Red Hat talks big at open-source conference

Meta Group says that VA Linux has an interesting strategy, and its financial grounding in computer hardware sales makes it stand out among the pure Linux companies. see commentary

"We did start the open-source revolution," chief technology officer Michael Tiemann boasted at a WR Hambrecht conference on open-source companies. Tiemann also declared victory over Microsoft's effort to push into handheld computers and over Red Hat's Linux rivals in general.

Though few disagree that Red Hat is one of the top companies in the Linux and open-source realm, some might take issue that a company founded in 1994 truly can lay claim to starting the open-source revolution. Richard Stallman, for example, founded in 1984 the open-source Gnu movement to clone Unix, and Linus Torvalds piggybacked on those efforts when he began Linux in 1991.

"That is a little grand," longtime open-source advocate Bruce Perens said of Red Hat's position. "Let's give credit to Richard Stallman and the 1,000 programmers who had no monetary motive and are the real people who made open source happen."

Eric Raymond, author of the open-source manifesto "The Cathedral and the Bazaar," also sees room for others to get credit. "Cygnus (Tiemann's company before Red Hat bought it) has a claim to have started the open-source revolution; so does Richard Stallman; and for that matter so do I," he said.

Bold assertions aside, Red Hat is in a very strong position, said WR Hambrecht analyst Prakesh Patel. "It's by far the best-branded open-source company out there," and Patel predicted it would beat Linux computer maker VA Linux Systems in the race to attain profitability.

In particular, Patel lauded Red Hat's push to sell subscriptions to software update services. The new service, which is offered for servers, workstations and Linux-based Internet gadgets, could account for as much as half of Red Hat's revenue in six months, he predicted.

Also at the conference, VA chief executive Larry Augustin said his company expects it will be profitable within 15 months. "We expect to reach breakeven no later than the end of calendar 2001," he said.

Most of VA's revenues come from selling computers. In the long term, VA expects that to be 75 percent, with 15 percent from services, such as consulting to help companies plug into the open-source movement, and a further 10 percent from sponsorship and advertisements on VA's list of Web sites such as SourceForge.net, Linux.com or Slashdot.org. Augustin said the company's Web sites had 3 million unique users and 80 million page views in September.

VA leads Linux companies in revenue, reporting $50.7 million in its most recent quarter. Red Hat had $18.5 million in revenue in its most recent quarter.

In recent months, Linux companies have been among the technology companies facing increasing scrutiny over revenue growth and profitability plans. Linuxcare withdrew its initial public offering, and a number of others backed off on plans to go public.

"The fact that you're doing Linux or open source doesn't mean you can win in this space," Patel said. "You really have to have a business model that makes money."

At today's open-source conference, Tiemann said Red Hat has won the "distribution" battle, the effort to sell Linux and associated software. "The Linux distribution game is over. Red Hat has won that game. Red Hat is the market leader in virtually every respect," he said.

However, analysts have noted that Red Hat isn't the leader in Europe, where rival SuSE has greater share, or in Asia, where the leader is TurboLinux.

Red Hat's subscription model has lured more participants than Red Hat expected, Tiemann said. The company faces competition, however, with Caldera Systems nearing launch of its own management software, called Cosmos, Linux computer seller Atipa acquiring the Bluebird management software, and Linuxcare planning to launch its own automated management software by the end of October.

Linuxcare plans a remote management service along with software that automates the task, said CTO Dave Sifry. The service will take advantage of the company's Linux experts as well as Linuxcare's work in certifying that hardware and software work with Linux, he said.

In gadgets such as wireless devices for accessing the Internet, Tiemann said he believes companies selling the devices will pay to sport the Red Hat logo. Manufacturers will ask themselves, "Do I want to put 'Powered by Red Hat' on my pervasive computing device? We believe they do, because customers want to know that a device is not running Microsoft," Tiemann said.

Microsoft has indeed faltered in its effort to put Windows CE and its successor, PocketPC, into handheld computing devices. But even so, some high-profile companies aren't afraid to sport a Microsoft logo on their handhelds.

"People like Compaq, Dell, HP, and more than 30 other companies already have jumped on the 'Windows-powered' bandwagon," said Microsoft spokesman Doug Miller.