How to make a half-a-billion bucks with Linux

I find it hard to believe that there are still fools out there who don't think you can make money, serious as heart attack money, with Linux and open source. Let Red Hat spell it out for you.

Red Hat reported its 4th quarter results last night, March 25th. I quote: "Total revenue for the quarter was $166.2 million, an increase of 18% from the year ago quarter and 1% from the prior quarter. Subscription revenue for the quarter was $139.4 million, up 14% year-over-year and 3% from the prior quarter. For the full year, total revenue was $652.6 million, an increase of 25% over the prior year, and subscription revenue was $541.2 million, up 20% year-over-year."

Anyone want to bet Red Hat's total revenue will top a billion in 2011?

How is Red Hat doing it? They're doing it the old-fashioned way: they're earning it. RHEL (Red Hat Enterprise Linux) is a great server Linux. While all Linux distributions are closely related, how many others have clones, such as Oracle Unbreakable Linux and CentOS, where their main selling point is that they're cut-rate versions of RHEL?

Not that there's anything wrong with that. If you know your Linux and you need to save some money, go for it. But, if you want top-of-the-line corporate technical support with your Linux, you want Red Hat. CIO surveys have consistently shown Red Hat as delivering better support than the other Linux vendors, and, for that matter, just about all the other software companies as well.

Red Hat also does well because, while most companies continue to suffer from the Bush-era financial excesses hangover, Red Hat avoided that nonsense. Charlie Peters, Red Hat's CFO said in a press call yesterday that, "We continue to enhance the company's already strong financial profile. We ended the fiscal year with cash and cash equivalents and investments of $846 million and essentially no debt."

Red Hat doesn't just do Linux though. While JBoss, the heart of its middleware stack, hasn't done as well as Red Hat had first hoped, companies are starting to use JBoss for their application stacks. ISP Covad, for example, recently saved a cool half-million by switching to JBoss for its SOA (service oriented architecture).

The Raleigh, NC-based company has made its hundreds of millions without getting too tied to other companies. While it's true that Red Hat has recently partnered with Microsoft on virtualization, it hasn't gotten into bed with Microsoft the way Novell or Xandros have.

And, as for Oracle acquiring Red Hat? Red Hat CEO, Jim Whitehurst, said "Right now my main focus is on satisfying customers. Let the market chatter be what it is."

It sure looks to me that Red Hat, by steering its own course and delivering the Linux goods, is doing just fine without Microsoft or Oracle. Who knows, maybe in a few years we'll be talking about whether or not Red Hat might buy Oracle the way we are now about IBM buying Sun. Red Hat's showing that Linux and open source is not just a good way to make software; it's also a great way to make money.

Copyright © 2009 IDG Communications, Inc.

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