Is It Really Fair To Say That Red Hat Is The First Billion Dollar Open Source Company?

from the others-might-beg-to-differ dept

Nearly two years ago, we took part in a wider discussion over the question of why there was no billion dollar pure play open source company. Much of the discussion, not surprisingly, focused on Red Hat, seeing as it’s the largest of the pure play open source companies, and some had been complaining that it had not yet reached $1 billion in revenue, even as proprietary software players were able to earn much more than that. We highlighted, first, that a direct comparison didn’t make any sense, because the business models were so different. The very nature of a company like Red Hat is to shrink the costs one has to pay, such that the market is redefined. Quoting Red Hat’s CEO speaking to Glyn Moody:

He said that he did think that Red Hat could get to $5 billion in due course, but that this entailed “replacing $50 billion of revenue” currently enjoyed by other computer companies. What he meant was that to attain that $5 billion of revenue Red Hat would have to displace software that currently costs $50 billion. Selling $50 billion-worth of software — even if it only costs $5 billion — is somewhat hard, which is why it will take a while to achieve.

And that’s a key point. The markets are very different. But I think there was an even more important point later on in that discussion, which is that it’s wrong to think of just “pure play” open source companies as the open source market. It’s really the equivalent of defining “the music industry” as solely “the number of CDs sold.” That doesn’t paint the entire picture at all. Because, as we’ve seen, as music has become more available (both in authorized and unauthorized means), it’s built up the much wider “music industry” in massive ways — jump-starting huge shifts in the industry.

Similarly, the importance and impact of the “open source market” is not in the companies offering up open source software, but in the companies using open source software to offer amazing things to the world. In other words, I’d argue that companies like IBM, Google and Facebook are clearly “billion dollar open source companies” (actually, much, much more than just a billion) — because they all use open source software as the key component and key resource in building their business. Just as other parts of the music business used free music to boost their revenue, companies that used open source software built massive new markets and grew their own revenue streams.

Given that, I know there’s a lot of folks talking about Red Hat finally actually hitting that $1 billion revenue milestone — and it is a milestone worth noting. However, I think it’s wrong to suggest that Red Hat is therefore the first “billion dollar” open source company. In fact, just as IBM, Facebook and Google really make their money by leveraging open source software to do (and sell) something else, much of Red Hat’s revenue really comes in an ancillary manner to the software as well: from selling the service that goes with it. It’s great that Red Hat is doing well, and certainly it presents yet another useful data point to argue against those who argue there’s no money to be made if your key “product” is free, but I think it’s unfair and misleading to claim that it’s the first billion dollar open source company.

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Companies: facebook, google, ibm, red hat

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Comments on “Is It Really Fair To Say That Red Hat Is The First Billion Dollar Open Source Company?”

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33 Comments
[citation needed or GTFO] says:

Heh.

It’s great that Red Hat is doing well, and certainly it presents yet another useful datapoint to argue against those who argue there’s no money to be made if your key “product” is free, but I think it’s unfair and misleading to claim that it’s the first billion dollar open source company.

Now watch as the AC shills completely twist or outright ignore that sentence. =3

Not an Electronic Rodent says:

Re: Heh.

no money to be made if your key “product” is free,

Let’s see… if I remember rightly the rant goes: “But that’s because redhat charges LOADS of money for SUPPORT because their products are so shitty” (carefully ignoring that almost every major vendor charges as much if not more for support and that their products are often equally or even more “shitty”)… then there’ll probably the “yeah but Red Hat are different because… yadda yadda yadda” argument that always gets trotted out every time there’s a success that can’t be immediately discredited with made up data to “prove” why their success means that really it doesn’t work at all….

Umm.. I’m sure I’ve mised at least 1 somewhere but it’s a start.

Anonymous Coward says:

Re: Re: Heh.

The point is that they make their money on helping people use software that is often too complicated for the end user / end system admin to truly understand and implement alone.

If they made the software easier to understand, made it easier to install, maintain, and use, they would work themselves out of a job.

Further, it appears that they use a “certification process” to keep people in the system, striking out on your own with their software as the base seems to pretty much dead end you.

It’s important to pay attention not the open source software , as much as to pay attention to what they are selling and why people are buying.

Anonymous Coward says:

Re: Re: Re:2 Heh.

Paul, with very limited training, a system admin could roll out NT / Windows network installs like butter. Nothing to it, the software is reliable, generally works on most hardware, and generally does what it is suppose to do.

Microsoft goes further, with certification programs to make sure that there are plenty of people who know how to do the work. You can send your admins to study before doing an install, get them certified, and have the “best of the best” in house, without having to keep paying a third party.

Nobody is suggesting that paid software doesn’t need support. But having installed both in the past, I can tell you that the Microsoft environment is way less cryptic, way less complicated, and way easier to get going than trying to get (example) free BSD up and running properly as a SECURED network server.

PaulT (profile) says:

Re: Re: Re:3 Heh.

“Nothing to it, the software is reliable, generally works on most hardware, and generally does what it is suppose to do.”

LOL

“Microsoft goes further, with certification programs to make sure that there are plenty of people who know how to do the work.”

So, you approve of certification programs as long as it’s *Microsoft* doing it, huh? Wasn’t the need for certification one of your objections to Red Hat’s model above?

“You can send your admins to study before doing an install, get them certified, and have the “best of the best” in house, without having to keep paying a third party.”

Unless you count the need for Windows licences, and consider that nobody ever *needs* to pay Red Hat a damn cent, even if you’re using their software. It’s strange that you also consider training here – if equally trained, who can actually administer the systems better? I suspect a Linux admin with proper training… It’s funny how your arguments depend on half-truths and cherry picked subjective positions, that change at the drop of a hat.

“I can tell you that the Microsoft environment is way less cryptic, way less complicated, and way easier to get going than trying to get (example) free BSD up and running properly as a SECURED network server.”

Another interesting cherry pick. Why qualify the secured part specifically, when network security has always been of MS’s weaknesses? Why bring FreeBSD into this when it’s Red Hat we’re discussing? Why quantify your positions with nothing but subjective opinion? Are the studies out there not supporting your assumptions?

All you’ve qualified so far is that you PERSONALLY find MS products easier compared to a few randomly chosen alternatives. This means exactly nothing, sorry.

PaulT (profile) says:

Re: Re: Re:5 Heh.

“I am not objecting to Red Hat’s model, I am just saying that they are not a billion dollar open source company, they are a billion dollar SUPPORT company.”

That’s not in question. What I’m wondering is why you ignore that much of Microsoft’s model is based on exactly the same things as Red Hat’s (support, training, certification, etc), and why you bring up irrelevant things like FreeBSD when discussing Red Hat’s products.

“The difference between a car dealer and your local gas station.”

I don’t get that analogy at all. Are you saying that open source is like gas where you buy X amount then have to spend more, or that OSS is a consumable whereas Windows is a non-consumable? Because that doesn’t make any sense, especially in light of most of the points made in the article.

Nick Coghlan (profile) says:

Re: Re: Re:5 Heh.

Every product you can buy from Red Hat is developed in the open, in collaboration with a community of users, customers and other developers.

Product source code? Open.
Issue trackers? Open.
Mailing lists? Open.
Documentation? Open.

Anyone can go to bugzilla.redhat.com right now and see the bug lists for all of Red Hat’s products.

Where’s the source code for Windows? The issue tracker? The development discussions? All locked behind the digital walls of Redmond.

Mac OS X? Mostly locked up in Cupertino.
Android? Lobbed over the wall every now and then, but if you really want to contribute, you better be in Mountain View.

Red Hat set out to prove you can still make money even when collaborating in the open for almost all of your software development. That plan is succeeding admirably, and that’s a great data point for those that want to push back against the ratcheting up of draconian copyright laws.

Anonymous Coward says:

Re: Pirahna

nothing wrong with copying successful things and abandoning the failed things.

thats called innovation.

I dont like microsoft one bit, but trying to say they are wrong for improving their product in ways people find more useful is just plain retarded.

also retarded is trying to thrust ribbon onto the world. That’s the kind of innovation microsoft invents itself. Terrible. The world would be better off with microsoft just sticking to copying good things from others and never trying to invent again.

:Lobo Santo (profile) says:

Re: Re: Pirahna

Who ever said they were wrong?

Anybody who can get a million$ of dollar$ selling something which people could get for free gets at least an iota of respect from me.

I just said they suck at innovating… and making secure, stable or good software.

However, they have money and a GREAT PR team. More power to ’em. Different strokes for different folks and all that guff.

Modplan (profile) says:

It’s also important to note that the nature of open source and its wide use is that it also helps further blur the distinction between creator and consumer. Facebook, Twitter and many others don’t just use it, they also produce it and contribute to other projects.

The idea that open source is limited to just a few small companies in their own play area is naive at best.

Lawrence D'Oliveiro says:

It?s Probably Also The Last

I think it was the CEO of Red Hat who said a few years ago that for every $1 of revenue they get, they take away $10 from their competitors.

In other words, Open Source is having a massive deflationary effect on the software industry.

Equally, Open Source is not capital-intensive?look at the hundreds of Linux distros that are equal to, if not greater than Red Hat in capabilities, yet are put together by little more than hobby efforts. The capabilities of the product do not correlate to the size of the organization behind it!

Also, this fixation on large, billion-dollar-or-larger companies ignores the fact that most of the world?s GDP comes from small businesses, not large ones. And Open Source very much stacks the deck in favour of the small businesses. But small businesses don?t make news headlines, so much of the growth in its development and adoption is happening under the radar.

TtfnJohn (profile) says:

Re: It?s Probably Also The Last

Some distros are or have tried to be capital intensive for example SUSE. Mandriva and the Ubuntu’s. Ubuntu may be the only one that may become a billion dollar business one day. SUSE and Mandriva may not survive in their current form.

You’re right in that most distros are put together by small businesses or hobbyists. Many appear as forks, a number appear after a small or medium sized business has built their own implementation and decided to put it into the wild or just drop it on Distrowatch.

That’s the beauty of Open Source. For all the copying and bittorrenting that goes on the movement is incredibly creative which allows for an entry point for small business in the sense that the wheel doesn’t have to be reinvented each time around which allows small improvements in the software which, when they come together are distinct improvements. Projects like the Kernel itself, which Torvalds runs with an iron fist, are more incremental.

Others like KDE and GNOME can arrive looking completely different than they did before.

Both conservative and experimental and forward looking on the same platform.

According to some of our ACs and IP purists, that’s not supposed to be possible. Yet it is. Vital, creative and inventive.

TtfnJohn (profile) says:

Re: Re:

He has some valid points and he has a point when he says that Facebook and Google Plus toss obfuscated Javascript at your browser (closed source) which means that even if in other ways they contribute to open source projects they are not totally in and of themselves open source. (Google Summer of Code is one way Google gives back to the FOSS community even if not everything Google does is FOSS.) The less said about Facebook, in many ways, the better.

There’s debate in the FOSS community about what does constitute FOSS and RedHat has, under more than one occasion be accused of not being FOSS. On the other side is the insistence by some, including Mr Kuhn, of referring to Linux as GNU/Linux something that Linus Torvalds, correctly, points out isn’t true. It is NOT the GNU operating system which is still incomplete and will probably never see the light of day. It’s a small quibble in many ways even if it is an attempt by the FSF to try to lay claim to Torvald’s work. It’s annoying as is Mr Kuhn’s holier than thou attitude to some things but that’s cool. These kinds of arguments and discussions is part of what makes FOSS so interesting and often so much fun. As well as the resulting software often being of far higher quality that most closed source software is.

mairindubh (profile) says:

Yes, it is.

Hello, Mike:

Yes, it is fair.

Show me the source code for Facebook or Twitter or Google and you might have a real point. Show me major contributions to the code Facebook, Twitter, and Google have contributed under an open source license that are not from the respective company involved – do they exist? I sincerely don’t know.

Contributing back small utilities under an open source you wrote yourself to support proprietary user privacy-violating applications you built on top of open source vs. producing open source in a collaborative embedded in a community much bigger than your own company are definitely two different models, and from what I understand Facebook, Twitter, and Google are very much in the former camp. (Red Hat’s in the latter, btw.)

There’s a difference between open source licensed code and an open source project. Any single person with basic coding skills can post some code up on github and give it an open source-compatible license. Does this really make that codebase an open source project? What I think makes an open source project is engaging a community full of active contributors from all different backgrounds, communities, and companies to work together to make that project better than any one company alone could make it.

Yes, Google throws a lot of money at open source via the Summer of Code program. Where’s the source code for that search engine, Google? Gmail? Google Docs? What? It’s not available? Oh okay. I should be grateful because you threw a whole lot of money at some students to develop more code for you to build more proprietary apps on top of. Cool.

Facebook and Twitter have provided some pretty nice code under open licenses as well. Great, thanks guys! But their core product is not open source. If it was, why do Diaspora and StatusNet exist?

Google, Facebook, and Twitter all share one thing in common – their business model relies on being a centralized network, of aggregating as many people as possible to come through their service and to keep them there. They pull some pretty nasty tricks to do that, really toeing the line of privacy and decency and respecting users. And they have to. If they start dipping in popularity they lose eyeballs on their advertising and their business falls apart.

Red Hat’s business model is completely different. Their business model relies on keeping everything open so any business can deploy their own version of what they need in-house and not have to rely on a centralized provider. So they can deploy on any hardware they want. So they can build a stack with pieces from all different providers, not be locked into one monolithic stack from top to bottom from other enterprise providers like Oracle.

So again. Yes, it is fair. But I would love to learn more about how Facebook, Twitter, and Google are engaging in the open source community and innovating towards new business models that don’t rely on them tracking my every move on the internet without my permission.

Nick Coghlan (profile) says:

Defining your market and selling the natural scarcities

(Disclosure: I do work for Red Hat, but the below is just my opinion, not that of my employer)

Part of this is just marketing 101, Mike: define your market such that you can say impressive things about your place within it. However, there’s also the question of whether or not that market definition is useful for any other purpose.

“Uses open source software to achieve their business ends” is not a useful market definition, because it’s *everyone*. Windows includes OSS (or OSS-derived) components, so even pure Windows shops are using OSS. Anyone using email relies on OSS to achieve their business ends. Anyone running applications on any of the cloud services is using OSS to achieve their business ends. Anyone that relies on DNS is using OSS to achieve their business ends. And yes, large consulting shops (including IBM) and the big web service providers use a ton of open source software. However, they use (and create) a ton of closed source software, too, and protect it fiercely.

The difference that makes Red Hat a “pure play open source” provider is that the company genuinely thinks that *open source is a better development model for software*, and that any use of closed source software is something that should require explicit justification. The company has *deliberately* eschewed the simpler business model of making the software itself proprietary, instead telling people that they’re free to grab the source and build everything from scratch themselves. You don’t get the same certifications from hardware and software vendors if you go that route, but “rolling your own” is *legal*. Heck, even if you decide you aren’t getting value for money from Red Hat and cancel your subscription, you get to keep running *all* the software you have previously installed.

What Red Hat proves, and what makes it an interesting story, is that you can make a billion dollars a year as a company without forcing people to pay for freely copyable bits and without treating the source code to create those bits as a trade secret. The internet is a giant copying machine, and instead of fighting that (through proprietary licensing) or avoiding it (through closed source hosted services), Red Hat has set out to show you can *embrace* it and still make money.

That’s impressive, and worth celebrating.

Nick Coghlan (profile) says:

Re: Defining your market and selling the natural scarcities

This article does a good job of explaining the significance of what Red Hat is doing (i.e. displacing proprietary software with open source software):
https://www.infoworld.com/d/open-source-software/red-hats-1-billion-proves-value-of-software-freedom-189824

Other companies that merely use open source to complement proprietary licensed or hosted options don’t have the same effect of deliberately avoiding vendor lock-in and returning power to customers.

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