A Little Respect: Red Hat in Black

Profit buoys open source as company advances subscription, consulting.

Sporting its first quarterly profit like a feather in its cap, Red Hat Inc. is marching forward with a new business plan that takes the Linux distributor far beyond its Linux-in-a-box roots.

The company this week will lay out a road map for the future that is based largely on a software-by-subscription model wrapped around its Red Hat Network. The grand plan also calls for the creation of a business unit to be announced this week devoted to consulting services.

"The Red Hat Network is the cornerstone of our future strategy," said Red Hat President and CEO Matthew Szulik in an interview at company headquarters here recently. Stressing that the company isnt just about Linux, Szulik added, "Linux is one component of our overall strategy. We are an open-source company."

The moves could bode well for the company, which already holds the lions share of the Linux market. But taken in a broader context, the moves also represent a maturation of the open-source environment as a whole.

For the first part of its equation to pay off, however, Red Hat must find a way to stimulate growth for Red Hat Network, which has not lived up to expectations.

"Adoption of the Red Hat Network has been slow," said Stacey Quandt, an analyst at Giga Information Group Inc., in Santa Clara, Calif. "Previously, you could use it for free, but now you have to pay for it."

Nevertheless, for the first quarter of fiscal 2002, Red Hat posted a net profit of $600,000, the first profit in company history and a year earlier than originally expected. The milestone helped to mollify critics in the financial markets who have been pressuring Red Hat to get in the black. However, company officials would not publicly predict continued profitability for the rest of the year.

Still, Szulik left the clear impression that the company has turned a corner. "The reality is that we have built a responsible business," he said.

Its that sense of stability that is key to widespread corporate adoption of Linux and other open-source products, including the new Red Hat Database being announced this week. And that adoption could help shift the software paradigm from that of proprietary software to that of open source, a move that could deliver eye-popping cost-effectiveness.

Case in point: search-engine wunderkind Google Inc. The Mountain View, Calif., company runs entirely on Linux—8,000 servers strong—and would find it difficult to be in business if it had to pay the licensing fees for copies of Windows 2000 on all those servers, said Jim Reese, chief operations engineer at Google. The company buys about 12 copies of Red Hat Linux annually, with no support, and customizes the distribution, Reese said.

Google, like many Linux shops, has experts on staff that optimize the operating system for rapid searches. But if Linux is to grow, Red Hat and the other Linux providers, such as Caldera Systems Inc., SuSE Inc. and VA Linux Systems Inc., will have to reach beyond the techie elite to the less savvy corporate mainstream.

Thats the goal of Red Hats new Open Source Consulting Services, whose consultants will come from Atlanta-based Planning Technology Inc. Red Hat acquired Planning Technology earlier this year.

The database product is based on the open-source PostgreSQL database, which was created at the University of California at Berkeley. Red Hat has been offering the database as part of the Linux distribution for two years and will continue to do so, but without the tools and services that go with the subscription offering.

Included will be Red Hat Installer and enhanced documentation for PostgreSQL 7.1; transaction rollback and recovery; row-level locking capabilities; and compliance with such industry standards as SQL 92, Open Database Connectivity and Java Database Connectivity APIs. Also included is support for large objects, structured data types and user-defined abstract data types. The package also contains support for multiple programming languages, including C and C++, PHP, Perl, Python, TCL/Tk, and embedded SQL in C. The database also includes support for online backup.

An annual subscription, available July 16, will cost $199 a month. Support services will range from $1,499 a month to $3,749 a month for 10 systems.

Although Red Hat is positioning the database as a low-end product, PostgreSQL users say Red Hat is likely doing so to avoid offending IBM and Oracle Corp., whose support has been critical to Red Hat. However, as Red Hat grows, it likely will bump up against those partners more often.

And of course, Red Hat must also overcome the rhetorical campaign against open source that Microsoft has been waging for the better part of a year. "Were competing against the most vicious competitor the high-tech world has ever seen," said Szulik, who added that the open-source movement cannot be suppressed. "The open-source model is immune from Microsoft."