One of the most fascinating stories in the technology sector has been the challenge posed by open-source giant Linux to Microsoft's dominance of the market for operating system software. One of the key players in the rise of Linux is Bob Young, co-founder of Red Hat Software, the largest distributor of the Linux operating system. Young's creative resolution of a crucial strategic dilemma was the event that put Red Hat – and Linux – on the path to profit and power in the marketplace.
In the 1980s, a movement had taken shape to develop software based on UNIX, an operating system invented in the 1970s at AT&T Bell Labs, and made available at no cost to anyone who requested a copy. In 1991, programmer Linus Torvalds posted a message on a UNIX users' bulletin board to announce he'd developed an operating system from the UNIX code. Before long, suggested improvements to Torvalds' program, dubbed Linux, were pouring in.
New enterprises like Yggdrasil, Slackware and Red Hat Linux sprang up to try to bring some order to the chaos by selling their own versions of Linux to interested buyers. Young ran an outfit called ACC Corp. that distributed their free software. In 1995, Young combined his company with Red Hat, becoming CEO of what was now called Red Hat Software, and shifting the company's focus from distribution of several flavours of Linux to direct sales of Red Hat's Linux product.
From his experience as a distributor, Young knew that the still-tiny market for Linux software was growing rapidly. But the business was going to hit a ceiling unless it could find a new business model.
Young could see that the two dominant models then in existence were profoundly flawed. On one hand, there was the classical proprietary-software model employed by big players such Microsoft and Oracle. They sold their clients only the operating software, not the source code. All enhancements and modifications were in the hands of the software maker.
Young has nothing but scorn for this way of doing business. “If you ran into a bug that caused your systems to crash,” he says, “you would call up the manufacturer and say, ‘My systems are crashing.' And he'd say, ‘Oh, dear.' What he really meant was, ‘Oh, good.' He'd send an engineer over at several hundred dollars an hour to fix his software for you that was broken when he delivered it to you, and he called this customer service.”
On the other hand was the free software model employed by Slackware, Yggdrasil and Red Hat itself, which Young found equally problematic. “You couldn't make any money selling [the Linux] operating system,” Young says, “because all this stuff was free, and if you started to charge money for it, someone else would come in and price it lower. It was a commodity in the truest sense of the word.”
If Red Hat was going to be something more than a low-margin distributor of a commodity product, it would have to find some way of adding value to Linux that didn't involve improving the code. That meant finding something salient about the Linux business that other programmers and distributors had overlooked.
How, then, could Red Hat establish itself as the Linux market leader? By imposing order and control on the chaotic process by which improvements to Linux are developed and captured. A typical Linux operating system is some 800 to 1,000 different packages compiled together. Those packages are maintained by different teams of people, and those people update those packages independently.
