Free users WILL pay for Linux (ask Red Hat)

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Red Hat is reporting an increase in revenues and income for the third quarter of its fiscal 2009 year.

The most interesting part of the Red Hat numbers (for me at least) was the disclosure by CEO Jim Whitehurst that one of the top 25 deals closed by Red Hat during the quarter was one where the user moved from a Free version of Linux to a paid Red Hat Enterprise Linux subscription. Whitehurst pegged the deal at “6 figures” for a single year – so that means $100,000 plus.

“This was not a compliance-related initiative,” Whitehurst said. “This
was purely a getting the customer to understand the value of a paid
subscription.”

Certainly there are more Free users of Linux than there are paying users of Linux – for example Red Hat claims 2.5 million subscriptions for RHEL, while Fedora claims 9.5 million or so users. The fact that Red Hat was able to convert an enterprise from using Free Linux to Paid Linux at a cost of $100,000 or more is an amazing proof point for Red Hat.

I’ve commonly heard of people saying to me – ‘Why would you pay for it when you can get it for free?‘ – The argument is of course flawed in that even as a Paid user of Linux, Linux itself is still Free. The user isn’t paying for the bits, the user is paying for the support and service.

The opportunity for Red Hat and other enterprise Linux players is enormous. If in fact the vendors can convert the masses of unpaid users to paid subscription users there is a lot of money to be made. Certainly not everyone needs to pay for support, it really only makes sense when an enterprise is at a certain scale and the cost efficiencies make sense. Still, Red Hat has proven (yet again) that you can give away an operating system for Free and still make money.