Veteran Open-Source Software Brand Red Hat Moves Up

Can an oddly-named company that sells software based on commonly available free code make money? Somehow, Red Hat is doing just that, as announced in their second quarter report. The North Carolina-based brand just saw a 12% increase in second quarter revenue, kicking its stock price up 15%, according to Bloomberg.

Red Hat is the largest seller of the Linux open-source operating system. Because its software is based on freely available code, Red Hat can underprice most competitors. The company obtained its quirky name when developer Marc Ewing created his own distribution of Linux in 1994, naming it Red Hat Linux.

The brand has succeeded not so much because it distributes another version of Linux, but because the company long ago developed a strategy for making the operating system attractive to corporate users.

According to BusinessWeek, Red Hat not only found a way to manage the frequent updates common with Linux, the company also rewrote its software so it could be distributed free via the Internet instead of on CDs.

It was a high-risk strategy, says BusinessWeek:

Red Hat was sacrificing all the potential revenue it stood to earn from its new release of Linux. But that was the price of making Red Hat's version of Linux the de facto standard. In a stroke, Red Hat's Linux became legitimate in the eyes of the corporate users.

The idea worked, and Red Hat claimed more than half of the global Linux market by 2000, and has since grown while many other Web 1.0 companies stumbled or expired.

Red Hat may also see a bump from Oracle's recent takeover of Sun, which offers Solaris, also a largely open operating system. CEO Jim Whitehurst says the uncertainty surrounding Sun could benefit Red Hat: "Whenever there is uncertainty, it often causes people to step back and look at their options. That's good for us.