Red Hat’s initial public offering on August 11, 1999 was a watershed moment for the commercial credibility of open source. The company, which sold and supported a Linux distribution that anyone could download for free, registered its offering with the U.S. Securities and Exchange Commission earlier that summer; its Form S-1, filed on June 4, 1999, laid out for prospective investors exactly how a business could be built around software it gave away under the GNU General Public License.
The S-1 is candid about the unusual model. Red Hat’s products were assembled largely from software developed by independent contributors and licensed under the GPL, which meant the company could not rely on proprietary lock-in; its filing explicitly warned that “we may not be able to compete effectively” and that the open-source development model on which the business depended was itself a risk factor. Revenue came from subscriptions, support, training, and services rather than from selling copies, an inversion of the conventional software business that the prospectus had to explain at length.
The market reception was spectacular. Red Hat priced at 14 dollars a share and the stock soared on its first day of trading on the Nasdaq under the symbol RHAT, one of the largest opening-day gains seen up to that point. In a gesture that captured the spirit of the community it came from, Red Hat had arranged for thousands of open-source developers who had contributed to the software to be offered shares in the “friends and family” allocation, an attempt to share the windfall with the volunteers whose work underpinned the product.
The IPO, followed soon after by VA Linux Systems’ even more dramatic debut, marked the height of the open-source dot-com enthusiasm and validated the argument that free software could anchor a real business. Red Hat went on to become the first billion-dollar open-source company and, two decades later, was acquired by IBM for about 34 billion dollars, a long arc that began with this proof that the market would pay for software freedom packaged as a service.