...................... For now Szulik is profiting in this uneven landscape. Red Hat's 300 developers work alongside, and freely exchange blocks of code with, the 300,000-strong open-source community. Despite charging less than rivals, Red Hat still gets 87% gross margins on its software. Szulik keeps the Linux activists happy by devoting 21% of Red Hat's revenue to open-source development while making sure his engineers lead big initiatives in the open-source community.
But Linux's intellectual-property rules, based on what is called the GPL license, force Red Hat always to reveal its source code, the readable development commands that power software, along with any new features it has added. In February Red Hat unveiled a new threading system that lets multiple functions occur at once on a single processor. Novell, which sells a Linux OS called Suse, legally grabbed Red Hat's code off the Web and had the same threading system out in a week. Red Hat can do the same with its rival's tricks. "We commoditize our innovations," says Szulik.
Red Hat can compete with free Linux versions so long as its corporate customers need a hand to hold along the way. Szulik claims 65% of the companies that were running Red Hat for just $60 per machine per year are now willing to pay much more for a business-savvy OS that comes with round-the-clock service and support. In two years Red Hat has lined up 206,000 subscriptions from firms like UBS, BP and Oracle, with the average customer paying $465 per machine per year for up-to-date, bug-fixed versions of Linux. That's down from $524 in three months. At any point they could stop sending checks and support the software themselves. "This is a totally different kind of relationship between vendors and customers," says Szulik. Revenue grew 38% to $126 million over the last year (mainly through subscriptions), with $14 million in profit. ............................
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