Red Hat’s IPO Becomes an Acid Test for Linux

When Red Hat Inc., a seller of Linux software, makes it’s debut on Wall Street this week, the world will be watching to see if the much-touted Microsoft-killer passes its biggest test of date: getting investors to pump money into it.

Aside from the cult-like exuberance of Linux devotees, this will be the first time the operating system has faced the hardened scrutiny of the Street.

But after a year of good press, some analysts say the first day for Red Hat’s IPO could be a Cinderella story — but no one quite knows when, or if, the clock will strike midnight.

Linus Torvalds, a Finnish graduate student, who based the operating system on the Unix operating system, developed Linux in 1991 — making it available for free via the Internet. Since then, Linux has been gaining ground on Microsoft every year. According to International Data Corp., Linux shipments will grow 25 percent from 1999 through 2003 — more than twice the 10 percent to 12 percent growth of other workstation and server systems. Last year, IDC said, Linux was the fastest-growing server system, accounting for 17 percent of all shipments, compared with 36 percent for Windows NT, 24 percent for Novell Inc. and a little more than 17 percent for all Unix-based systems.

By selling the Linux software prepackaged and offering technical support, the Durham, North Carolina-based Red Hat offers an alternative to downloading Linux from the Internet.

Timing Is Right

This week, Red Hat is selling 6 million shares, or about 9 percent of the company. If the stock jumps out of the box and fetches its high range expectation of $12 (US$) per share, the startup would raise about $72 million. This cash would be spent on its Web site and more marketing.

Even though there have been mixed results in the IPO market lately, the fact that Red Hat’s offering is happening the same week as the annual Linux World trade show, could help create a strong demand for the stock.

More Than Just An Operating System

Yet, there is an intangible force behind Linux that may boost Red Hat’s IPO even more.

It’s a combination of anti-Microsoft sentiment and a deep belief among Linux-lovers that information should be freely and easily assimilated throughout the world. Moreover, there seems to be a spirit of cooperation and fair play among those who promote the free operating system — even among competitors. It’s also no secret that true believers in Linux display the same kind of enthusiasm as evangelist missionaries.

Aside from the system’s pliability and its tendency not to crash, it offers its users an additional benefit that is hard to be measured in dollars and cents. It gives them a chance to say no to the monopolistic and sometimes greed-driven history of the high-tech industry. It gives them a chance to say yes to a more idealist technological future where simplicity and cooperation are as important as profits.

Just The Beginning

Red Hat’s IPO this week will be the first of many companies that will eventually hitch their financial future to the Linux operating system. But more importantly, it will now offer those who embrace the concept behind Linux to put their money where their mouths are.

What do you think? Let’s talk about it.