This week, an open source company — Red Hat — reported annual revenues of more than $1 billion for the first time. For the full fiscal year 2012, total revenue was $1.13 billion, an increase of 25 percent over the prior year. That’s more remarkable than it may seem. As Red Hat exec and open source pioneer Michael Tiemann comments, “I have found that for every $1 Red Hat sells, we have to displace $10 of proprietary junk that never really worked in the first place.” Red Hat didn’t get big the easy way; instead, it’s been a purveyor of liberty to CIOs.

Those Red Hat revenues are the result of enormous numbers of corporations of all sizes discovering that software freedom translates into business value. The so-called four software freedoms are not just a source of philosophical comfort — they are a practical source of business benefit.

A focus on software freedom isn’t just for the revolutionaries. All the values that make CIOs pick open source software are derived from software freedom. You can use the presence of software freedom as the marker for value to your business.

Indeed, the free software definition reads like a revolutionary manifesto, partly because it is. The people behind it often eschew the pragmatism of the term “open source” and focus on liberty alone. It’s worth looking behind their philosophy, though. I paraphrase the free software definition as guaranteeing the liberty to use, study, modify, and distribute software without interference. Those four liberties create value for business:

* The most obvious value is the freedom to use the software for any purpose, without first having to seek special permission — for example, by paying licensing fees. This liberty reverses the relationship with suppliers by removing their control point over your use of the software to meet your business needs. It allows you to prototype solutions freely and iterate prototypes from initiation to production, choosing when (if ever) to buy commercial insurance (service agreements). It allows you to move in and out of commercial arrangements according to your budget and needs. The freedom to use the software for any purpose puts the “c” back in CIO.
* That value is made real by the freedom to study the source code. Not that you want to, but the skills of suppliers depend on the liberty to engage with the software and build expertise. They have had no barriers to studying the source code, experimenting with it, and deploying it. From that freedom, the market in open source tools and consultants is getting richer and more vibrant by the day.
* Having committed to a software set, you need to know your investment is secure. Open source brings the assurance that vendors can’t withhold the software from you. Under an open source license, anyone has the freedom to modify and reuse the source code. If a vendor decides to end support for open source software, another company can step in and carry on where the vendor left off. If a company tries to shut down those first two freedoms, a competitor — or a consortium of users — can intervene, fork the code, and render that commercial control play moot.

Source:http://www.infoworld.com/d/open-source-software/red-hats-1-billion-proves-value-of-software-freedom-189824

Red Hat Inc. began a program for Israeli startups designed to boost use of its open-source software and increase sales as more companies migrate to cloud computing.

“Our goal is for next-generation Internet service providers to build on our platform,” Chief Executive Officer Jim Whitehurst told reporters in Tel Aviv. “As they grow, their customers will buy our software.”

Seven Israeli early stage technology companies with revenue of less than $1.5 million each were chosen to get free access to Red Hat enterprise software. The program will be expanded in Israel before being extended to other nations, Whitehurst said. Red Hat, based in Raleigh, North Carolina, will offer its software at a declining discount as the companies’ sales grow.

Red Hat, the largest seller of Linux software, intends to triple its sales to $3 billion in five years, boosted by the rising popularity of cloud computing, Whitehurst said in June. Companies such as Amazon.com Inc. are expanding cloud-computing sales in the U.S. as the government shifts $20 billion of the $80 billion in yearly information-technology spending to the services, which let users share resources such as data storage and software.

‘More Acquisitive’

Red Hat, which acquired an Israeli company three years ago, doesn’t necessarily plan to buy startups that enter the program, Whitehurst said in an interview. Even so, Red Hat will “be significantly more acquisitive than we have been,” he said.

The software developer is looking at a number of companies and is searching for “really interesting technology,” the CEO said, declining to elaborate.

Startups included now in the program include Totango Ltd., which analyzes online interactions with customers; Porticor Ltd., a security provider that encrypts data on the cloud; and Cloudyn Inc., whose software helps clients organize their use of cloud computing.

Red Hat agreed to acquire Gluster Inc. last month for about $136 million to extend its cloud-computing offering into storage, a move that will partly insulate the company from an expected shortage in hard drives following the recent flooding in Thailand, Whitehurst said.

The CEO said he doesn’t expect the European debt crisis and forecasts of slowing technology spending to affect the company’s prediction for double-digit growth.

“Open source does very well in a down market,” he said. “It gets companies out of their comfort zone and they have to find ways to take costs out.”

The company raised its full-year sales forecast in September to as much as $1.13 billion from up to $1.09 billion.

Israel, whose population of 7.7 million is similar to Switzerland’s, has about 60 companies listed on the Nasdaq, the second-most of any country outside North America, after China. Matrix IT Ltd., Red Hat’s Israeli partner, will shepherd the startup program.

Source:http://www.businessweek.com/news/2011-11-09/red-hat-assists-israeli-startups-to-boost-software-revenue.html