Network: Money for nothing

Giving away products free on the Internet may not sound like good business, but Red Hat's Bob Young has turned a profit by making Linux a must-have
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The Independent Culture
How do you make money when you don't charge for your product? For software companies, giving away their programs is the surest, fastest way to build market share. The challenge is turning that hard-won market share into revenue.

The best example of free computer software is almost certainly the decision by Microsoft to give away its Internet Explorer Web browser. The decision paid off and Explorer quickly overtook its rival, Netscape's Navigator, as the leading browser program. Netscape had to give away Navigator; eventually, the firm was bought by America Online.

But Bob Young has a different perspective on the free software debate. As CEO of Red Hat, distributor of the Linux operating system, he is a leading advocate of "open source" software. Red Hat gives away its software - free for customers to download over the Internet - but the company is a commercial operation.

Commercial giants such as Daimler-Chrysler, Ericsson and Cisco have adopted Red Hat Linux. Red Hat is also supported by Hewlett-Packard, Compaq, IBM and Oracle.

Open source software such as Linux is not the same as free software, or shareware. "Open source" means the software, an operating system, a utility or an application such as a spread sheet or web browser, is distributed with its original programming or source code.

This allows developers, programmers and IT managers to adapt the way the software works to suit their individual needs, to improve it or to fix bugs. The convention among open source software enthusiasts is that you can do whatever you want with the source code, as long as you share the results with the community.

"People in the Linux community prefer open source," says Mr Young. "Binaries are the ones and zeros computers understand. Microsoft ships its programs as ones and zeros. With Red Hat, you get the source code and a licence that allows you to do what you want with it to solve your business problems and build more reliable and scalable systems."

Linux is a version of the Unix operating system, developed as a university project by Linus Torvalds and Mr Torvalds publishes the source code on the Internet. Anyone can download Linux but, more importantly, anyone can amend or improve the operating system for their needs.

Linux programmers share the fruits of their labours, so the operating system is more powerful and more robust than Mr Torvalds could have hoped. Mr Young, in London on a European tour, says the key lies in customer service. Red Hat charges a nominal sum for users who want to buy Linux on CD-Rom rather than over the Net, but the bulk of income comes from services and support.

He first encountered Linux when he ran a Unix user group, set up as part of a previous venture financing computer systems. In 1991 and 1992 one of the hottest topics among Unix users was Linux, the new, free OS. Mr Young admits he was a sceptic. "The Berlin Wall had just fallen and there was an air of optimism," he says. "But it didn't sound like a model that would last long."

But Mr Young swiftly changed his mind, spurred by the interest showed by Unix users, mostly systems engineers working for large organisations. "What made these guys so enthusiastic about Linux is not that the technology was better than commercial Unix technologies from SCO or Sun; it is not better, or faster, than Solaris [Sun's version of Unix]. But for the first time, they could build a fundamentally more reliable system because they had control over the infrastructure layer. "They could go in and fix bugs rather than building a workaround. Here was a method of developing software that was a fraction of the cost of proprietary systems."

This also gave Mr Young a clue about where his fledgling business would find revenues. IT managers understand the advantages of open source software, but they need to know the software has professional support. "I asked, who does the support?" says Mr Young. "When I talked to other commercial software developers, they said they could not make money out of open source.

"But if you can make your customers happy, figuring out how to make money will follow. We give away the technology, to have the opportunity to provide services and support. That comes from large corporate users."

Not all Linux enthusiasts welcome the side-effects of its transition to a corporate operating system that can compete with Microsoft and Sun. Red Hat has to tread very carefully to avoid alienating the Linux community, risking the co-operation that makes Linux so useful. So Red Hat plays by the Linux rules. Changes its engineers make are available to all via the Red Hat website, and the company helps distribute Linux users' work. "It makes us a highly popular member of the Linux community," says Mr Young.

He belie more opportunities lie with computer applications still to be developed but he knows how difficult it can be to persuade computer users to upgrade or switch systems. The best chance for newer companies, such as Red Hat, is to establish a foothold in emerging technologies.

Mr Young thinks there is a future for Linux in dedicated systems, such as the terminals in banks and airlines. And computer power development means that it is possible to build a simple Internet access terminal, hiding all the complexity behind a good interface, such as a web browser. He sees Linux as ideal for the task.

But the chief of Red Hat still has one eye on the Microsoft camp. Linus Torvald's tongue-in-cheek motto for Linux is "world domination, and fast". Mr Young's aim is more subtle. "When Microsoft ports Microsoft Office to Linux, we will know we have met our goals," he says.