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Why SUSE just shelled out millions for Rancher Labs

Melissa Di Donato is betting that companies that have yet to modernize their tech infrastructure will welcome the addition of a much-respected Kubernetes startup to a familiar vendor.

Melissa Di Donato

"With Rancher, we now become very relevant to help our traditionalists begin to modernize in whatever version they want," says SUSE CEO Melissa Di Donato.

Photo: Courtesy of Melissa Di Donato
As much as we all talk about cloud computing, it's easy to forget that the majority of companies are still running technology the old-fashioned way. Melissa Di Donato's job is to help companies, including her own, transition to the modern world.

Di Donato has been CEO of Germany's SUSE for almost exactly a year, and it's safe to say that the world turned into a very different place during those 12 months. A veteran of enterprise software companies like Salesforce, Oracle and SAP, the self-described "fast-talking New Yorker" was hired by SUSE's relatively new private-equity owner, EQT, to lead a storied brand into a new era of enterprise computing.

SUSE's Linux distribution provided a basic building block for tech businesses started during the dot-com era and beyond, but those companies are facing a looming deadline to upgrade their systems to modern infrastructure tech. There's no actual deadline, of course, but their competitors are designing systems built around newer concepts like containers that offer more flexibility and reliability than older technologies, and they're starting to feel the pressure.

That's one reason why SUSE just shelled out a reported $600 million for Rancher Labs, a 6-year-old startup that made its mark selling a managed version of Kubernetes. Di Donato hopes Rancher will give SUSE's existing customer base an easier path to the cloud, or at least to manage a hybrid cloud scenario.

Di Donato spoke with Protocol about SUSE's plans for Rancher, the challenges its customers face modernizing their tech, and, of course, what it's like to run a company during a very challenging time.

This interview has been edited and condensed for clarity.

What's your high-level strategy for incorporating Rancher? There are a lot of companies trying to offer a managed Kubernetes product.

I've been really focused on organic and inorganic growth. I knew that I was not going to be focused on just organically building a healthy, sustainable enterprise business, but also that acquisitions were going to need to be a key part of our inorganic growth.

So, why Rancher? First, I think they provided the enterprise Kubernetes management platform; it's market leading. They enable computing anywhere, everywhere, from core to edge to cloud. When I think about what SUSE has been really good at, it's that computing-everywhere approach, and that's where we were very complementary.

Essentially, our customers are going to benefit from a much broader, deeper, best-in-class portfolio with a vastly increased global presence and innovation power. So when you look at Rancher, what they lack is presence globally and mass, and that's what we have. And what we've lacked is the innovation power associated with creating an enterprise Kubernetes management platform.

We fit well together because we're both 100% open source. We're equally as passionate about a true open-source innovation approach, empowerment for the community.

Is Kubernetes the new operating system? That's a little bit of a stretch, for sure, and maybe it's a little early for it to take such a central role in the way that people are thinking about next-generation applications, but maybe that's moving faster than I think.

I would be on your side of the fence if I had to pick one. But Kubernetes, and containers, are just one part of where the technology sits.

When you look at our ISP or embedded businesses as an example, we power so many medical devices around the world that are embedded inside of machines like mammograms and CAT scan machines and ventilators. That whole embedded business, this is a different segment that is kind of tangential to a container platform that's really dealing with the applications.

I don't think you're going to buy containers that come with a host OS as the main decision, for now. Do I think there's an opportunity that you'll be buying containers as a supplement or eventually buying a container that comes with an OS? Yeah, probably. But not soon. It's not going to replace the need for an operating system technology to be in other parts of the business as well.

What's been on my mind is, are my customers going to want to go to a Kubernetes provider and then an operating system provider down the road, for an application or point solution or for their edge and core and cloud solutions? Probably not. So I think a portion of it will go that way, but not all of it, for sure.

Can you give me a sense of how many of your customers are totally on premises at this point? I would imagine there's a hybrid mix that's sort of creeping in there.

When I joined, I went on a four-month tour of the world, went to every office we have around the world. All I did was listen and learn and understand who [our customers] were, where they were, what their objectives are. What we found was that about 80% of our customers are what we call traditionalists. Traditionalists are the ones that started on-prem and then have made the move in some way to the cloud.

Not all of the 80% are moving to the cloud, because for some, the cloud is not modernizing. To them, cloud is maybe even more complex. So what we have seen is that the vast majority of that 80% of our customers have made some move to the cloud, but they certainly would not be multicloud, they'd probably be hybrid.

With Rancher, we now become very relevant to help our traditionalists begin to modernize in whatever version they want. Maybe to them, modernizing is cloud, or to go 100% cloud native, but the vast majority of our 80% are not cloud native. That's why Rancher was a good fit for us.

I would assume that almost all of your customers just want the distribution? They don't want to mess around with the open-source project?

You'd be surprised. I thought that, too, to be honest with you.

It's a combination. You get some shops that are not engaging with the community, and then you get others that actually put their requirements into the community.

And they're the smart ones, let's be real, right? The customers that engage more with the community in the entire upstream thesis and contribution are the ones that get the most connected with what comes downstream. It's a real mixed bag, but the ones that are the most influential in getting their requirements met are the ones that actually contribute to the upstream in open source.

So, how's your spring been? How is SUSE weathering this moment in time?

A year ago, when I took this role, everyone kept saying to me, "Oh, what a great job, you're going to be CEO of SUSE, it's the world's largest independent open-source company. It's a great idea to be the CEO!" they said. "It's a fantastic opportunity to grow a business!" they said. "Oh, and the economic environment is good and tech is blowing up and open source is growing!" they said.

And here we sit. I'm a first-time CEO, and I took on a company with a very high-profile owner, EQT, a growth investor, at a time of one of the most unstable downturns, probably what I hope will be the worst of our life.

I was quite nervous, I would say, when I started realizing what was going on in the world. We have a couple hundred people sitting in China. And when the pandemic began to hit, and the economy began to turn upside down, we looked at China first and we tried to address how we're going to help our customers and our employees in China deal with what they were dealing with first.

So the pandemic itself is not new, and the reaction that we needed to have, that I needed to have as a CEO, has been going on now for seven months. I think I've warmed up to the idea pretty quickly, and I think that gave us ability to be able to respond to the rest of the world as coronavirus started moving west much faster, perhaps maybe than others, being American companies without as much business perhaps in China, because obviously the situation with America and China is a bit different.

Whereas for us, being a European-based business, China is a big part of our business. We have employees there and duty of care. So I got warmed up to the idea and was able to react very quickly to the rest of the world, as a result of us moving fast with China first, so that was a huge advantage.

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