Ten years ago today, on August 11, 1999, Red Hat saw its shares triple in an initial public offering that ushered in a new era of commercial open-source prosperity.
Iain Gray, then a Sun employee and now Red Hat's vice president of Global Support, writes nostalgically: "I remember sitting in the Sun office in UK watching the stock skyrocket, thinking the world had gone mad."
Indeed it had. Soon Red Hat's stock was to plummet to earth but not before the company learned a valuable lesson: there must be more than hype to make open source grow.
Red Hat's S-1, the document filed with the Securities and Exchange Commission registering its intent to sell its shares on the public market, was filled with desire to use the IPO cash to improve its brand, expand professional services, and to improve its Web site to "create the definitive online destination for the open source community."
Very little attention was paid to the nuts and bolts of actually making money. In fact, as LWN.net pointed out back in 1999, "Nowhere in the [S-1] filing is anything about 'make more money selling our distribution.' Red Hat clearly sees its future elsewhere."
Not for long. Whatever Red Hat's vision of its business model in 1999, it soon realized that it needed to spin value far beyond a strong brand. The company recognized in its S-1 filing that "if faster Internet connections become widely available, more users may download the distribution from the net, and fewer will buy it."
That worry absolutely proved to be true, leading Red Hat to introduce (the initially proprietary) Red Hat Network in 2000 and in March 2002 upped the ante with Advanced Server, which later became Red Hat Enterprise Linux.
Over the past 10 years, Red Hat has maintained its investment in strong branding, but has focused even more on its core distribution and the value therein, investing more than $100 million each year to improve Linux and its distribution thereof.
The results speak for themselves. Red Hat demonstrated that anyone can be rich for a day with a hype-based IPO launch, but it has more importantly proved that there's a whole lot of substance to open source over the past 10 years. Red Hat has made a massive impact on the software industry, not the least being making open source palatable to the enterprise buyer, to the extent that now open-source competitors are giving Red Hat a run for its money.
There could be no better testament to Red Hat's influence and importance.
Follow me on Twitter @mjasay.
One of the most disruptive aspects of the Internet is that it makes all content cheap and disposable. Though various industries--from music to software--have resisted the Web's commodity urge, none have managed to escape it. Whether music, journalism, or software, the Internet makes distribution and replication cheap which, in turn, makes content somewhat transitory and, hence, less valuable in itself.
As iTunes, Google, and Red Hat indicate, the best business models for the Internet age are those that focus on services around content, rather than on monetizing content directly.
Speaking of software, in particular, we've reached the end of an era that treated software as a packaged product. Software is a process, and so demands that it be monetized through subscriptions or other service fees. We spent decades pretending that digital goods like software are the same as physical goods like tables or televisions, wrapping digital goods in copyright and patents in an attempt to make them feel like permanent products, but it's increasingly clear that digital goods really are different.
Enterprises don't buy software, install it, and run it. They license software, heavily (or lightly) customize it, run it, then upgrade/update it, and customize further. Software never really reaches stasis within an enterprise deployment. It's in a perpetual mode of change.
This is why open source has emerged and done so well: it treats software as a process and prices on a subscription basis. Most open-source models charge customers for support, updates, or other ongoing services, including access to proprietary extensions or add-ons.
In this way open source embraces the Web, rather than fighting it, and makes software development and delivery an ongoing process, fitting it to how enterprises actually consume software. Novell's SUSE Linux Studio groks this, enabling ongoing customization of Linux distributions. So does Red Hat's RHEL distribution, which lets customers subscribe to ongoing, updated software. So, too, does Zimbra, which adds to the subscription commercial extensions.
Not that open source has a lock on subscriptions. Just look at the Software-as-a-Service world, which includes Salesforce.com and its ilk that make software applications available via the Web on a subscription basis, but also includes Google, which treats software and other content as means to sell advertising, a micro-subscription of sorts.
Microsoft, of course, has been the biggest winner in 20th-century software, because it has been phenomenally successful in productizing software, making it hard for the company to adapt and embrace software's 21st-century imperative: subscriptions. But adapt it must if it wants to embrace the Web rather than be bowled over by it.
The same applies to anyone that wants to build a software business in the Internet age. If your revenue depends upon selling packaged software, rather than access to a more fluid process, you might as well fill out your bankruptcy filing along with your articles of incorporation.
Follow me on Twitter at mjasay.
Red Hat has set the standard for world class software support, consistently earning top marks with CIOs for its efforts. On Thursday, however, Red Hat outdid itself, introducing a new product support plan called Extended Update Support. In a nutshell, Extended Update Support enables customers to run their mission-critical systems for longer stretches of time without having to take production systems offline to update them.
From the announcement:
Extended Update Support allows a customer with a large mission-critical deployment to reduce server administration and management costs by standardizing on a single update release of Red Hat Enterprise Linux for up to 18 months--all while preserving stability and data security.
As Red Hat explains, most software companies allow customers to standardize on a minor, "point" release for 6 to 9 months, or at most 12 months. Through its Extended Update Support program, however, Red Hat is letting customers pick a Red Hat Enterprise Linux build and stick with it for up to 18 months, up to three times the industry average. That means less downtime and less need to re-validate software stacks running on RHEL.
The Register provides some additional insight:
While Red Hat commits seven years of support for a major RHEL version, the dot releases within the versions change about every six months. Within those dot releases, the company ensures application compatibility because it doesn't change the runtime environment, the area where the Linux kernel interacts with applications. So even if there are patches for security or bugs and whatnot in the dot release, customers do not have to go through application testing and certification, which can take many months, as long as they stay within a RHEL version.
This is a great service to Red Hat's customers, and provides further evidence that Red Hat's subscription model helps it to be more attuned to customer needs. Red Hat isn't selling an upfront license: it's selling the continued value of an ongoing subscription. By tuning that value to actual customer needs--in this case, the need to disturb production systems as little as possible to reduce risk and save money--Red Hat ensures renewals.
Subscription models align vendor interests with customer interests. Red Hat's Extended Update Support for Red Hat Enterprise Linux is setting the pace. It will be interesting to see who follows.
Dave Rosenberg has a great take on Microsoft's new "Open Value Subscription" for small to medium-sized businesses. The premise is that SMBs can plug into the Microsoft mothership for lower prices and less worry. His take? OVS is NOTA (none of the above):
- There is nothing open about the code or the contract as you have to use the software for a set period of time
- The value isn't really there as there is no cost-benefit
- It's not really a subscription as "lease-like" means it's a perpetual license--you just absorb the cost over time instead of upfront
- If you already bought all the Microsoft software you might get a discount if you buy this muck too
But hey! Other than the fact that it doesn't do anything that it purports to do, it's great!
Microsoft has tried subscriptions before, but it always ends up jacking up its pricing through subscriptions rather than lowering them, as open source tends to do.
As Slashdot reports, the UK government computer agency Becta is advising UK schools not to enmesh themselves in Microsoft's School Agreement subscription pricing. Why? Because while the subscription pricing may cost less, it actually introduces other problems:
Becta...suggests [schools] use instead what is known as "perpetual licensing"....
The advantage to schools in using a subscription service such as Microsoft's is that smaller, annual payments are involved rather than a larger one-off cost.
But a spokesman for Becta said the problem was that Microsoft required schools to have licences for every PC in a school that might use its software, whether they were actually doing so or running something else.
I have an even better suggestion. Get both perpetual rights to use and modify software to fit your needs, and pay a subscription to a vendor to deliver ongoing value. It's called open source. The UK hasn't dabbled much in this newfangled thing, but it's all the rage everywhere else.
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