Congratulations are due to the pioneering open source industry leader Red Hat. Their revenues grew 25% in fiscal 2012, allowing it pass the $1 billion mark at the end of its fiscal year on Feb. 29, 2012. This makes Red Hat the first open source company to reach that mark.
When Red Hat was founded in 1993 it was difficult to value a company that maintained an open source product. The premise of an open source software product was to essentially operate and maintain the distribution for free. Today this is a common business model - give away the software and charge for service and support.
Passing the $1 billion milestone is "a statement about open source, and the relative ubiquity of open source. Very few companies have been able to reach that mark," CEO Jim Whitehurst said. "It's quite a statement that we've been able to achieve that with a radically different business model."
The rapid adoption rate of open source, such as the Apache Web server and Linux inside companies was still a nascent event. The initial successes Red Hat was often a debating point in many public forums.
Red Hat has become associated to a large extent with its enterprise operating system Red Hat Enterprise Linux and with the acquisition of open-source enterprise middleware vendor JBoss. Red Hat provides operating-system platforms along with middleware, applications, and management products, as well as support, training, and consulting services.
Red Hat creates, maintains, and contributes to many free software projects and has also acquired several proprietary software packages and released their source code under mostly GNU GPL while holding copyright under single commercial entity and selling user licenses. As of February 2009, Red Hat was the largest corporate contributor to the Linux kernel.
Red Hat partly operates on a professional open-source business model based on open code, development within a community, professional quality assurance, and subscription-based customer support. They produce open-source code, so more programmers can make further adaptations and improvements.
Red Hat sells subscriptions for the support, training, and integration services that help customers in using open-source software. Customers pay one set price for unlimited access to services such as Red Hat Network and up to 24/7 support.
In addition, because Red Hat produces GPL open source code, other parties could contribute their time and efforts to improving the product.
In 2004, CentOS took the Red Hat source code and compiled the distribution into its own products. CentOS, derived entirely from Red Hat Linux, along with Debian, and the Fedora Core LAMP stack are the most frequently used versions of Linux running the majority today's web servers.
Additionally, Red Hat sponsors the Fedora Project, a community-supported open-source project which aims to promote the rapid progress of free and open-source software and content. Fedora aims for rapid innovation using open processes and public forums.
The Fedora Project Board, which comprises community leaders and representatives of Red Hat, leads the project and steers the direction of the project and of Fedora, the Linux distribution it develops. Red Hat employees work with the code alongside community members, and many innovations within the Fedora Project make their way into new releases of Red Hat Enterprise Linux.
There were some tough years when Red Hat and Oracle in 2006 publicly disagreed over how frequently Red Hat would update its Enterprise Linux kernel.
Red Hat stayed the course and appears to be doing quite well. Red Hat's first billion "lays to rest the argument that nobody can make money with open source," wrote Jim Zemlin, executive director of the Linux Foundation, in a recent blog. "I want to congratulate Red Hat for this incredible achievement."
Zemlin also wrote that the collective investment in Linux to date is $10 billion, much of it through the Linux Kernel development process funded by companies that heavily use Linux in their products and support the employment of key Linux developers.
Today, successful open source companies are recognized as valuable assets and often acquired by commercial software companies.
Not only do acquiring companies obtain the rights to the code, they get a core of skilled developers, who have a wider following of developers using the product. MySQL is now part of one of the largest software companies in the world. Sun Microsystems paid $1 billion for it, and was then acquired in turn by Oracle. SpringSource, the supplier of a Java application development framework, was bought by VMware for $420 million.
Red Hat, however, got started earlier than others, before it was clear that open source code produced by projects such as Samba or Spring would be recognized as quality code by enterprise IT managers. As the acquisition era materialized, Red Hat maintained its independence and switched over to a subscription model for Red Hat Enterprise Linux and JBoss middleware, foregoing upfront license revenue in favor of ongoing subscriptions.
Subscription revenue made up $965.6 million of Red Hat's 2012 revenues of $1.13 billion, an increase of 25% over the prior year. Red Hat CFO Charlie Peters said the firm continues to enjoy a high rate of subscription renewals among its customers and many of its top 30 deals for the year were over $1 million. One of the deals was for more than $5 million, he said.
Red Hat's operating income for the year was $199.9 million, with a GAAP operating margin of 17.6%.
Red Hat has expanded its product line with the acquisition for $136 million of Gluster, a maker of an open source storage system that can be used in a scale-out setting where additional nodes are added to a live network.
With a big data oriented, storage management system added to its open source lineup, CEO Jim Whitehurst said Red Hat is ready to increase its share in industries beyond the ones in which it's already performing well in. Linux is used in many industries especially financial services, government, and education and will expand its share in retail, transportation, energy, and health care, he predicted during a recent earning call.