[BBC] The open-source entrepreneur

by mynk on Nov 18, 2010      Category: Inspiration & Humour Tags: open source entrepreneur redhat


The open-source entrepreneur

Maggie Shiels | 09:24 UK time, Tuesday, 15 June 2010


Bob Young is a self-confessed contrarian with a strong desire to change the world by allowing people to share and collaborate. The approach has served him well and has helped turn the Canadian into a multi-millionaire.

Bob YoungFrom the outset, his software company Red Hatbucked the trend set by the big players like Microsoft which stubbornly guarded every line of code and charged whopping fees to maintain it.

Red Hat's approach was unusual at the time and relied on free software developed by an open-source community. Customers were given the right to change the code any way they liked and Red Hat sold services to make sure it all worked.

In those early 1990s, many businesses feared that open source would not be stable and often opted for the proprietary model being sold by the likes of Microsoft. Today, the Redmond giant has seen its market share erode; Red Hat has become the world's open-source leader.

'Shaggy dog story'

Mr Young started out as a typewriter salesman and went on to found and run a computer-leasing company. That was sold on, but the firm that bought him over ran into financial difficulties and Mr Young became unemployed with three children to support and a large mortgage.

"Mine is a sort of shaggy-dog story and goes something along the lines of 'it doesn't matter what bad things happen to you. What matters is how you react to them.'"

He cleaned out his wife's sewing closet, turned it into an office and started again. He started a business called ACC Corp that distributed free Unix software. Mr Young also published a newsletter for former clients using the Unix operating system. Those subscribers turned him on to a new freeware version of Unix called Linux.

Linux logoHe was later told about Marc Ewing, who had created an enhanced version of Linux called Red Hat. Mr Young sold the software as fast as Mr Ewing could produce it.

In 1993, Red Hat Software was created as the two combined their companies and financed their fledgling business by maxing out a half-dozen credit cards.

It was the perfect marriage of technical nous meeting sales savvy - not unlike that forged by Steve Jobs and Steve Wozniack in the early days of Apple.

By 2000, the company had captured 25% of the server operating system market, and Red Hat held over 50% of the global market for Linux systems. Today. it is the largest distributor of the Linux operating system.

'Hoarding knowledge'

The road to dominance was not an easy one, especially given that Red Hat was pushing against the established system of paying exorbitant fees to licence software and for service agreements.

No-software logoThe behemoth of the day was Microsoft, which engendered little love due to its hard-nosed business practices.

"My problem wasn't Microsoft. My problem was with this proprietary model where the engineers who were using the technology couldn't make changes to it. This slows technological development.
"My background was renting and leasing computers and everyone knew in the hardware business that hardware evolved faster than software.
"It wasn't until I got involved in this open-source model that I realised the problem is the hardware guys all shared their knowledge while the software guys were hoarding knowledge. They were not sharing and as a result the software did not evolve forward very quickly."

Mr Young's plan was met with some derision:

"My friends who were propeller-head programmers thought this was a good idea but no serious businessman did, and I think of myself as a serious business guy. They believed that software had to be proprietary. That was the only way you could make money."

But he didn't let that get in the way:

"It was the software engineers telling me that the internet needed to be able to share the tools they are using. They needed to work with each other. They couldn't have a big corporation in the middle of their project of building these things - and when you saw that, you saw open source as the only way to solve this."

Red Hat logoHe admits that, despite believing in the necessity of an open model, he couldn't initially see Red Hat as a viable business proposition. Scott McNealy, one of the founders of Sun Microsystems, helped him see the light at a Unix conference:

"I wasn't sure there was a real business here until I was in the audience when Scott was expounding on how evil Microsoft was with the monopolies that they owned in desktop operating systems and productivity tools, and he said 'what are your alternatives?'
"He was pushing Java and he was saying your alternatives were: you can continue to pay homage to Microsoft, or you can always use this free open-source software, or you can use my Java solution.
"The punchline of course being we should all use Java. But what was hugely informative to me was I thought no-one was paying any attention to this open software thing and here is one of the most successful guys in technology dismissing it as unimportant.
"I suddenly go 'holy cow!' Not a single major billion-dollar company takes this seriously. I know all these propeller-heads who think it is the right thing to do, this sure looks like an opportunity to me. And so, by being as contrary as I am, Scott got me on the right path."

Business inspiration

Still, Mr Young was a businessman at heart; he had to work out how to make this dream pay its way.

Freedom software textHe says that Red Hat was so efficient at pushing out this free software through its website that "these software engineers would send me the equivalent of love letters. They wanted us to succeed so badly."

But love doesn't pay the mortgage or put food on the table - so Business 101 came into play. The company charged for services to help customers maintain the software and provide support.

"The Linux OS was a very sophisticated piece of technology and it was evolving very rapidly. We had a new release out every couple of months and we could clearly see that major corporations could not use our software if they had to deal with this rate of change by themselves.
"So we realised we could afford to give away the product and the customers would have to ask us for help to keep it running."

Inspiration came from the legal profession:

"If a lawyer comes up with a new argument that gets his client off and wins a case in front of the Supreme Court, every other lawyer on the planet can use his argument without asking his permission.
"So how does a lawyer make money? Well, lawyers obviously make lots of money - there's towers in New York and towers in London full of lawyers because it is a very valuable service."

Over the years, Red Hat's approach more than paid off. When it went public in 1999, its share price tripled to over $52 a share on the day and helped to heat up a then-tepid IPO market. At the time, it was said the Red Hat sell-off achieved the eighth-biggest first-day gain in the history of Wall Street.

The sale was also seen as an important test of the open-source operating system's appeal, paving the way for other like-minded companies. Mr Young says this all underlines just how far the open-source model has come:

"I am thrilled that it has gone so mainstream. I saw it as a very necessary piece and I'm certainly excited that I had a small influence on it.
"I don't care how well you run your proprietary closed tech company, you simply can't move your technology forward as quickly as the people who have access to common standards where they can all work collaboratively on the technology."

The next chapter

Not long after the IPO, Mr Young made way for a new CEO. Today, he runs a self-publishing platform called Lulu along the same lines as he ran Red Hat and with the aim of doing good.

"I started Lulu not to make money, but to make the world a better place.
"I want to enable authors right now who are getting rejection slips from publishers and give them a platform that they decide what they publish and when they publish it and who they publish it for.
"And if we are successful, we will have made the world a better place both for those authors and for the customers who are reading books that they would not otherwise have had access to."

Last year, Lulu created 400,000 titles and sold over 1.6 million books. The company claims more than 1.8 million users.

Lusitania shipMr Young admits to being an avid reader and that he has thousands of favourite books. Recently on his night-stand was a Lulu book about the Lusitania, an ocean liner that was sunk by a German U-boat in 1915 off the coast of Ireland. It held a personal connection because his great-grandparents were headed to England to see his grandfather, who was in hospital recovering from a wound inflicted in World War I.

"My great-grandparents went over on the Lusitania and were last seen jumping into the Irish Sea, according to the newspaper in my home town.
"I look at this book and the author has the passenger list of the last voyage on the back and there are my great-grandparents. What was fascinating was that this was a great example of a book that had relatively little demand. By putting it on a site like Lulu, the author was able to deliver value to people like me who would have had no way to learn this story."

Another recent favourite was called Googled - it's by Ken Auletta and is a history of the search giant. Again, Mr Young found a personal connection:

"I get to the front of chapter three and it goes into a little bit of the history about how in early 1999 Google had nearly run out of money but for a little angel money they had and a contract with a software company they had in North Carolina called Red Hat.
"I go 'holy cow'. I funded the start-up of Google. Why didn't we get shares? Why did we take money from them? It's a fun story and nice to know Red Hat played a little part."

Red Hat moniker

Finally and apropos of nothing, if you want to know how Red Hat got its name, watch thisfun video [6.98Mb MOV].

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Interested in the development sector and hoping to use the skills to create a positive impact......read more


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