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It may seem to be a contradiction that one can make money from a free product, but the folks at Red Hat Inc. have been doing that successfully for more than a decade, in no small part by continually driving innovation in their version of the free Linux operating system and the software that supports it.
That innovation is controlled not in Red Hat’s North Carolina headquarters, however, but in the woodsy northwestern suburb of Westford, under the control of a former Digital Equipment Corp. veteran, Paul Cormier. The company has about 250 people in Westford, where the company’s R&D group has found a home, but Cormier, who runs the products and technology division for Red Hat, is in charge of about 1,500 people globally.
“I have major products going on in the Czech Republic and China and Australia and some on the West Coast, but this is the central place for all that,” Cormier said.
Those products are all based on Red Hat’s Fedora flavor of the open source Linux operating system, and the game-changer version for corporations, Red Hat Enterprise Linux, or RHEL. But selling an open source OS to big business was just a dream at Red Hat when Cormier came on board in 2000.
“When I first came, Red Hat’s products weren’t in the enterprise at all,” Cormier said. “We had a few commercial customers but for the most part the bulk of our revenue came from retail sales.”
Cormier was Red Hat’s first Massachusetts-based employee, after a career that included 15 years at DEC, running one of the first Internet search engines, AltaVista, and a few startups in the area. To start with, he commuted to Raleigh, N.C., for about three years. But as he helped Red Hat move further into the enterprise, he realized that they didn’t have the right talent.
“We really needed a way to marry the open source guys with the commercial software guys,” Cormier said.
While Cormier and the top brass at Red Hat were trying to figure out where to locate their R&D operations, they landed a huge contract in 2002 with IBM Corp. and needed to ramp up staff “overnight.” Cormier held a job fair in Raleigh and another in Westford for engineers who could work in the core of an operating system, called the kernel. The turnout in Westford was amazing, he said.
“I had 11 openings and I had 1,500 people show up,” Cormier said. “About 400 had some type of kernel experience in their background.”
That cemented their choice to base R&D in Massachusetts, in order to take advantage of the deep enterprise software experience and the people from companies such as DEC and Sun Microsystems Inc., who had a background in UNIX, which is the OS that Linux was born from. So on April Fool’s Day in 2002, Red Hat opened the doors to its Bay State R&D headquarters.
Since then, Red Hat has been one of the few companies that have driven the acceptance of open source software in the enterprise, along with Novell Inc., which moved from Utah to Waltham in 2002. Novell moved into the Linux world with the acquisition of German Linux OS maker SuSE AG and Boston-based Linux enterprise tools maker Ximian in 2003.
Key to Red Hat’s success in getting big corporations to use an open source product that can be out of date as soon as anyone in the community makes a change to it and posts it online has been Red Hat’s ability to assure potential customers that the product would be reliable, consistent and well supported. In the Linux world, the concept of backward compatability was traditionally meaningless — when you needed an update or a bug fix, you changed what needed to be changed and waited for the community of developers to update their supporting software to meet it if they would no longer work.
“That was very difficult for the ISVs and the customers,” Cormier said. “So what we did with RHEL is, we lock it down, we give a roadmap on it, we support it for seven years. Even as the community goes forward, we take fixes backward so we can keep a stable release.”
That commitment has been accepted at a growing rate among enterprise customers over the years, leading to a multibillion-dollar marketplace. The global open-source software services business is expected to reach $3.9 billion for this year and double in the next five years, according to IDC of Framingham.
“It is difficult to monetize a free software, but Red Hat has done it,” said Jay Lyman, an enterprise software analyst and open source expert for The 451 Group. “They are the leader in enterprise Linux — that’s pretty undisputed.” Red Hat has become such a big player in enterprise software that in its recently announced support deal for virtualization software with Microsoft Corp., they were able to get a concession from the Redmond giant that their competitor Novell hadn’t been able to just a few years ago, Lyman said.
Microsoft is notoriously concerned about its holding tight control over its intellectual property rights, something that is against the very core of the open source community. But in the recent licensing deal, Red Hat was able to get Microsoft on board with no IP conditions in the deal, Lyman said.
“Microsoft blinked on that one,” he said.
For Red Hat, the greatest successes have come in the financial sectors and the entertainment sectors, along with health care and telecom. For the financial sector, it was that market’s experience in running the UNIX OS that led to Linux adoption, and Red Hat was there pitching the company’s stable, enterprise version from the get go.
“Most of Wall Street runs RHEL,” Cormier said. “We run the New York Stock Exchange.”
The future of development in Westford and elsewhere is in areas like cloud computing, Cormier said, in part because of its low cost of entry and ongoing support.
“The cloud is perfect for open source,” Cormier said. “Nobody’s building the cloud on Microsoft.”
That savings in cost of entry and ongoing support has made open source products in general, and Red Hat in particular, a bit more bullet-proof against the recent economic troubles. The publicly traded company has grown in both revenue and profit steadily over the last three years and continues to grow.
“We’ve been hiring all along,” Cormier said. “We’ve probably had to slow down our hiring a little bit, but we’re still growing.”
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