Sometimes The VAR Guy is a little slow. Red Hat has achieved two important company milestones, according to CEO Jim Whitehurst (pictured), that The VAR Guy nearly overlooked. It took some time for our resident blogger to realize the significance of Whitehurst’s statement. Take a look for yourself.
The noteworthy milestones:
- In fiscal year 2009 (which remains in progress and closes at the end of February), Red Hat became the first open source vendor to cross the $500 million mark in revenues.
- Red Hat has maintained 27 consecutive quarters of sequential growth in total revenue.
Let’s look more closely at both of those achievements. At $500 million in revenue — backed by positive net income — Red Hat is destroying the old myth that there’s no money in open source. And don’t forget: Red Hat’s JBoss partners are generating more than $10 in consulting fees for every dollar worth of middleware they sell.
Now, about the other key data point: Red Hat has grown its top-line revenues in every quarter for nearly seven consecutive years.
Myth: You Can’t Make Money From Open Source
If open source is such a risky, unpredictable, unproven business model — then how does Red Hat continue to grow revenues while remaining profitable?
Red Hat CEO Jim Whitehurst offered up both data points — and some other company highlights — in a State of the Union at Red Hat blog post.
The VAR Guy isn’t suggesting that Red Hat and the open source movements are perfect. Alas, some people may be concerned that the world’s most successful open source company is generating only $500 million in annual revenues. In stark contrast, Microsoft generates 120 times Red Hat’s annual revenue.
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If open source can be so good for profits how come red hat is the only publicly held open source company?
Not seeing the corelation between profitable and publicly held but… you might consider the “myth” as the reason. Having said that there are a number of companies making money off of open source software, but many of these companies don’t have the arbitrary distinction of being both publicly held *and* purely open source.
Jo D’Plumr: The VAR Guy understands Doubtful in Dallas’s logic. But he questions it. Critics say successful, profitable open source companies should be able to launch IPOs more easily.
But The VAR Guy says this:
1. SUSE Linux, as a standalone company, would likely be about a $150 million to $200 million operation right now and publicly held. But it’s owned by Novell.
2. MySQL would have pursued an IPO at some point but got acquired by Sun.
3. Alfresco, Digium and SugarCRM (among others) all hope to launch IPOs at some point (The VAR Guy believes) but the economic crisis has prevented such moves.
Numbers. We know RHAT’s numbers because they are publicly traded shares. The rest of the FLOSS economy is well below the radar but it is huge:
M$ has a few thousand developers. Floss has more than ten times as many.
M$ has about half as many servers on the web as GNU/Linux.
Lots of places have little networking thingies like routers that run GNU/Linux.
Lots of places install their servers with GNU/Linux in-house, off the radar.
On the LAN, I think many folks run 2003 for AD but many find GNU/Linux works well for file serving/local web apps/storage/printing. Now that Samba can do AD stuff thanks to the EU, this will change rapidly.
The client space is where GNU/Linux has a problem/opportunity and that should cause change very soon in the downturn. Folks re-newing and trying to squeeze every penny whether in emerging markets or old markets are going to really give GNU/Linux a try. For individuals/smb GNU/Linux can work well out of the box. For the huge business with huge lock-in it is not so clear but I expect those businesses who tolerate diversity in IT by giving autonomy to subdivision to migrate to GNU/Linux if it works for them will see moderate results on the bottom line. The longer the downturn the more this will happen. The old ways are just not sustainable unless you make tons of money no matter what you do.
Don’t you mean fiscal year 2008? That ends in February?
Geoff: Nope, Red Hat emailed The VAR Guy last night and pointed out that they’re already in Fiscal ‘09. Their Q3 fiscal 2009 closed on November 30, 2008. And their Q4 2009 closes at the end of February 2009.
Even open source-community has it’s radicals fundamentalists and moderates. Radicals want the open source stay as a hippie-movement while moderates understand that business is not evil if it accepts the basic mainpoints of open source freedom and openmind attitude.
I appreciate businessmen who many times can see basic facts of life. Idealists must understand that even open source movement needs some money to keep going. On the other hand we know that e.g IBM tend to use open source as a weapon against Microsoft. But someday even MS could start support open source. Really? Why not. If IBM is now “good” so why won’t MS make a shift?
Red Hat by its own admision is simply a consulting and technical support company, of which there are many, many of them dont “sell” any operating systems of software, they just consult or support.
Customer has a problem that needs someone with a specific skill to fix it so they pay someone to do it.
This is not making money from open source, nor would it be making money from proprietary code.
Its making from from providing a service, that is what Red Hat is doing, they are not making money from open source, they make their money from doing computer systems maintenance.
Just as a cleaning company makes its money from cleaning toilets, not by giving away free toilets in the first place.
The problem with this model is if you make your “free” giveaway too good, too stable and too easy to maintain you lose your income stream from the support and maintennce.
It would be like giving away free self cleaning toilets, and hoping to make your money cleaning them. Ofcourse they clean themselves so you go broke.
But if you give away toilets that get dirty easily, and require skilled people to clean them, you have a sort of business model.
But its not based on dirtry toilets, its bassed on cleaning them.
Red Hat is not based on Open Source, its based on fixing Open Source, mearly consultants.
You can either manufacture cars that dont break down, and make your money from selling them, or you can make cars that **DO** break down and make your money from fixing them.
Most of the world have chosen to pay for quality, as opposed to free crap. The market has spoken. But FOSS is unable to listen or understand.
Nice try Darryl. Fact is, support is always needed, no matter how good the product. Everyone charges for support (MS, IBM, etc) even when the product isn’t FOSS, and in fact make most of their money from it. Not charging for the OS is just giving up one little slice of the profit pie, and a pretty small slice at that.
We are several decades (or centuries, or an eternity) away from software being so good that it doesn’t need support.
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