The software company is unveiling an online marketplace for open-source developers—where Red Hat can sell support, and links to its own products
Ever since its launch in 1993, Red Hat (RHAT) has kept a laser-like focus on one thing: creating software capable of competing with tech giants Microsoft (MSFT) and Sun Microsystems (SUNW). In fact, the No. 1 distributor of Linux—the operating system for PCs and server computers—has done quite well for itself. Red Hat's revenues for the year ended Feb. 28 are expected to top $400 million, up 40% from fiscal 2006. And the Raleigh (N.C.) company just introduced the first new version of its flagship product in two years, which is expected to stir a fresh wave of growth.
Now the question is whether an outfit that has done so well as a lone wolf among "open-source" software providers can transform itself into the leader of the pack by helping companies that make open-source software products that run on top of Linux.
Red Hat signaled a strategic shift on Mar. 14 when it announced an initiative called the Red Hat Exchange (RHX), an online marketplace where it will sell products from more than a dozen open-source companies including MySQL, SugarCRM, and Alfresco Software. The exchange could make a wide range of software attractive to businesses large and small that have been put off by the challenges of buying from lesser-known suppliers and piecing it all together.
In a sense, rhx is Red Hat's attempt to create an ecosystem similar to the one Microsoft has created for companies whose software runs on Windows (Microsoft declined comment on the development). It's also similar to more recent moves by Salesforce.com (CRM) and Amazon (AMZN) to build communities of software developers to support their efforts (see BusinessWeek.com, 5/10/97, "An eBay For Business Software").
When rhx goes live in the second quarter, Red Hat will guarantee that the other companies' products work well with its own, and the company will provide tech support for all of them. The marketplace will be much more than just an online product catalog. It's designed to function as a community where users of open-source software can read reviews, rate the products, and compare notes.
Open-source software is made collaboratively by developers from around the world and is available for anybody to use, free of charge. Red Hat and others sell commercial versions that include extra software, documentation, and support. Says Red Hat chief executive Matthew J. Szulik, "Rhx gives us the opportunity to be the flag bearer for open-source software."
Seal of Approval
It also could be a brilliant move for Red Hat if wide adoption of other open-source products boosts demand for Linux. "With this exchange, Red Hat is able to broaden the landscape of open-source choices for customers, and it puts itself in the middle of things," says analyst George J. Weiss of researcher Gartner.
The exchange may turn out to be most critical for the smaller companies riding on Red Hat's coattails. Linux has gone mainstream in corporations, but so far, most open-source programs that run on it, such as customer relationship management software, haven't seen that kind of uptake. A not-yet-released survey by Gartner of North American and Northern European information technology purchasers shows that 59% use Linux on server computers, yet only 16% are using open-source software for customer relationship management.
"Rhx is the Good Housekeeping Seal of Approval for applications," says Paul Doscher, chief executive of JasperSoft, a small San Francisco company whose software program for business decision-makers will be sold there. "I think it will knock down the last barrier delaying companies from adopting open-source applications."
Sharing is Caring
Red Hat executives had been considering doing something like rhx for years but didn't have the heft to pull it off. The turning point came last February when Szulik called a gathering of the open-source clans at San Francisco's St. Regis Hotel. Managers from 16 other companies showed up. Red Hat had a reputation for being difficult to deal with, so some were surprised when Szulik told them he wanted to become a hub for the industry and asked for feedback.
"Hand after hand went up," recalls Matt Asay, a vice-president at Alfresco, which makes software that helps companies organize and manage their documents. "People said: 'We need Red Hat to stop being selfish and think about us as much as you're thinking about you.' "