Open source confusion.
June 16, 2005 12:28 PM   Subscribe

How does redhat make money? In wading through previous related AskMe posts as well as this Wiki article, I'm more confused now than when I started.

How does that work? For example, Linux is written in C. So does Redhat then write applications from linux, bundles them and sells/supports them?? Obviously I am a code moron, so I'm on very shaky ground here. Clarifications in english?
posted by yoga to Computers & Internet (13 answers total)
My understanding of RedHat's business model is that they sell enhanced and pre-tweaked versions of open source software (sometimes even "certified" for particular hardware configurations) along with support aggreements that give you a voice on the other end of the phone to answer your questions. That along with them selling a few tools for IT Managers to deploy large numbers of systems and they keep a healthy amount of $ coming in.

The software they distribute is mostly open source so that you can tweak it on your own, but they give you enough value addeds to make you come to them to make your life easier. That is basically what it amounts to.
posted by jduckles at 12:38 PM on June 16, 2005

Red Hats takes Linux, bundles it up in a nice, easy-to-use distribution (with some custom software -- for example Red Hat developed the RPM software package format which is by now pretty ubiquitous among Linux distros), sells copies of it (even though you can download it for free) to mainly corporate customers, and charges for support. I'm pretty sure support is the main way they make money.

Or really, what jduckles said.
posted by neckro23 at 12:40 PM on June 16, 2005

[On preview: What everyone else said, but also:] They make money by selling their distribution and update subscriptions, as well as support, training, and certification. They also do custom engineering. You might start here.
posted by Turd Ferguson at 12:44 PM on June 16, 2005

To add to what everyone else has said from the perspective of someone who sends them money... RHEL, the only "supported" version, is $350 a year. For the $350 you get access to CD downloads and the RedHat Network (think windowsupdate). Getting better support ratchets up the price significantly. Novell/SuSE uses a similar model.

Debian and Gentoo, on the other hand, are non-profit organizations that survive on donations. I have no idea how folks like CentOS and/or WBEL survive.

I bet that we send more money per server on a yearly basis to RedHat than we do to MSFT. Shorter release schedules and a forced subscription model... the OS wave of the future.
posted by togdon at 12:48 PM on June 16, 2005

Red Hat, like many of the commerical Linux distros, includes stuff that can't be distributed freely. And Red Hat no longer distributes a free version of their distro. In recent years, they've been sponsoring community development of Fedora Core, a free Linux based on the last free Red Hat, but recently, they're cutting the strings there (not sure of the details.)

Basically, Red Hat is trying to sell themselves as the safe business choice 'cause they cost money and have formal support agreements.

Part of their money also comes from offering "Red Hat Linux Certification."

On preview, more of this post is redundant than it was when I started it. Oh well.
posted by Zed_Lopez at 12:52 PM on June 16, 2005

I worked for PC dealers in the early '90s 'pushing tin' as we called it; trying to make a margin selling PC hardware. Impossible, and everyone wanted to value-add additional services such as support. I came across the same model in software in mid-95 when working for Lotus. (I helped launch Notes in the UK, feel free to flame). The trick then was to sell 'maintenance' fees. On top of the regular per-desktop licence, you could pay more and receive 'free' updates the regular licence payers forked out more for.

Seems nothing changes.
posted by punilux at 12:57 PM on June 16, 2005

Linux is written in C.

The kernel is written in C (and assembly). But the actual distribution is made up of applications written in C, C++, perl, python, etc.
posted by cmonkey at 1:07 PM on June 16, 2005

It's not the updates, it's the support. Any company serious about its technology infrastructure needs a professional support contract on their production systems. When your mail server goes down and a couple hundred people can't send email, you don't want your sysadmin searching Google for a solution that may or may not work- you want him/her to pick up the phone and hear someone say, "Do this."
posted by mkultra at 1:43 PM on June 16, 2005

Response by poster: So it sounds like Redhat is sort of a middle guy who acts as a go-between for the folks who want to use linux which is the open source software, but don't want to bother with keeping track of the updates and who want support if they choose to use linux. And the open source software is updated by a bunch of people who do it because they care about making it a quality product (or at least better than an off the shelf rushed to market product). Sort of?
posted by yoga at 1:57 PM on June 16, 2005

It's not the updates, it's the support.

As someone who is having to deal with patching RHEL machines without licenses (answer: Red Hat will not want to speak to you unless you pony up with 350USD), I have to say it's both.
posted by John Shaft at 3:13 PM on June 16, 2005

Red Hat's market is, always has been and likely always will be corporate IT departments; as others have pointed out, Red Hat's value in that market comes from several points:

Support: Red Hat will happily sell you a support contract for its enterprise Linux offerings. In a corporate environment, having someone to call when the software isn't working is often more important than having the software.

Timely patches: There are secondary distributors who rebrand and redistribute the patches for Red Hat's enterprise Linux distros, but paying Red Hat customers get guaranteed fast access to the latest patches on pretty fat pipes.

Certification: Red Hat offers the RHCE certification course for IT staff, and charges a fair amount to complete the process.

Also, Red Hat has the advantage of being a certified platform for Oracle, which is attractive to the corporate world, and they develop a lot of things which make "enterprise" administration tasks easier (for example, Kickstart, which makes it easy for an admin to configure one system and use that as the template for identical installations and configurations on dozens or hundreds of other systems). A lot of their add-ons are open source, but there's a big advantage to saying "we have this now" as opposed to "we'll have it someday when we can integrate it into our distribution".
posted by ubernostrum at 4:16 PM on June 16, 2005

Horse's Mouth

The MD&A starts on page 20; there's a link in the table of contents. Short answer - it's software. By a lot. What we call "maintenance" in the finance world includes bugfixes and upgrades. (I say in finance because it may be totally different in real life, but I read "maintenance" and I think bugfixes and upgrades.)

Direct support (installation, training, etc) is second. Training/certification isn't even mentioned in the revenue breakdown (as least in my cursory look).

Yay technology investment banking.
posted by sachinag at 8:13 PM on June 16, 2005

(Yay Sachinag -- answers from the Horse's Mouth rule.)
posted by Zed_Lopez at 9:48 AM on June 22, 2005

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