The Day Linux Went Public and the Hackers Got Rich

On August 11, 1999, the Nasdaq ticker RHAT opened at $14 a share. By lunch, it had hit $50. By the close, it settled at $52.06 — a 272 percent gain that gave the company a $3 billion market cap on its first day. The dot-com boom had seen wilder debuts, but none quite like this: a company whose core product was free software, built by volunteers, now worth more than many established manufacturers.

The offering had been priced at $14 after underwriters Goldman Sachs raised the range from $10–12 to $12–14. Demand was so fierce that the initial 6 million shares were oversubscribed many times over. Renaissance Capital analyst Paul Bard called it "a way to play the growth of Linux and open source software." For Wall Street, Red Hat was the first pure proxy for a movement that had lived on the fringes of computing for nearly a decade.

The Paradox at the Center

Red Hat's prospectus laid bare the contradiction. The company reported $10.8 million in revenue for the fiscal year ending February 1999, up from $5.1 million, but also a $91,000 loss. Its flagship product, Red Hat Linux, was licensed under the GNU General Public License — meaning anyone could download, copy, modify, and redistribute it at no cost. The filing was strikingly blunt: "Nowhere in the filing is anything about 'make more money selling our distribution.' Red Hat clearly sees its future elsewhere."

That future was services. The company planned to enhance its website into the "definitive online destination for the open source community," expand professional services for large corporations, and invest in open-source technology development. The boxed CDs sold in retail stores — Red Hat's original business — were already a bridge to something else.

The Contributors' Allocation

Bob Young, Red Hat's chairman and former CEO, had insisted on something unprecedented. He wanted the hackers and developers who had contributed code, bug fixes, and documentation to share in the IPO. The company set aside a block of shares for a directed share program aimed at open-source contributors — people who had never been issued a prospectus, never traded a stock, and in some cases had never held a brokerage account.

The Securities and Exchange Commission pushed back. The agency's rules were designed to protect "inexperienced investors" from risky offerings. But these weren't typical investors; they were the people who had written the code. Young argued that excluding them would violate the spirit of the community that made Red Hat possible. After negotiation, a significant percentage of invited developers were allowed to participate, though the exact number was never disclosed. It was a small gesture in dollar terms, but a powerful signal: the community was not just a labor pool — it was a constituency.

From Apartment to Exchange

Four years earlier, Marc Ewing had been burning Linux CDs in his Durham, North Carolina apartment, wearing the red Cornell lacrosse hat that gave the company its name. Bob Young, running a computer supply catalog from his Connecticut home, bought those CDs to resell. Their 1995 merger created Red Hat Software, with Young as CEO. The boxed-product model was familiar, even if the product wasn't: shrink-wrapped Linux with printed manuals, sold through retail channels.

By 1998, the model was cracking. Internet speeds were rising. The value of a physical disc was falling. Young brought in Matthew Szulik, formerly president of Relativity Software, as president and COO. Szulik had taken early-stage tech companies public before. In November 1999, three months after the IPO, Young stepped aside as CEO, moving to chairman and chief strategist. Szulik took the top job, tasked with turning the IPO windfall into a sustainable enterprise.

The Long Shadow of the First Day

The stock would climb further, peaking near $135 in the froth of 2000 before the bubble burst. It would not see that level again for nearly two decades. But the IPO did something more lasting than enrich early shareholders. It forced the financial world to treat open source as a serious commercial force. It proved that a company could go public while giving away its core product, provided it sold trust, support, and continuity instead of code.

The contributors who bought shares that day — the ones who cleared the SEC's hurdles — walked away with a tangible stake in the movement they had built. Some held; some sold. But the precedent remained: open source was not a charity. It was an economy. And for one afternoon in August 1999, the Nasdaq agreed.

This is one episode in a much longer story. For the full account of the history of Red Hat Inc, read “Red Hat Inc.” by George Rivera on MixCache.com.