Open source and the commoditization of software

Linux commercialization at a crossroads

Of course, as distributors of a commodity (for, after all, any other company could easily become a Linux distributor too—all of the software being distributed was free), these new Linux distribution companies lacked the “proprietary advantage” every business needs to survive, not to mention thrive. So, following time honored tradition, many of the Linux companies kept their “value add” proprietary to themselves in an attempt to better compete with each other.

For a time, one company took a different approach: Red Hat. After a brief flirtation with proprietary extensions, Red Hat announced its products would include only open-source software. Why? It listened to what the market was telling it. The scores of UNIX refugees, now occupying important positions in the companies that were adopting Linux in droves, had already been down that path; furthermore, the giants of the industry now supporting Linux, which by now included virtually all of the companies that had participated in UNIX’s destruction and had seen the consequences, saw Linux as a commodity platform that could recapture the position they had collectively handed to Microsoft in the early 1990s. As a result, Red Hat emerged as the market leading supplier of Linux software.

However, as the Linux market continued to grow, and as it began to take a place more and more at the core of the computer industry, Red Hat bumped up against its own ceiling caused by lack of proprietary advantage—other companies were beginning to take in billions of dollars per year in revenue from Linux-based sales, while Red Hat seemed to have hit its peak at one-hundred million or so.

To counter this, Red Hat came up with a strategy that was still in keeping with its “100% open-source” market position. Rather than focusing primarily on selling Linux as a boxed product, it would sell software updates to those boxed products in the form of annual subscriptions. This strategy by itself proved not to be enough, as the software updates it distributed were available for free. So, it combined the new strategy with another maneuver, a redefinition of the “Linux platform” to one it could define, and control, itself.

Moving away from its traditional, freely redistributable Red Hat Linux product line, it launched Red Hat Enterprise Linux. The key part of the strategy behind Enterprise Linux was that ISVs (independent software vendors) and IHVs (independent hardware vendors) were directed to certify to this new, “high end” Linux platform, while the old Red Hat Linux was relegated to software developers and infrastructure roles. The other key part of the strategy was that Enterprise Linux was no longer freely redistributable—the acquisition of the product was tied to the subscription, and any redistribution of the product caused the subscription to be null and void.

In other words, if Linux users wanted access to the applications and hardware certified to Red Hat’s platform, they had to run Enterprise Linux. To run Enterprise Linux, they had to acquire it from Red Hat via the new subscription model, which entailed signing a subscription agreement that forbade them from redistributing it. More precisely, customers were still free to redistribute Enterprise Linux, but in doing so, they lost all support from Red Hat and, most importantly, from the legions of ISVs and IHVs that certified to the Red Hat platform. Red Hat’s transformation was complete when it dropped its Red Hat Linux product line altogether in 2003. Red Hat’s new model was still in keeping with the letter of the open-source movement but no longer with its spirit.