How does Red Hat earn money?

The first impression is, that the business model of Red Hat makes no sense, because they are posting new developed sourcecode to the internet for free. How does the model works financially? Open Source software is not grouped around a product, for example a box with a CD-ROM in it, instead is build on companies. On the market, we see companies like IBM, Intel, Red Hat and Apache. For example, Red Hat has 10k employees, they get their paycheck from Red Hat Inc. The question is now: where get the company Red Hat the money from? Red Hat is comparable to a staffing firm like Manpower and Adecco. That means, they have employees which they are train, support and selling to the public.

I want to give a small example. Suppose, we want to have Linus Torvalds as a speaker for a conference. We are not talking to Linus directly, but to Red Hat, because Linus is the employee of Red Hat. We are paying money to Red Hat, and Linus comes to us. Or suppose, we want that Alan Cox creates a new cpu scheduler which supports hardware invented from Intel. Then the game is the same.

What is the alternative to use a staffing firm? Intel may have the idea, that they need somebody who is writing kernel code in C, and the name Alan Cox sounds familiar to them. They want to hire Alan Cox permanently. But it is not possible to make a contract with him, because he is employee of Red Hat.

Open Source works like a staffing firm for producing intellectual goods. It is a contract over many edges which increases the freedom of the stakeholder. Earning money is possible, because the different people are doing work and demand for work. Again, it is not about the Linux product, it is about the invested time of the programmer and the demand for that time from the customer.

Founding an opensource company is equal to become a hub for work distribution. Red Hat doesn’t produce software, they are pairing between software developer and companies how need software developer. On a formal level, Linus Torvalds gets his paycheck from Red Hat, but in reality he is an employee of Intel, IBM, Apache, Oracle and most other tech companies. Red Hat is a laborlaw construct for getting all the different customers satisfied.

Let us observe the founder of Red Hat, Bob Young a bit in detail. Is he only a programmer, is he only the CEO of a software-company, is he only a lawyer? What Bob young really looks like is the boss of an staffing agency. That means, he is not interested in products or technology but in people. He knows, which companies have a demand for programmers, and he knows which people can fulfil the demand. Bob Young sits in between them.


2 thoughts on “How does Red Hat earn money?

  1. Might be a good idea if you did some research before you write.

    Linus doesn’t work for Red Hat but for Linux Foundation. Red Hat earns most of its income from support, training etc.

    Liked by 1 person

    • Thank you for the comment. I’ve added the information in the OP: “That means, they have employees which they are train, support and selling to the public.”


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