Mr Jim Whitehurst, CEO of Red Hat.

At the Infocomm Development Authority of Singapore’s recent InfocommLIVE! event on 31 July 2009, Mr Jim Whitehurst, President and Chief Executive Officer of Red Hat, gave budding entrepreneurs food for thought as he presented on the business model behind a perceived “free” product - open source.

What are some of the business models for open source?
Open source as a development model is on everyone’s list of the top five things in IT. According to Gartner, by 2012, 90 per cent of all commercial applications will have open source components. What works well as a powerful development model may not necessarily translate into a good business model. The value of Red Hat is to leverage the innovation of the open development model and certify it in the widest range of platforms for any operating environment. More importantly, we provide our customers with a consumption model through subscription.

We (Red Hat) make open source stable for an enterprise. Roughly every two years, we freeze the specs, do all kinds of performance testing, work to build a large base of certified hardware on it, so you know it will run, bundle it with documentation and Service Level Agreements, and sell it with service in a subscription form. We guarantee that we will keep that code base alive, working and updated for seven years after the next release. We obviously add support on top of that.

Others have tried other business models. They have taken proprietary things to put on top of open source. That model hasn’t proven particularly successful. As we march forward, we need to find additional business models not just for open source, but for intellectual property endeavours in general that benefit from the power of participation because unlocking intellectual property is powerful.

What about business models for Twitter?
That’s a tough one. I’m glad I’m not a VC (venture capitalist) in Twitter. I don’t have a good answer for Twitter. I don’t have a good answer for Wikipedia. It took less than two years for Wikipedia to surpass all the information in Encyclopedia Brittanica and all the millions and millions of dollars spent on that. But Wikipedia is begging for donations just to stay alive and stay open. They have not figured out a business model. The only other successful business model so far that we know of is the advertising model, like Google.

Red Hat has taken an important step in a non-advertising model. We need to continue to innovate on these business models, because it really is about any endeavour around intellectual property where the power of participation can unlock it and make it grow.

Continuing the discussion.

Let’s take a completely different example: American Idol has been an extraordinary commercial success because the public voted. People said that’s what they wanted – that’s the power of participation.

Why have we seen open source moving into certain fields and not others?
One of the factors that is important for collaboration to work is that the thing that you are replicating has to have a near-zero cost to replicate. Things that really work best around collaboration are those that are information-based and easily transmitted. As soon as there’s a real cost to copy, it dramatically reduces the number of connections you can make and the speed with which it can move around.

What lies behind Red Hat’s success with open source?
Business model innovation rarely happens because of brilliant strategic thinking. When Red Hat went public, the business model was selling coffee mugs and T-shirts with Red Hat on it. We happened to hire a couple of people who said, “Why don’t we think about having an enterprise edition that offers a level of stability?” We did that, and started to get traction. Our customers loved the stability. To ensure we maintained an innovation engine, we started the Fedora project, a Red Hat-sponsored and community-supported open source collaboration. Every six months, a new and innovative version is released wtih cutting-edge functionalities. We leverage these technologies ... and stabilise them for our mission-critical and enterprise-ready Red Hat Enterprise Linux. Nobody came up with that model - we stumbled into it over time.