It was 26 years ago this week, on Aug 11, 1999, that Red Hat, the Linux vendor, conducted its IPO. It was not the biggest IPO of 1999, and it wasn’t even the biggest Linux-related IPO of 1999. But Red Hat was one of the survivors of the dotcom era, exiting as a result of an acquisition more than 20 years later. Investors may have initially been divided on the company but in the end the naysayers were wrong.
The Red Hat IPO
But that’s not to say the Red Hat IPO went badly. It issued 6 million shares priced at $14 per share and reached a valuation as high as $50 per share that day.
The problem for Red Hat was figuring out how to make money. All of the software that made up the Red Hat distribution was free. It was licensed under the GPL or another similar open source license that made it free to copy or sell or modify.
Red Hat extended that to its entire distribution. You could download a Red Hat ISO file and burn your own copy. If you didn’t have a fast enough Internet connection for that, you could go to a software store and buy a licensed big-box shrinkwrapped copy of Red Hat. Or you could go to an independent software dealer and by an unofficial Red Hat CD for around $10. I even remember seeing these CDs in some bookstores. They weren’t breaking any laws. But it meant Red Hat was competing with their own product, trying to sell theirs for $35 when anyone with the means to press a CD and print a halfway professional looking jewel case insert could sell it for less.
How Red Hat solved the monetization problem
The main thing enterprises needed from Red Hat wasn’t the software. It was the support.
Eventually, Red Hat figured out they weren’t going to be profitable competing with knockoff copies of their own product. They couldn’t use copyright law to keep people from reselling their product, but they could use trademark law. They cracked down on third parties using their trademark.
This led to Fedora and CentOS, which were essentially freely distributable versions of Red Hat without any Red Hat trademarks. A business who wanted carrier grade support and carrier grade reliability would purchase Red Hat Enterprise Linux and a support contract. Those who could live without support could use CentOS or Fedora.
By March 2012, Red Hat’s revenues topped $1 billion.
The “hobbyist OS”
In 1999, Bill Gates said Microsoft saw Linux, including Red Hat, as a competitor in the student and hobbyist market, but not really in the enterprise. I heard a manager where I was working at the time parrot this line, so then I asked how much traffic the e-commerce site that her team was running received each day. She said it served around a thousand visitors a day.
My hobbyist blog, which was running on a Red Hat derivative at the time called Turbo Linux, was serving more than that. When I said Linux could do that, she asked how I knew. I said because my blog gets that much traffic and it runs on Linux. And I also told her my uptime. Back then, uptime was something people tracked, and Windows couldn’t usually match Linux’s uptime. I didn’t change her mind, but I made her mad.
But Red Hat changed other minds. In 2003, even Sam’s Club was selling Red Hat-based PCs for $299, for a time.
How Red Hat survived the dotcom bust
Red Hat was one of the survivors of that whole era. The era was driven by rapid growth, and that meant needing licensing that was less complicated and more affordable than what you got from Microsoft. Especially once commercial grade virtualization became available, the ability to spin up capacity when needed and remove it when you didn’t need it anymore became possible, and even necessary.
The all-time high Red Hat, Inc. closing stock price was $188.44 on July 1, 2019. That was a week before it was delisted as a result of merging with IBM. That’s not bad after starting at $14 per share 20 years earlier.
IBM famously invested a billion dollars in Linux in 2001, and got themselves sued for doing it. But IBM recognized the value in continuing that work, and they also knew they hadn’t broken any laws.
So in 2019 when IBM bought Red Hat, it didn’t necessarily come out of the blue. IBM was no longer making a big deal about spending a billion dollars on Linux development every year, but everyone knew they were still involved. Buying Red Hat was a way to profit off that investment.
Red Hat no longer exists as an independent company, but it survives as a division of IBM. They didn’t end up becoming the next Microsoft. That was Google. But Red Hat did better for themselves than the majority of the class of 1999. And they did way better than Netscape too.
VA Linux: The biggest Linux IPO of 1999
Let’s answer the question of who was VA Linux, and why were they a bigger deal than Red Hat. In 1999, you couldn’t just call up Dell and order a computer with Linux on it. The contracts they had with Microsoft made that complicated, in that you would probably pay for a Windows license even if you didn’t use it.
But the second problem was hardware compatibility. Today, it’s difficult to find hardware that doesn’t work with Linux. I can go to a thrift store, buy a random printer and a random scanner, and there’s a better chance they will work with Linux than there is they will work with Windows 11.
But in 1999, the situation was different. Most network cards had drivers, but not all of them. And some of them worked much better than others. And video drivers could be even more problematic.
So if you wanted Linux server you could rely on, and have a reasonable degree of assurance everything would work well together, ordering one from VA Linux was your best bet.
So that’s why they were a hotter stock than Red Hat, at least for a few years. It was either 2002 or 2003 that an HP sales engineer told me Linux ran well on HP servers. My initial reaction was that VA Linux was in serious trouble. I knew Linux ran fine on HP servers by then. But hearing it from HP themselves made me glad I hadn’t invested in VA Linux. VA Linux was a great idea, but one with a limited shelf life. That’s why Red Hat stood the test of time and VA Linux is a memory today.
David Farquhar is a computer security professional, entrepreneur, and author. He has written professionally about computers since 1991, so he was writing about retro computers when they were still new. He has been working in IT professionally since 1994 and has specialized in vulnerability management since 2013. He holds Security+ and CISSP certifications. Today he blogs five times a week, mostly about retro computers and retro gaming covering the time period from 1975 to 2000.