HERE’S How Red Hat Makes Money in 2022 [Full Business Model]

Most software companies develop and sell proprietary software. If these firms start producing open-source software, their business model will change significantly regardless of the number of software they sell. Their revenue will rely mainly on maintenance support and other services the company sells.

Red Hat provides premium support to manage, optimize, and maintain open-source software that runs on Linux operating system. It makes money by offering support and other enterprise products developed for government agencies and companies

Software companies can’t distribute their product for free! Since most of them want to prevent any unauthorized changes to their tools, only a limited number of companies introduce and sell their software as open-source tools. Red Hat is only one of these software companies!

What is Red Hat’s business model? How did it succeed in offering open-source software? Keep on reading to learn how the company emerged as one of the leading providers of open-source software!

red hat business model

What is Red Hat?

Red Hat specializes in developing and offering open-source software products. The North Carolina-based software company was recently acquired by IBM for $34 billion in 2018. It now operates as an independent IBM subsidiary software development company.

The Red Hat Enterprise Linux operating system is the most popular product introduced by the company. Its acquisition of JBoss, an open-source enterprise middleware provider, helped the firm distribute Red Hat Visualization (RHV).

Red Hat is known for assisting, creating, and maintaining free software programs. It currently provides operating system platforms, storage, applications, middleware, and management products. It also trains users, offers extensive support and consulting services.

The company has bought several proprietary software-producing firms to access its software codebases. Clients can now access open-source licenses for these proprietary products.

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Red Hat History

Founders Bob Young and Marc Ewing established the Red Hat Software company in 1995 after merging their businesses; Young was the CEO of the firm that time. The company went public in 1999 and immediately made history with its astonishing gains by the end of the first day.

In November 1999, Cygnus Solutions acquired the firm. The acquisition helped the company gather enough commercial support for its free tools. Michael Tiemann, Cygnus’ co-founder, became the Chief Technical Officer for Red Hat Software.

The company started delivering revolutionary products every year. One of its products, the Red Hat Linux, was awarded four times as the Operating System Product of the Year!

Red Hat has acquired the following companies and software until IBM acquired it:

  • Planning Technologies Inc.
  • iPlanet directory and certificate-server software
  • JBoss
  • MetaMatrix
  • Mobicents
  • AMentra

Red Hat emerged as a huge software company by procuring technologies and pioneering tools from other software companies. These acquisitions helped it deliver the best open-source software solutions.

The company became the first open-source software providing company that became a Unicorn. By 2012, Red Hat was already making $1.13 billion annually. This annual revenue jumped to $2 billion in 2015 and $3 billion in 2018.

Many software product providers were shocked that an open-source enterprise distributor, like Red Hat, could have annual revenue of $3 billion. Well, Red Hat successfully did it which encouraged several other companies to offer open-source tools for businesses worldwide!

Red Hat Business Model

Unlike other software companies, Red Hat does not develop and sell its products for a given price. It adopts a unique model that engages developers and improves its products.

To simply put, Red Hat packages the resulting product built on the collective effort of many software programmers and sells it under the company name.

The award-winning Red Hat Linux was launched as an open-source project with no claims on the operating system’s intellectual property rights. Users can download the OS for free, and modify and redistribute it without fretting over legal issues.

The CEO says that their strategy is to deliver high-quality software products for customer acquisition and retention.  It also provides customers with technical support and fulfills their other needs.

Red Hat also attracts new customers with its user-friendly, cutting-edge product, allowing the company to grow significantly.

Red Hat has been operating for almost three decades. It remains the world’s leading software company that commercializes open source. There hasn’t been a software company like Red Hat because most companies struggle with distributing open-source software products.

No other public company has also adopted the support model to generate revenue since most software companies profit by selling their proprietary software products.

Other similar companies like Microsoft, Oracle, and Amazon emerged as market giants in the industry while Red Hat is very much smaller.

Red Hat still proves that software companies can operate with the support model by selling subscriptions for technical support! However, it cannot be as big as today’s leading proprietary software program providers.

This Company Sells Free Software!

Red Hat launched Red Hat Linux when Microsoft had also launched its own Windows 95 operating system.

While Microsoft was spending millions to ensure the success of its product, Red Hat as a new firm didn’t have any chance to compete with Microsoft. It still got through and emerged as the top open-source software company!

Red Hat Linux is the company’s bestselling software. Its latest variant, Red Hat Linux 7, has been packaged into more than 800 individual packages for its launch.

The Red Hat Linux OS can be downloaded from the company’s official website. Red Hat also offers a standalone Red Hat Linux 7 with a documentation and installation guide. For $30, a user can get up to 60 days of web-based support!

Users can also enjoy more expensive variants of the OS which are specially customized for specific users and platforms. Prices can be as high as $2500 for servers, businesses, and workstations.

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How Does Red Hat Make Money?

Red Hat generates money through its various products and platforms such as Red Hat Linux, JBoss Enterprise Application Platform, etc.

It has also started offering application services, cloud services, cloud computing solutions, application development, data services, and automation and management.

Most of its income comes from the support it provides for maintaining complex software programs. Linux is not as easy as Windows OS, and systems that operate on Linux are also as complex.

The company delivers support via call or web customer service. Renowned businesses that pay to get 24/7 emergency tech support from the company greatly improve Red Hat’s annual revenue.

Red Hat also offers comprehensive training courses on operating complex systems for individuals and teams. Business organizations use these to train employees for running and maintaining software programs that operate on Linux OS.

The President and CEO of Red Hat, Paul Cormier, believes that open source is not a business model. Instead, it is a development model for developing new technologies to share for free.

But open-source technologies similarly need service and tech support— and Red Hat provides this kind of support.

It helps clients to accelerate operations without any tech issues to slow them down. The company sells services and provides open-source tools for free!

Red Hat Customers

Red Hat serves organizations from many industries: finance, healthcare, tech, and government agencies with tech demands. With its affordable software products along with comprehensive tech support, most clients are starting to prefer Red Hat’s products.

The company provides a range of tech services for the demands of major companies and government agencies.

Many clients purchase Red Hat subscriptions to help their teams resolve issues in running programs on Linux. Hence, Red Hat has grown impressively by drawing in more customers worldwide.

Red Hat Products:

Some of the most remarkable open-source software products offered by the company are the following:

Red Hat Atomic Host -This variant of the enterprise Linux has optimizations to host container applications.

Red Hat Ansible – An open-source IT configuration management tool that can be used as an IT automation platform.

Red Hat CloudForms – It is a virtual machine product capable of container management. It is also based on Red Hat Visualization, VMware, Microsoft Azure, Google Cloud, AWS EC2, and Red Hat OpenShift.

Red Hat OpenShift: A package containing containerization software products. Its container platform, used with Kubernetes, is known for delivering policy enforcement, telemetry, and identity and traffic management.

Red Hat Enterprise Linux (RHEL) – A Linux Distribution specialized for businesses in search of cloud security updates and a centralized certificate administration.

Red Hat Package Manager – A program that supports users in installing, uninstalling, and optimizing different software packages in the Linux OS.

Red Hat OpenStack Platform – It is a platform built for distributing open-source tools, commercially. It provides support in computing, storing, and connecting a range of resources in the multi-cloud infrastructure.

Red Hat Storage – A distributed file system that works like object storage and scale-out network-attached storage.

Red Hat Satellite – It is introduced as an infrastructure management tool for assessing and managing Red Hat Enterprise Linux environments.

Red Hat Virtualization – An x86 virtualization project based on the KVM hypervisor. To operate smoothly, it relies on the SPICE protocol, VDSM, and Red Hat Enterprise Linux-based centralized management server.

How Does Red Hat Attract Clients?

To answer clients’ demands of having the best products, Red Hat delivers what they need through its remarkable selection of enterprise products. It has marketing teams for enhancing its web properties and improving customer interactions.

Red Hat also builds rapport by delivering the best support to clients throughout their IT journey.

After receiving criticism from customers, it positively improved its web portal features like simplifying the product registration process to draw in more customers.

The market teams also consider customer feedback in improving products and services, allowing Red Hat to be viewed by clients as the best open-source software provider in the industry!

The company plans to adopt new ways of collecting feedback. It is currently developing new programs for the collection, analysis, and visualization of customer feedback data. These major improvements are all for the goal of maximum client satisfaction through commendable support and services.

Conclusion

Jim Kvanaugh, CFO of IBM, recently reported on Red Hat’s impressive performance in the market. Enterprises in the industry are attracted to maximizing the company’s products to their advantage.

The company’s infrastructure and application development division has also seen a great double-digit growth!

Its focus has not changed despite becoming a part of IBM. CEO Paul Cormier reiterates that its main objective is to become a one-stop spot for open-source software development.

Successfully, a combination of talented developers and products will help it maintain its top position.