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Red Hat

Introduction

By 1999, Linux was the world's fastest growing open source server operating system in the world.   In addition to its acceptance by main stream corporate America, an increasing number of companies were choosing it over Microsoft NT.   In parallel, Red Hat was growing and gaining more market share in the open-source software market.   Red Hat primarily packaged and distributed the Linux operating system, significantly simplifying the installation and upgrade process for firms choosing to use the Linux system.   Red Hat's growth and success to date made them an attractive candidate for an initial public offering (IPO) of stock to become a publicly owned and traded company.   On August 11, 1999, Red Hat stock opened at $14 per share and within two days had increased drastically to $82.25 per share.

Problem Statement

Red Hat, a $5 billion dollar company, would now answer to shareholders and the general market. Red Hat's new shareholders expect continued growth in return for their investment.   Based upon their valuation of the company at almost six times its opening price, they also expected substantial returns on their investment.  

Red Hat's internal situation was that of a $5 billion company that was barely profitable and had yet to determine its long term strategy.   Moreover, Red Hat had not yet addressed its most critical strategic issue:   Should Red Hat begin to develop application software for Linux , and if so, should it produce the software using an open-source or proprietary approach?  

Analysis

1.   Linux operating system's product characteristics, production process, and its users/customers.

Linux, like Microsoft Windows, is a computer operating system.   An operating system is defined in the case glossary as, "the software that interacts directly with the computer's hardware, providing an environment for applications to run.   Application programmers can take advantage of the services provided by the operating system to perform...