Red Hat Sees Lots of Green

Investors have long hoped to make gobs of money on free software. When VA Linux went public in late 1999, its shares rose 698 percent, setting an opening-day record that still holds. The company’s ticker, LNUX, fooled some investors into thinking the company controlled Linux, the operating system that was then seen as having a real shot at undermining Microsoft’s Windows empire. In fact, as an open-source project with thousands of volunteer contributors around the world, no single company controls Linux. And since its rise in the late 1990s, dozens of startups, like VA Linux, have tried to convince investors that free software can disrupt the status quo.

Only one company, though, has ever mastered the art of cashing in on Linux. That’s Red Hat, which went public a few months before VA Linux, now known as GeekNet, to much less fanfare. Red Hat, which provides operating systems for data centers, on March 28 reported full-year revenue of $1.1 billion, marking the first time that an open-source software company crossed the $1 billion threshold. The company’s share price has almost doubled over the past two years, while its sales have risen about 25 percent quarter-after-quarter. “There really was this time when nobody could make money with Linux,” says Richard Williams, a software analyst at Cross Research. “Then, Red Hat emerged as this surprisingly profitable entity.”