A couple of weeks ago Red Hat announced that it had crossed a billion dollars in revenue over its fiscal year that ended in March. This marked the first time a company solely focussed on selling open source software crossed a billion dollars in annual revenue.

A lot written over the last few weeks about Red Hat, but I thought that some older articles more accurately reflected what Red Hat (and many open source companies) are doing. This ComputerWorld article from June 2010 is instructive because it quotes Red Hat’s CEO, Jim Whitehurst, on how open source software is displacing revenues of traditional enterprise software vendors and thereby collapsing the size of existing markets. Another interesting one is this one from the New York Times where Whitehurst talks about the impact of open source on company culture.

It took Red Hat a long time to get to the billion dollar mark, but I’m fairly confident that there will be many more to follow. There are a few fundamental shifts that are underway.
- The shift to cloud-like (IaaS, PaaS, etc) architectures is giving software developers an opportunity to move more quickly with minimal interference and involvement from traditional IT (despite how blasphemous this may sound to a CIO)
- As a result of this increased agility, choices for software are being increasingly decided from the bottom up by developers themselves, rather than being pushed from the top down.
- When choosing the software to use, developers default to the choices that enable them to accomplish their task with minimal friction- which most often is open source software

This cycle is going to lead to lot more companies able to build strong business creating and selling open source software, most likely at the expense of traditional enterprise software vendors.