"I would say we are maybe a third of the way through" this transition, he told me. Hardware is becoming a service, and software is becoming standardized.
"There's literally a trillion dollars of market cap associated with providing the equivalent of screws and rivets to enterprises for information technology," he continued. "That's two thirds of Microsoft (MSFT), most of Hewlett-Packard (HPQ), all of Cisco (CSCO), us, Oracle (ORCL), and IBM (IBM)," among other companies.
"I'm guesstimating that by the time we're said and done, the screws and rivets will commoditize and there may be just $300 billion of market cap" in that business. "You're talking about $700 billion of market cap going away."
That future market will consist of commodity hardware, commodity software tools and commodity services, sold at razor-thin margins by companies like Red Hat and Amazon.Com, he predicted.
So just because Red Hat had good numbers, and just because Amazon.Com (AMZN) may show good numbers, that doesn't mean all is well for big computing vendors. It's not, Whitehurst said. "What you're seeing the industry do is try to win a portion of the shrinking pool."
Red Hat is certainly getting its piece. The first open source company to reach $1 billion in sales yesterday announced $1.53 billion in revenue for its most recent fiscal year, with net income of $285 million, $1.40 per share, against net of $240 million or $1.23 per share a year earlier.