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What Red Hat’s Consistent Growth Suggests about Open Source Software


Oct. 2 2017, Updated 3:05 p.m. ET

Red Hat’s double-digit growth indicates open source software’s success

Earlier in the series, we discussed Red Hat’s (RHT) fiscal 2Q18 earnings and the likely impact of the dollar on its top-line growth. Red Hat provides the open-source-based Linux OS (operating system), which powers financial trading platforms, many corporate servers, and Google Android phones. Open-source software is gaining popularity, as it doesn’t tie users to particular vendors.

The open-source model promises innovation, cost savings, and competitiveness in the IT (information technology) space, as the below presentation by Rackspace shows. However, as everything is free in the open-source model, how do open-source companies like Red Hat generate revenues? The answer lies in support and technical services. As the majority of open-source companies don’t sell products, they make money by providing technical support and consulting services, as is the case with Red Hat.
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Red Hat’s role in popularizing open-source software

CIOs (chief information officers) and executives, which Red Hat looked upon as its target customers, needed an enterprise-grade paid offering to support their core Linux applications. These executives above all valued stability over features. Red Hat recognized the corporate world’s need for enterprise features as well as professional support to run Linux.

Right from the start, the company drew a clear outline between the company’s free Fedora user community and the enterprise environment RHEL (Red Hat Enterprise Linux), which is available as a SaaS offering.

At the same time, Red Hat continued to build and maintain its free user community, which helped it build a recurring annual revenue stream of close to $2.4 billion from enterprise customers. The company was instrumental in making Linux the most popular and widely adopted server OS.


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