Red Hat, Inc. was founded in 1995 by entrepreneurs Robert Young and Marc Ewing, and is a market leader in open source software systems for mainframes, servers, workstations, and embedded devices. The company's core product is the Red Hat Linux operating system, which is the leading Linux system for servers. More recently the company has expanded its product line to offer open source solutions in such areas as e-commerce, embedded devices, and database solutions.
The company's mission was to market and develop its own version of the Linux open source operating system to end users. While Red Hat made its version available for free downloading, it also sold CD-ROM versions. When it released Red Hat Linux 5.0 in November 1997 for $49.95, InfoWorld called it "a complete Internet server in a box." The software package included everything a system administrator needed to get an Internet or corporate intranet server running in one day, including the Apache Web server, a mail server, a news server, a domain name server, a gopher server, and more. It also included development tools and a freeware database engine.
Business model:
Unlike proprietary systems that carefully guard their source codes, Red Hat employs an open source software model. It opens up software code to innovation from an international community of contributors while licensing and selling software that has been tested for reliability and interoperability with a variety of popular applications. Leveraging the volunteer community of users working to improve the code, RHT sells its software for prices often under-cutting their competitors.
Red Hat sells subscriptions for the support, training, and integration services that help customers in using open-source software. Customers pay one set price for unlimited access to services such as Red Hat Network and up to 24/7 support.
Revenue comes from two sources: software subscriptions and training and services. The company makes about 85% of its revenue from software subscriptions, which include set-up, ensurance of compatibility with existing software, and other services involving upgrades and trouble-shooting. In fact, Red Hat derives its revenue from these services rather than the software alone. The remaining 15% from services that include advanced technical support, hourly consulting, engineering, and customer training and education services.
Red Hat also pursued a strategy of building tight partnerships with industry-leading technology companies. The company's first round of strategic financing was completed in September 1998, when it received financial backing from Intel and Netscape Communications as well as from venture capital firms Benchmark Capital and Greylock Management. It completed a second round of financing in March 1999, when computing industry leaders Compaq, IBM, Novell, Oracle, and SAP took minority equity positions in the company, indicating their commitment to the development and adoption of Linux operating systems.
It entered in strategic partnership with IBM and Dell. Under the agreement, developers from IBM and Red Hat would team to move Linux onto IBM's Netfinity servers, PC 300 commercial desktops, IntelliStations, and ThinkPads.
Red Hat filed for its initial public offering (IPO) in June 1999 and hoped to raise about $96 million. The company had revenue of $10.8 million for its fiscal year ending February 28, 1999, compared to revenue of $5.1 million in fiscal 1998. On August 11, 1999, Red Hat shares began trading at $14 a share. By the end of the day they closed up 227 percent at just over $52 a share.
In November 1999 it acquired Linux pioneer Cygnus Solutions for $674 million in stock. Cygnus's business included producing compilers and debuggers, developing embedded software for handheld devices and other appliances, and application development tools.
In January 2000 Red Hat acquired e-commerce software vendor Hell's Kitchen Systems Inc. for $91 million in stock. HKS's payment processing software was a key component for e-commerce operations. The acquisition helped Red Hat position its Linux offerings as a more viable software solution for businesses that wanted to migrate their operations online. Around the same time Red Hat entered into a strategic partnership with electronic security firm RSA Security Inc. that added encryption capabilities to Red Hat's Linux software.
Red Hat's next major acquisition involved performance management software vendor Bluecurve for $35 million in stock. The acquisition enabled Red Hat to offer a tool for monitoring Linux systems. Bluecurve software allowed developers to simulate transactions and scale their infrastructures to different levels of service.
In September 2000 Red Hat announced the creation of the Red Hat Network, a new Internet-based subscription service for developers and users. Subscribers would be able to access open source advances, upgrades, and security features. Developers could register information on their hardware and software systems, thus facilitating joint projects. The Red Hat Network also included a number of support services from open source experts, tight integration with the Red Hat Package Manager, and customizable update management services. The Red Hat Network also made it easier for Red Hat to deploy upgrades and security patches over the Internet.
Red Hat proposed an open source code, eCos, for 2.5 and third generation wireless devices. Plans called for the new source code to be developed by Red Hat in association with 3G Labs. The new operating system would be based on Red Hat's open source embedded real-time operating system, not Linux.
The company continued to expand its product offerings with the introduction of a new open source e-commerce software suite.
It represents a fundamental shift in how software is created. The code that makes up the software is available to anyone. Developers who use the software are free to improve the software. The result: rapid innovation.
Principal Competitors:
Caldera International, Inc.; Microsoft Corporation; SuSE Linux AG; Turbolinux Inc.; VA Linux Systems.
Utilities and tools:
Over and above Red Hat's major products and acquisitions, Red Hat programmers have produced software programming tools and utilities to supplement standard Unix and Linux software. Some of these Red Hat "products" have found their way from specifically Red Hat operating environments via open-source channels to a wider community. Such utilities include:
- Disk Druid (for disk partitioning)
- rpm (for package management)
- sosreport (gathers system hardware and configuration details)
- systemtap (tracing tool for Linux kernel, developed in collaboration with IBM, Hitachi, Oracle and Intel)
- NetworkManager
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