Among common mortals there is a belief that companies that work with Linux and open source programs are doomed to make little money and have to settle for making their profits through advertising deals. But this is not so, and a clear example is Red Hat, which this week has presented its accounts for the last year declaring a net profit of 2 billion dollars.
It is one of the companies responsible for Linux distributions being present where we least expect it, either on the servers of the DreamWorks studios or in the White House itself. For those of you who have not heard of them, today we are going to review their history and how they manage to become one of the favorite solutions of large companies, so much so that even Microsoft itself has ended up surrendering to them.
How do they make money?
Red Hat Linux is a paid operating system. Yes, it is open source that anyone can access, but they are marketing it. If we look at their prices we see that they range from the $ 49 desktop version up to the hundreds of dollars it costs to subscribe to their virtual data center and server products.
But how does someone pay for something free? Well, the key is that when you pay for Red Hat products you are not paying so much for the product itself, but by the support service. For starters, the lifecycles of each version of Red Hat Enterprise Linux are 10 years, saving entrepreneurs a lot of headaches.
As each company is different and each type of business needs a particular approach, Red Hat adapts its system to each and takes care of maintenance, being aware of updates, and solving problems that may arise. They also offer training courses and even exams to obtain certificates.
Another key to its success is community collaboration, especially through the Fedora project. Fedora is independent and has its own developer community, but it benefits from the sponsorship and feedback it receives from Red Hat. In return, the latter have the collaboration of the entire community of the free distro to perfect their products.
How much money do they earn?
Two days ago Red Hat released the results for the last quarter of 2015 and the entire last fiscal year. Precisely because it is a company that is dedicated to selling open source solutions, the media that echoed it were surprised to see that its total profits exceeded $ 2 billion after a 15% rise over the previous year.
To give you an idea of how important the business model that we have just mentioned is, of the total of 2,050 million 1,800 came precisely from their customers’ subscriptions. Another 323 million came in addition to the development of other applications. Come on, offering their services based on free software not only generates benefits, but the strong increases in them show that it is a solid business model.
In the words of Jim Whitehurst, president and CEO of Red Hat, their results are due to the fact that “companies are increasingly betting on hybrid infrastructure in the cloud and open source technologies”. With these numbers Red Hat scores 56 consecutive quarters wind increased profits, which has contributed to the last one being the first fiscal year in which they exceed the 2 billion border.
The history of Red Hat
The name Red Hat (red hat) has a double meaning. On the one hand, in our western culture red has often been the symbol of liberation and defiance of authority, this is the romantic meaning. But on the other hand we have the detail that Marc Ewing, one of its creators, had an affinity for red hats, and all his software projects were called Red Hat 1, Red Hat 2 and so on ad infinitum.
The history of Red Hat reminds us of the classic cliché of the technological world in which a born commercial joins forces with a creative programmer. The first version of Red Hat Linux was released by Marc Ewing in 1994, and Bob Young, who was the typical visionary and businessman, joined him in 1995 to create Red Hat Software.
During those early years Red Hat was experimenting, innovating and perfecting its community-based development model, thus laying the foundation for its current success. They were in charge of taking Linux and selling it to their clients, adapting it to their liking, another of the identity stamps that they have continued to maintain to this day.
In August 1999 Red Hat goes public with such success that its shares ranked eighth in earnings on Wall Street. That same year Bob Young decides to take a step back and his position as CEO is filled by Matthew Szulik, under whose mentorship Red Hat Linux 6.1 won the award for operating system product of the year in 2000.
In March 2002 Red Hat takes a step that will change its history by introducing its new operating system: Red Hat Linux Advanced Server. This is what would later be called Red Hat Enterprise Linux, and responsible for Red Hat Linux was discontinued in 2003. But the hat company still needed the community, so from the ashes of its old operating system, Fedora was born.
In December 2007 Jim Whitehurst became the new CEO and president of Red Hat. His vision is that the project is based on three pillars: identity, decisions and learning. He also announces his mission for Red Hat under his tutelage: “to be the catalyst in the communities of clients, collaborators and partners creating the best of technologies through open source”.
And since then Red Hat has been growing until he becomes the monster he is today, joining forces with projects like CentOS and exceeding $ 2 billion in benefits. Currently, among the companies that use Red Hat we find proper names such as Cisco, DreamWorks, ING, Union Bank, Casio, NCI, Adobe, British Airways or Verizon.
Images | Leonid Mamchenkov, Mark Cox, alikins and Tendenci Software
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