Red Hat Names Jim Whitehurst, former COO of Delta Airlines, as CEO. Szulik to Continue as Chairman. More here and here.

I missed the Red Hat earnings call as I was more interested in RIM (a good Canadian company with awesome products, and whose stock I’ve been holding for some time now….yes, I’m happy today).

Red Hat beat expectations on quarterly revenue of $135.4M (+28% YTY), and net income of $20.3M (+39% YTY). You can read the transcript of the earnings call here. I used it to CTRL-F for ‘JBoss’ to see if Red Hat would give any details on how well JBoss is doing. Red Hat provided no additional detail other than “JBoss pipeline looks good”. Maybe I missed the memo, but isn’t the pipeline for OSS products always “good”? You have thousands of users who are doing so without paying. The mere hope of converting them to paying customers means your pipeline is “good”. But I digest.

As I commented on Matt’s blog…30% is good (and I shouldn’t minimize how good it is), but are we fooling ourselves thinking that 30% on a ~$500M 12 month revenue base is “proof that OSS changes everything”? Just for a little perspective [1] RIM grew revenues by 100% YTY in the quarter, on a 12 month revenue base of ~$3B. [2] Twelve month stock returns for RHAT, IBM, MSFT, ORCL.

I am more and more convinced that the OSS business model is broken. If we agree that the typical OSS vendor goes though these stages:

Stage 1: Get attention (total downloads is the key measure of success)
Stage 2: Get some revenue (tens of millions)
Stage 3: Get lots of revenue (i.e. > $250 mil)

A Support Subscription business model is the best balance of driving revenue and giving your users free stuff to build brand awareness during Stage 1 & Stage 2. But to get to Stage 3, the support business model does not scale (because people who would have paid to get your product will get your product without paying for it). OSS vendors need to sell products, not support. That is what Red Hat is trying to do (and has been doing very successfully with RHEL). The problem is, in getting to Stage 3, Red Hat (and JBoss) has trained a large set of its users that they can get great software without paying for it.

I wish I had a solution to this dilemma, other than “just use the commercial software business model from day 1”.