Matthew Szulik, CEO, Red Hat

Red Hat didn't invent the computer operating system it promotes. It doesn't own exclusive rights to it. And anyone who has access to the product can tinker freely with its code, perhaps creating new products based on what Red Hat's done. What kind of software company is this? Red Hat says it's the wave of the future.

Red Hat's core product is Linux, a computer operating system written by a Finnish graduate student, Linus Torvalds, in the early 1990s. Linux, like all operating systems, is a sort of housekeeper. It manages a computer's resources and coordinates communications and scheduling between other programs residing and working there. Torvalds made Linux 'open.' That is, the source code--the instructions that tell the computer how to perform its housekeeping chores--can be accessed, read, and changed by anyone who uses it. And he gave it away for free, subject to an unusually clear legal document, the General Public License (see www.linux.org).

So how does Red Hat propose to profit by its version of Linux? By regulating the revolution open-source software represents.

The revolutionary aspect of the open-source movement is that anyone with patience and brains can make an 'open' piece of software better. In effect, this means that the development team for new versions of Linux comprises the millions of people now using it worldwide.

Red Hat offers itself as a vetting agency, examining proposed changes for safety and efficacy, then passing on the best of the world's ideas in new versions of its modestly priced Red Hat Linux. The power of the open-source development model was demonstrated in April 2000; when a security glitch was discovered in Red Hat Linux 6.2, a patch was written, tested, and available within hours. A similar fix to a proprietary system typically takes days or even weeks.

Preparing for profit

If Red Hat were only a clearinghouse for Linux innovations, it wouldn't be worth mentioning among the electronics industry's movers and shakers. But the company has bigger plans. Through promotion and technology acquisitions, Red Hat has become the most recognized name in the Linux industry (Winning InfoWorld's Product of the Year four years in a row certainly helped). Although it doesn't expect to make a profit for another two years, its business model shows a canny understanding of the way to make money in the electronics industry of the future.

'It sounds trite, but we plan to stay on top by taking care of customers,' explains Matthew Szulik, Red Hat's CEO and president. Customers are known as 'subscribers.' They receive technical support and free upgrades for as long as their subscription stands. 'Subscribers don't care about software,' Szulik says, 'They just want it to work so that they can do their jobs.'

Red Hat's recent acquisitions of Cygnus Solutions and Hell's Kitchen Systems gave the company application-development tools for a wider scope of applications in telecommunications, banking, and other e-commerce arenas. According to Szulik, 'More developer support means more applications, more applications means more Linux-based operating system users.'

The company's Web site, redhat.com, will also be a significant source of revenue, through advertising and sales of textbooks and Red Hat paraphernalia. According to Tim Buckley, senior VP and COO, the site has in place the enterprise resource management and customer relationship management software necessary to maximize the potential profits and customer goodwill.

Still, the company's plans for corporate success lie not so much in making Linux safe and easy to use, but in making it ubiquitous.

Unlike proprietary software development, where engineers work on what their managers deem most immediately profitable, open-source Linux has been tweaked over the years by legions of application engineers trying to get their appliances out the factory door. Today, Linux is effectively 'processor independent'--unlike, for example, Windows, it works with Alpha, SPARC, UltraSPARC, and other processors as easily as Intel or AMD microprocessors.

In a world where 99 percent of microprocessors serve in embedded applications rather than PCs, processor independence is a significant advantage, and will only grow in importance as communications between embedded microprocessors becomes more common. 'Our opportunity is to build the killer aps of the 21st century--the Internet appliances,' says Robert Young, Red Hat's chairman.

Access to the source code lets users pare the operating system to the needs of the application at hand--ideal for idiot-savant applications like handheld devices, set-top boxes, and home-security systems, where communications may be more important than, say, database management.

Finally, the experiences of scientists and researchers trying to gain supercomputer processor power on PC budgets have given Linux a powerful multimode capability. Users can easily configure multimode networks of computers harnessed to work on the same problem. For example, Amerada Hess has used a 128-node cluster to examine geophysical data in the search for oil reserves. The company says it got millions of dollars of supercomputing results with $100,000 of clustered PCs running Red Hat Linux.

As of press time, the software industry is buzzing about the Federal court's finding industry giant Microsoft to be an illegal monopoly. Microsoft's fate remains uncertain, with some suggesting that a proper remedy is to force that company to open its source code to outside developers, to, in effect, to become more like Red Hat.

CEO Szulik is unfazed. He likes Red Hat's chances as the leader in a revolution.