different had I been restricted to being a manager of Red Hat shares for the past 20 years, and I’ve had a lot of fun with the projects that I’ve been able to get involved with as a result of having liquidity in my portfolio. My Lulu.com project is going very well. We have PrecisionHawk [Mr. Young is chairman], a drone-technology company based out of North Carolina that is going very well. But my favourite project is helping my wife, Nancy, expand her Needlepoint.com business on a global basis. It’s a fun project.

Many people including our Prime Minister have said Canada’s technology industry is having a moment. What are your thoughts on the state of the Canadian technology sector today compared to when you started Red Hat?

It’s doing incredibly well for the same reasons North Carolina is doing well. Back in 1958, North Carolina was one of the poorest states in the nation and its economy was tobacco and cotton. And there was no future to either of those. And the governors at the time made the commitment to postsecondary education that allowed North Carolina to get itself out of the vicious cycle of being the poorest state in the nation ... and Ontario to its credit (for years) has overinvested in education and postsecondary education, and it is paying the dividends that you see when you look at Shopify or any of the other great companies. It’s the reason I continue to invest in Canada, it’s why our soccer league is going to do so well is because the companies who want to sponsor soccer and the kids who want to play soccer are all the best-educated kids and they’re all in Ontario because Ontario has one of the great educational systems. I don’t mean that at the expense of other provinces, but Ontario is the one I know the best.

This interview has been edited and condensed