Red Hat doffs its cap to businesses that embrace open-source computing tools. The company dominates the market for Linux, the open-source computer operating system (OS) that is the chief rival to Microsoft's Windows operating system. In addition to its Red Hat Enterprise Linux OS, the company's product line includes database, content, and collaboration management applications; server and embedded operating systems; and software development tools. Red Hat also provides consulting, custom application development, support, and training services. The company's business model is a mix of providing free, open-source software paired with subscription-based support, training, and integration services.
Red Hat's JBoss unit specializes in open-source middleware software, including application servers and messaging systems which are used to develop and deploy applications throughout an enterprise that are accessible via the Internet, intranets, extranets, and virtual private networks.
Subscriptions revenue accounted for about 88% of total net sales in 2016 (ended February). Training and services revenue accounted for the remainder.
Sales and Marketing
Red Hat's customers are in a variety of industries, including financial services, government, healthcare, retail, telecommunications, and transportation. In 2016 US government agencies accounted for about a 10th of revenue. The company increased advertising spending by about a third in 2016. Advertising expense totaled about $89 million in 2016, up from $62.6 million and $53.4 million in 2015 and 2014, respectively.
Red Hat turned in a strong financial record in 2016 (ended February) with higher sales, profit, and cash flow.
The company's sales jumped 15% to about $2 billion, compared to 2015. It reported a surge in Subscription revenue from infrastructure-related offerings as well as training and services. Added subscriptions came from geographic expansion and the continued migration of customers to its open source Linux platform from proprietary operating systems.
The higher revenue drove a 10.6% profit increase to reach $199 million in 2016 from 205, despite higher sales and marketing costs.
Cash generated by operations rose to $716 million in 2016 from about $623 million in 2015.
Although Red Hat originally offered support for consumer-oriented Linux products, the company shifted its focus entirely to the more lucrative business of supporting and servicing Linux technologies in enterprise environments. While Linux has failed to gain much traction against Microsoft's Windows operating system in the consumer space, open-source platforms have been much more successful in corporate deployments, especially for back-end tasks such as managing data center operations including virtualization, server and data management, and enterprise application integration.
The company's offerings that help customers develop applications for cloud computing have gained traction with custtomers. Red Hat Mobile, for example, is a software development platform for developing, integrating, and managing mobile applications. With Red Hat Storage customers can treat physical server storage as a scalable, shared, centrally-managed pool of virtual storage.
Mergers and Acquisitions
Red Hat acquired Ansible Inc., a provider of IT automation tools, in October 2015. Red Hat expects that the combination of Ansible's tools with Red Hat's portfolio will help users get to lower costs in deploying and managing cloud-native and traditional applications across hybrid cloud environments.
In 2014 Red Hat acquired FeedHenry, an enterprise mobile application platform provider. FeedHenry expands Red Hat’s portfolio of application development, integration, and Platform-as-a-Service (PaaS) services.