How Red Hat Became a Billion Dollar Business

How Red Hat killed its core product—and became a billion-dollar business

By Jon Brodkin | Published 10 days ago on Ars Technica

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I am saving the article here as I am an unabashed RedHat supporter.  Disclaimer: I have taught RedHat Academy in High School and taught as a Red Hat Certified Instructor for three years at Working Connections.

How Red Hat killed its core product—and became a billion-dollar business

A decade ago, Linux developer Red Hat faced a decision that would make or break the company: whether to stop producing the very product that gave Red Hat its name. The company was built on Red Hat Linux, but when Paul Cormier—now the head of Red Hat’s technologies and products group—joined the company as vice president of engineering in 2001, he knew Red Hat’s devotion to open source alone couldn’t create a business model capable of standing up to the Microsofts and Oracles of the world. He pushed for drastic action.

To move from small player to big-time enterprise software competitor, Cormier argued that Red Hat had to ditch the freely downloadable Red Hat Linux. Instead, it should replace Red Hat Linux with a more robust enterprise software package that maintained the principles of free (as in freedom) software without actually being free (as in price) to customers.

People within Red Hat told Cormier he was crazy. "A lot of engineers at the time didn’t care about a business model," he told Ars. "They wanted to work on Red Hat Linux. We had some level of turmoil inside the company with going to this new model. Some engineers left, but more stayed."

Cormier’s vision required a "bet the farm decision," and he won out over the doubters when he convinced then-CEO Matthew Szulik to stop producing Red Hat Linux. The last stable release of the operating system appeared in 2003 at the same time RHEL—Red Hat Enterprise Linux—hit the market. Since then, the company has been on a steady climb in revenue and profitability, aided by the growing popularity of Linux-based servers and Red Hat’s expansion into new markets.

The company now faces new challenges as it looks to expand its empire through a big bet on the virtualization market—a market so utterly dominated by VMware that Red Hat may stand little chance. Yet Red Hat’s prominence in the enterprise Linux server market ensures growing revenue and profits for some time to come.

This week, at the end of its fiscal year on February 29, Red Hat marks a major milestone: it becomes the first billion-dollar-a-year company making its revenue entirely (or almost entirely) from building and maintaining open source software.