Red Hat’s Unique Success
Red Hat Software is an American multinational software company that provides open-source software products bundled for enterprise use. By using open-source software, Red Hat has created a business model that brings in more than $1 billion in annual revenue. They see open-source as more than a way to develop software, they see it as a way to run a business and participate as part of a global community. Red Hat describes the “Open Source Way” as containing four key components; (1)Transparency, (2) Collaboration, (3) Diversity, (4) Rapid Prototyping. By leveraging these components in their business operations, Red Hat has been able to create a highly successful business model that many other companies have tried and failed to follow.
The Red Hat Subscription Model is how the company has been able to produce revenue in the billions. Red Hat takes thousands of OSS packages, freezes the code, and creates an enterprise-ready edition of that software, working with chip designers, hardware vendors, and independent software vendors to certify and tune the hardware and software that Red Hat products will work with. Companies that subscribe to Red Hat then have access to seven years of support, bringing the strength of OSS to a level of security that is right for the stability production environments need. The reason Red Hat’s model works because of the complexity of the technology that makes up open-source software. An operating platform has a lot of moving parts, and customers are willing to pay to be insulated from that complexity. By packaging open source into a service or as a software or hardware appliance, companies can monetize open source with a far more robust and flexible model, encouraging innovation, and on-going investment in software development. Another advantage of using a subscription model is that the software subscribed continues to be supported by an infrastructure with updated features, security enhancements, and increased hardware and software support.
The idea that there will never be another Red Hat is common when discussing FOSS success stories. This stems from the idea that although Red Hat is extremely successful, compared to other companies that utilize OSS, Red Hat’s business model does not enable adequate funding for ongoing investments. That is, Red Hat’s business model allows for only minimal product differentiation resulting in limited pricing power and a corresponding lack of revenue. There exist some other negative factors that businesses wishing to follow Red Hat will likely face. These can include,
- Product roadmaps and requirements being left to a distributed group of developers/contributors
- High likelihood that product/software never gains traction
- The possibility that a competitor will create a fork of your product/software
Even successful open-source software projects have to deal with other companies co-opting their code. This is the idea that all of the project's major competitors will leverage your codebase without any of the revenue they generated using your codebase coming back to you. As it seems the odds for another Red Hat are quite low, but many believe otherwise.
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