Red Hat: The mother of all open source business models
The biggest problem in open source today is that few know how to monetize it. There are great developers out there who will write free (as in freedom and price) software regardless of a profit motive, but they are the minority. These generous benefactors are not sufficient to fuel the continued rise of open source software.
So, we need more developers making more money to fuel...more development. But how? There are a few promising models (and the Open Source Business Conference is the best place to learn and develop new ones), and many more that are complete rubbish.
I'd like to focus on one, in particular, that I think is absolute genius: Red Hat's. Oddly enough, I can't think of a single other company that uses Red Hat's model, despite its evident success. I'm not sure why, except that I do think few understand the nuances of Red Hat's model. I'd therefore like to spend a few minutes trying to unpack exactly how Red Hat operates.
Red Hat's model is a product of necessity. The company had to figure out how to survive its lack of code ownership, and found a brilliant way to turn this apparent deficiency into a strength. In turn, this has allowed Red Hat to invest in innovation that all benefit from, but which benefits Red Hat particularly. (As a related side note, without a good business model, open source and innovation are at odds - a good business model will allow a company to heavily innovate, secure that it will be able to profit from such innovations as much as and more than its competitors.)
It's a bit like Arsenal allowing Thierry Henry (shown here pummeling Middlesborough in January 2006, 7-0) to play for opposing teams, knowing that the goals in Arsenal's favor will always outweigh those against it.
![[image]](http://mowser.com/img?url=http%3A%2F%2Fwww.soccernet.com%2Fdesign05%2Fimages%2Fsw%2Fhattrick.jpg)
Here's how Red Hat's model works:
Red Hat splits its Linux offerings into two camps: Enterprise (Red Hat Enterprise Linux - the one you'll see prominently displayed on the company's website) and Community (Fedora). Attention and energy is primarily focused on the product that will actually bring in revenues (RHEL), but Red Hat is careful to also nurture the development community, which will pay it little to nothing but which brings other, less tangible benefits.
Red Hat tests and certifies RHEL to run on certain hardware, with certain software. Red Hat restricts access to this certified, supported RHEL - you can get the raw source for the uncertified RHEL, but not the compiled, ready-to-go binaries. Only paying customers get that. (Note: Red Hat recognizes that few to no large enterprises are going to depend on an unsupported, self-compiled distribution.)
Red Hat ties support to its software - you cannot get and run the RHEL binary noted above without buying commensurate units of support. Red Hat ensures this through its ingenious subscription agreement. If you want the real Red Hat, you must pay - there's no effective way around it. (There are workarounds, but they're not worth the bother. Red Hat knows this, and mints money from the result.)
Red Hat delivers updates (and ensures customers stay with it) through the Red Hat Network. Companies plug in, get updates, occasionally call for support, and make Red Hat an explosive, important open source company.
That's it, in a nutshell. The important things to remember are:
Red Hat ensures Linux's success by investing heavily in it, and marketing it heavily.
Red Hat does nothing to prevent would-be customers and developers from trying it out (quite the opposite).
Red Hat makes it hard to impossible to get the compiled, binary version of its tested/supported/enterprise-ready software without paying it. (A recognition that while source is free, few actually want source, and even fewer pay for it.)
Red Hat ensures an ongoing relationship (and payment channel) with its customers through a subscription agreement.
Sheer brilliance. Red Hat is able to deride competitors who have hybrid models while effectively having one itself, scoring marketing points and positioning itself as the one, true open source Linux vendor. Red Hat is able to lower the barriers to trying out its products without abandoning the ability to convince customers to pay upfront and ongoing support/license fees. Red Hat is able to make a truckload of money.
The only question at this point is, why aren't you using the Red Hat model, too?
3 comments:
Hi Matt,
* Red Hat does nothing to prevent would-be customers and developers from trying it out (quite the opposite).
* Red Hat makes it hard to impossible to get the compiled, binary version of its tested/supported/enterprise-ready software without paying it.
These seem contradictory. Could you please elaborate?
ddg
Easy to try out (on a 30-day trial). But you can't use RHEL (at least, initially) without buying support.
SUSE LINUX Enterprise Server 7 was announced and released before any RHEL products. The 'Red Hat business model' you describe was actually copied from SUSE. Admitedly, Red Hat has always done a better job at marketing than SUSE, but we should remember to give credit where credit is due. In this case - it goes to SUSE.
Post a Comment