Software insurgent

Red Hat CEO puts Linux in a position to challenge Microsoft's dominance

By Robert Weisman, Globe Staff, 10/16/2003

In 1998, shortly after moving his family to North Carolina, Matthew J. Szulik took a call from an old friend and business associate, Bill Kaiser, general manager of Greylock Ventures in Waltham.

Greylock had just become the first venture capital firm to invest in a free-software company, Linux distributor Red Hat Inc. in Raleigh. Now Kaiser was looking for someone to turn it into a profitable business. "I picked up the phone," Kaiser recalled, "and said, `Matthew, here's an opportunity to change the world. Are you interested?' "

Szulik, a New Bedford native who had been running technology companies for two decades, was interested. He had been watching the free-software movement evolve since his days leading Interleaf in Waltham in the early 1990s, and once had been Exxon's manager for Unix, the technology on which Linux open-source software is based.

Five years later, with the 46-year-old Szulik at the helm, Red Hat has helped transform Linux from an alternative operating system for overcaffeinated college students to a cheaper but viable option for many corporations. From its headquarters on the North Carolina State University campus, Red Hat has become the number one distributor of Linux software by giving it a less intimidating and more accessible look and feel. And Red Hat and its Linux cohorts have been gaining market share in the business of server operating systems.

Red Hat posted its first operating profit ever in the past quarter. And Szulik, who traces his work ethic to a job at the Acushnet golf ball factory while growing up in New Bedford, has emerged as a lion of the Linux camp.

In that role, he has challenged a representative of rival Microsoft Corp. to a debate before Congress on the merits of open-source vs. proprietary software. He has struck partnerships with companies such as IBM and Hewlett-Packard. And he has brought suit against SCO Group, which has threatened the open-source business by claiming to own intellectual property in the Linux code.

"Our goal is to become the defining technology of the 21st century," Szulik said on a visit to Boston last month.

Szulik, now president and chief executive of Red Hat (and still a Red Sox fan from afar), has become a thorn in the side of Microsoft, maker of the rival Windows operating system. He's a full-throated evangelist for a technology and a company that have been growing globally by distributing computer code without copyright restrictions. And he insists the recent parade of worms and viruses infecting Windows systems are playing right into his hands as he calls on Microsoft's customers.

"The issue of viruses over the last 90 days has pushed a lot of enterprise customers over the edge," he contended.

A growing number of companies, government agencies, and other organizations have been willing to give Linux a try, often by turning to Red Hat or other distributors for "wraparound" packages of open source applications, such as Web browsers, calendars, and spreadsheets, that provide disaffected customers with alternatives to proprietary systems. Technology companies like Amazon.com and AOL Time Warner, financial institutions like Merrill Lynch and Morgan Stanley, and municipal governments from Munich to Tucson have embraced open source, creating openings for Linux distributors.

When Massachusetts last month became the first state to adopt a strategy of moving state computers toward open-standard software, Red Hat was quick to set up a meeting with state officials assessing their software needs. Though still in the early stages of their evaluation, "we're very happy to talk to Red Hat," said Eric Kriss, the state administration and finance secretary.

Microsoft executives say they aren't overly concerned about the gains of Red Hat and other Linux distributors.

"Obviously, Linux has had some growth in the server space," said Martin A. Taylor, the Microsoft general manager of platform strategy in Redmond, Wash. "But they have less than 1 percent market share on the desktop side."

Even in server operating systems, Taylor said, Linux is gaining ground mostly at the expense of companies like Sun Microsystems that are selling servers running Unix, the multi-user operating system that is the basis for Linux.

"If you look at customers who are thinking about replacing Windows servers with Linux servers," he said, "that's a very, very, very short list."

Taylor noted that Linux systems are also susceptible to viruses -- and Microsoft executives point to a warning in a recent Red Hat regulatory filing that much of the code in its products is developed by independent parties over which Red Hat has no control.

"I look at security as an industry-wide problem," Taylor said.

Yet industry watchers took note when Red Hat posted its first operating profit of $240,000 on sales of $28.8 million for the three months ending Aug. 31 -- a milestone that seemed to vindicate Szulik's strategy for the company.

"Red Hat has been successfully moving its business from one largely associated with free downloads to a position where they have supportable products," said Dan Kusnetzky, vice president of systems software research for International Data Corp. "And that will help the Linux market because one of the concerns people have about buying Linux is they fear that the vendors aren't viable."

For Red Hat, the key to making Linux legitimate for busineses and organizations to adopt is after-market support. The Red Hat Enterprise Linux product, introduced in May 2002, has drawn 26,000 subscribers by combining the Linux operating system with higher-level software, support, and access to updates. Last month, the company rolled out "open source architecture," a framework enabling customers to run additional programs on top of Linux operating systems.

"What this allows us to do is to provide mission-critical applications" for customers, said Paul J. Cormier, the Westford-based Red Hat executive vice president of engineering.

One of Red Hat's proudest moments, ironically, was provided by Microsoft. At one point in its long-running antitrust trial, a Microsoft lawyer held up a box of Red Hat Linux to make the point that Microsoft indeed faced competition. Szulik keeps a framed news photo of the scene in his board room.

"This was at a time where our company had less than $10 million in revenue," Szulik recalled. "Go figure."

Today the company sells 10 times as much open source software. Szulik said Red Hat is on track to ring up more than $115 million in revenue this year. And he thinks that time is on his side.

"It's certainly my view," he said, "that 10 or 15 or 25 years from now, open source software will overtake Microsoft."

Robert Weisman can be reached at weisman@globe.com.