I call Red Hat the king of Linux for a reason. The second oldest Linux company just reported quarterly revenues of $615 million, an impressive growth of 18 percent over last year in the same period. If I round that up, it means Red Hat should be making somewhere around $2.4 billion in 2016. That’s a billion with a ‘b’ and that’s really incredible for a company that only offers pure open source solutions that anyone can copy and redistribute.
Open source does limit Red Hat’s growth, but it’s the right thing to do. I recall my interview with Red Hat CEO Jim Whitehurst where he said, “One of the biggest difficulties of being the CEO of Red Hat is that we are a company with more opportunity than resources. If open source was a proprietary technology and we had been the large share player of Linux as we are with RHEL, we would be generating 20 billion dollars of revenue instead of two billion in total for the company.”
Red Hat championed a new business model
Red Hat championed a business model around Linux and open source, as it moved away from selling coffee mugs and merchandise and started a subscription-based business model. No surprises that subscription remains the bread and butter of Red Hat. The revenues from subscription grew to 19 percent year-on-year and brought in $543 million.
Now, many new Linux companies, such as Core OS, are following the same model. In fact even proprietary companies are moving to a similar model: look at Adobe’s subscription model for Photoshop and other applications. Microsoft has also moved its Productivity Suite to a subscription model and is possibly moving Windows in the same direction.
It’s not just the business model that made Red Hat one of the most successful Linux companies. A lot of the continued success of Red Hat can be attributed to evolving with the market.
Red Hat shifted its focus from server-client to cloud-mobile back in 2014 when open source technologies like OpenStack and Docker were maturing. It was the right move at the right time.
However, you can’t build all those technologies organically, in-house. It takes time. In order to build new capabilities to handle cloud workloads, Red Hat started acquiring companies like Makara (which was later released as OpenShift), FeedHenry, Ansible… It’s paying off. Even if Red Hat missed Wall Street estimates, it is making impressive progress on its own.
What’s even more important about Red Hat is that all of their software is pure open source. There is no proprietary code based in any of the Red Hat technologies. At the same time, Red Hat is also one of the leading contributors to many open source technologies, including the Linux kernel itself.
In a previous interview, Whitehurst stressed upon the value of upstream, “We put community first. We have an upstream first policy. Everything we do goes upstream and that’s just a part of who we are and what we do. We always say there’s not a conflict between community and upstream because the communities are in enterprise, because we’re all in.”
Red Hat is a great role model for other companies who want to monetize open source because open source is the only way forward in the enterprise world. As Madhura Maskasky of Platform9 said, “Gone are the days of the pure proprietary technology stack.”
All of this, combined with their impressive growth in the market makes Red Hat the king of Linux.