Venture Capital Invested in Red Hat

On September 29, 1998 at ISPCON Fall '98 in San Jose, the computer industry was galvanized when Red Hat Software announced that Intel, Netscape Communications and venture capital firms Greylock and Benchmark Partners had taken minority equity positions in the company. Red Hat further announced that with the investment they would establish an Enterprise Computing Division to offer enterprise-grade products and services for support of global and mission-critical applications.

The good news brought by the announcement is that a lot of money is likely to be made using Linux as it penetrates the enterprise market and makes further gains as an Internet OS.

The undisclosed size of the investments was not what caused the excitement --it was the “who”. Intel was taking a direct, financial interest in the fortunes of this upstart OS called Linux. Everyone recognized this to be a major turning point. There could be only one reason for Intel's interest in Linux—opportunity for profit.

Only the week before, Intel's CEO Craig Barrett, speaking to the British House of Commons, said that estimates of Internet world trade by the year 2002 currently stood at between $450 billion and $500 billion.

Linux has established itself as the leading Internet server OS, capturing 27% of the market, while Windows NT has established a reputation as notoriously unscalable and unstable. Because of the unique leverage of its Open Source development model, Linux is also rapidly becoming the dominant UNIX platform.

When Oracle, Informix, Computer Associates, Sybase and IBM all invest in porting their products to Linux and Netscape Communications invests both money and products in Linux, we can be sure they see a major opportunity.

Free software advocates have concerns about whether the entry of big business may actually harm the movement. In particular, buying a stake in only one Linux distribution may deepen already existing divisions. All distributions use essentially the same software; however, Intel's decision to buy into Red Hat amounts to an endorsement that will give Red Hat a decided sales advantage.

Another concern is that Intel may have a corrupting influence. Considerable resentment has already been aroused with the proprietary Intel-endorsed I2O specification. Will comparable adulterations be introduced into the products Intel helps Red Hat produce?

To weigh these concerns, we must consider that advocates have been trying for years to get free software accepted. Enterprise is now asking for Linux, but Linux is not ready. Many free software projects are struggling to produce a product with volunteer help. When we wanted free software, it seemed only logical that we invest our time and energy to create it. Now that enterprise wants free software, it is just as logical for enterprise to make whatever investment is required to create the products it wants.

This is a challenging and pivotal time for free software. Publicly held corporations do not have a moral imperative to protect the spirit of free software but only to bring the greatest return to their shareholders. Many of the free software licenses offer no protection against turning free into proprietary software. Of the Open Source licenses most often used, the GPL offers the most protection that the source code, its distribution and the products derived from it will stay free. Linux and the most essential software development tools are protected by the GPL. Therefore, we need not fear the entry of big business into free software.

Red Hat is deeply committed to the free software movement. There is little possibility that Red Hat will begin producing proprietary products with Intel's money.

This investment should result in more widely deployed free software. The concern that Red Hat is gaining an unfair advantage over other distributions will prove unfounded when it gives the software it develops back to the free software community. This good will most certainly offset current concerns.

Red Hat has shown itself well deserving of the opportunity this investment gives them to lead Linux into the enterprise.

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