Open source software was once the realm of hackers and bedroom developers. That’s certainly no longer the case, as more and more big businesses power their enterprises with the latest open source platforms applications.
Instead of charging for licenses, open source developers have built businesses around providing add-on services such as maintenance and security, which inevitably works out much cheaper than going to the mainstream names. With open source companies such as Red Hat now competing with the giants of the corporate software world, the challenge to the likes of International Business Machines Corp. (NYSE:IBM), Oracle Corporation (NYSE:ORCL) and Microsoft Corporation (NASDAQ:MSFT) has become very real.
Open source goes mainstream
Open source software began as a community of software developers who collaborated on building programs and sharing them online free of charge, leaving the source code open to be tweaked or improved. This led the way for enterprises to customize the software to meet their own individual needs, meaning, very often, the resulting applications were better suited to the organization than those supplied by traditional software developers.
Naturally, low cost and customizability meant many of the open sources platforms and applications went mainstream. Android, for example, the operating system that appears on 80% of all smartphones, started life as open source, and Facebook also began as an open source platform.
If the Hat fits…
One of the names making waves right now in open source is Red Hat Inc (NYSE:RHT), the company that took the Linux operating system and made it the industry standard for both big business and governments. A donation from his aunt allowed Bob Young to set up Red Hat in 1993. She became an instant millionaire when the company floated in 1999, achieving the eighth biggest first day gain on Wall Street at that time. The company now rings up sales of $1.6bn annually and its systems are now commonplace in education, utilities, telecoms, financial and the public sector:
“Red Hat Linux is recognised as the standard operating platform in 75 of the top 100 banks in the world,” said Red Hat Inc (NYSE:RHT)’s VP for Northern and Eastern Europe, Phil Andrews.
Red Hat exploited a viable gap in the market: IT decision makers were fed up paying high license fees. Piggybacking on the popularity of the Linux operating system, the company was able to expand into virtualization, system management, middleware, storage technology and cloud technologies. But, as Andrews says, there reason companies are turning to open source is very simple:
“Businesses no longer have to pay huge licence fees to get high quality software.”
He says there some still fear open source, but that they shouldn’t:
“Open source is tried and trusted and most large organisations are running mission critical projects on supported platforms.”
Alcatel Lucent SA (ADR) (NYSE:ALU) is one such company. The telecommunications giant has gone with Red Hat Inc (NYSE:RHT) for their Enterprise Linux OpenStack platform to power their Network Functions Virtualisation (NFV) technology – a new innovative solution that allows mobile network operators to become less reliant on proprietary hardware.
Red Hat: Open source has a bright future
Andrews has the figures to back him up. Last quarter saw Red Hat Inc (NYSE:RHT) notch up revenues of $397m – something that couldn’t be achieved without a high level of adoption. Most companies split their IT budgets into around 80% on mainstream resources and 20% on new, groundbreaking solutions. And, right now, there is a definite bias towards the latter, especially when it comes to new cloud technologies.
As old licensed systems become redundant, then it’s likely that so too will many of the companies that created them. Some critics say there won’t be another Red Hat; that its success was dependent upon its work with Linux, but with most corporations already benefitting from open source services, those same companies won’t be so slow to partner with open source developers on new ventures in future.