Pulling Off a Hat Trick
DURHAM, N.C. — Surveying the company’s brand-new office where rows of computers stand ready for a new crop of employees and a work crew outside plants bushes in the sultry North Carolina sun, Red Hat Software Inc. Chief Executive Bob Young has a frightening thought: How can he pay for all this by selling free software?
The thought doesn’t linger long. Minutes later, in a small restaurant, he is confidently describing how the emerging free software movement will sweep the nation and alter forever the old, feudal nature of technology, undercutting dominant players such as Microsoft.
Red Hat, Young is convinced, is perfectly positioned to exploit that historic transformation. All he has to do, says Young, flashing a self-deprecating, Fred Astaire smile, is find a way to make it pay. He thinks the answer might have something to do with Heinz catsup.
Red Hat packages and sells Red Hat Linux, a version of the Linux operating system for PCs that has been developed by a community of thousands of programmers around the world. With a reputation for being more reliable than Microsoft’s Windows NT, Linux has become a favorite among Internet service providers and others who need reliable software to operate their Web sites around the clock.
Although there are many other versions of Linux, Red Hat Linux is emerging as a standard for Linux users in this country because of the company’s reputation for quality. For the official version, which includes manuals and support, it charges $80 a copy. The company sold 400,000 copies of the product last year.
Now Young is making a major push to put Linux in corporate computer networks, in direct competition with Microsoft’s heavyweight Windows NT software. To boost its legitimacy, in recent months Young persuaded such technology giants as IBM, Dell, Compaq, Novell, Intel, SAP and Oracle to invest in Red Hat. The tactic worked. Young won a breakthrough deal when Burlington Coat Factory recently ordered 1,200 computers from Dell bundled with Redhat’s version of Linux.
How Young manages to make money on Linux without creating resentment among the Linux community says a great deal about how new companies will operate in this new model for software development.
Linux Making Inroads Into Mainstream
The viability of Linux as an operating system seems assured. Every day more companies are announcing plans to make their software run on Linux. Dan Kusnetzky, an analyst at Framingham-based IDC, predicts Linux will be the fastest-growing operating system used on network servers over the next four years. Already, Linux’s share of that market for new operating systems on servers is 17%, and Kusnetzky expects it to grow faster than any other operating system over the next four years.
What makes Linux so attractive is that it’s “open source,” which means the underlying code is publicly available. Anybody can use it and make changes in the software, provided they make those changes available to the rest of the community.
Young compares Microsoft’s Windows, by contrast, to a car with its hood welded shut so only the manufacturer knows what is going on inside. Microsoft’s new version of Windows NT is expected to be filled with bugs, which companies must rely on Microsoft to fix at its convenience. Because Linux allows users to fiddle with the insides and improve on it, serious problems with the software are usually identified and fixed in short order.
The success of the Linux model has prompted companies such as Apple Computer and Netscape to free some of their source code. SGI, a maker of high-end workstations for engineering and graphics, recently released the code for a sophisticated graphics program, much to the joy of the Linux community that has long wanted such software.
Even Microsoft President Steve Ballmer has expressed concern that Linux is “getting more attention than we would like.”
But all the attention Linux and the open source movement are getting hides its weaknesses. The Linux community’s stated goal is “world domination.” But its software still requires a great deal more technical knowledge than does Windows NT, so it’s unclear how effectively Linux will penetrate the corporate market.
While Microsoft decides which features it wants in its Windows software and then assigns thousands of programmers to build them into the software and do extensive testing, companies such as Red Hat depend on the broader Linux community for their success. “They don’t control their own destiny,” says IDC’s Kusnetzky.
Because Linux is developed under a license requiring that any changes made to it be made freely available to other developers, anybody can take Red Hat’s software, copy it and sell it for a few dollars. And they do.
So why should anybody pay Red Hat $80 a copy?
Today people pay the money for Red Hat’s documentation and its technical support. Tomorrow, says Young, people will buy Red Hat because it’s the trusted brand. The same reason Heinz has a dominant share of the catsup market with a product hardly distinguishable from its competitors.
“The only way to get official Red Hat Linux [that] we will stand behind is to get it from us,” says Young. Already, Young claims name recognition for Red Hat is 10 times that of any competitor.
The big challenge, he says, is convincing large corporations that installing Linux software isn’t risky. Red Hat’s deals with companies such as IBM, Oracle and Dell are solving that problem. “A big company doesn’t want to buy from a small company like Red Hat. But they don’t mind buying from Dell,” Young says.
But the more Young associates with “the suits” and talks of making profit off Linux, the more he generates resentment in the Linux community. Some have even started accusing Red Hat of being the Microsoft of the Linux world.
Young has also developed a certification course designed to train programmers in working with Red Hat Linux, which some interpreted as a sign that Red Hat was going off in its own direction.
Company Heavily Depends on Volunteers
Eric Raymond, president of the Open Source Initiative, points out that Red Hat can never dominate the way Microsoft does, because if it angers the community, nobody will cooperate with the company or buy its products. “If they were to go belly up tomorrow, someone else would take over,” Raymond says.
For his part, Young insists the hundreds of new programmers that join the Linux community because of Red Hat’s corporate ties will make far more important contributions than the few hackers who may quit in anger.
Still, Red Hat depends heavily on Linux volunteers and has gone out of its way to earn their goodwill. Of the 10 key programmers working on the Linux kernel, the core part of the software, four work for Red Hat as contractors, including one in Hungary and one in Scotland. Red Hat hosts Web sites for many groups working on Linux projects.
If there is drudge work that needs to be done to tweak Linux’s performance so it runs the Oracle database more effectively, Red Hat will pay to have the work done and then post it on a Web site for all to use.
One of the company’s biggest contributions to the community is the seven full-time employees it has assigned to work on core components of GNOME, an open source effort to build a Windows-like screen that can be operated easily with a mouse.
This model of development can be frustrating. Because many of the hackers working on the software are students, says Michael Fulbright, a PhD in astrophysics who heads Red Hat’s lab, development slows down during exam weeks. The occasional effort to spur greater activity can bring a rain of criticism, he says.
But Fulbright says he likes the ways ideas can be shared across a broad community under the open source approach.
How does he test the software’s ease of use? “I give it to the secretaries and marketing people. If they can’t use it, they yell at us.”
Dependence on a voluntary community of developers has additional benefits, insists Christian Gaston, who ran Romania’s largest Internet service provider before joining Red Hat as chief developer in 1997. While the leaders of the Linux community sometimes take time to make up their minds, they act as an effective check against loading up Linux software with needless features, a check some people believe Microsoft’s Windows NT could use.
A ‘Revolution’ in Product Development
Young says the open source approach to product development is a vast improvement over traditional “feudal” relationships in the technology world.
Companies such as Microsoft and Oracle will do anything to get a customer’s business. But after they have the business, they have their customer in a stranglehold. Any time customers want a new feature, they have to buy the whole upgrade at full price. If they find bugs in the software, they have to report it to their vendor and hope it gets fixed. Young calls that a feudal relationship.
By contrast, a Linux user does not have to rely on any single supplier. Having established the notion of open source as “revolutionary,” Young then turns around and tries to reassure that it’s a radical notion with which corporations should be comfortable.
Young was leasing computers and selling free software when he met Marc Ewing, who had recently begun putting together a distribution of Linux. The two decided to work together and launched Red Hat.
Today the company has 120 employees. It expects to grow to 200 by year’s end. Its new offices include a room with a pinball machine, a couple of arcade games and a rubber punching doll wearing a Microsoft T-shirt. But the room doesn’t get much use.
“We are now overbooked; 14 hours a workday is normal. And a lot of developers work even harder on Saturday and Sunday,” Gaston says. The work goes on in conference rooms with names based on board games such as Monopoly and Battleship.
Competition Is Stiff in Linux Community
But while Young may have identified Microsoft as the real enemy, he faces competition from the Linux community as well. SUSE has the dominant share of the Linux market in Europe, while TurboLinux is dominant in Asia. Caldera is regarded by many as a version that’s easier than Red Hat to install.
Dan Quinlan, a leading Linux developer, is hard at work on a new set of standards that he says will enable software companies to build their applications to one set of specifications and assure that they run on all flavors of Linux. That could reduce the influence of Linux leaders such as Red Hat that have become de facto standards in the industry.
That’s OK. Young figures that Red Hat will find a way. While other software companies sell software and give away T-shirts, he sells T-shirts and caps and gives away software. And he is in the process of converting the company’s Web site into an open source site.
“We have millions of visitors to the site,” says Young, who envisions the site as a portal for people interested in the open source movement.
He will try everything. If he continues to build his base of loyal customers, he figures, everything will work out.
Says Young: “In five years the model will be obvious.”
Times staff writer Leslie Helm can be reached at leslie.helm@latimes.com.
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Operating Systems
Linux is an operating system, the software that handles the basic household tasks of a computer such as printing and saving files. Linux is commonly used on servers to host Web sites, but technically savvy users also use it to run their desktop personal computers. The primary competitors to Linux are Microsoft’s Windows NT and the various flavors of Unix such as Sun Microsystem’s Solaris.
