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Red Hat disrupted the software industry with its free software, paid support model. Savvy startups are following suit.

When database giant Oracle recently announced its intent to acquire Sun Microsystems, a shock wave went around the open source community. Sun, along with Red Hat and Novell, is one of only three public companies focused primarily on open source software. Pummeled by the stock market last year and stymied by poor financial results, Sun was identified by many as an acquisition target even before Oracle’s announcement, and there are now many questions surrounding its open source efforts as it loses independence as a public company. Novell, too, is seen by many as an acquisition target following poor financial performance and a stock market beating. Among public open source firms, that leaves only Red Hat reporting quarter after quarter of strong, stable earnings, with a healthy market capitalization of more than $3 billion and more than $800 million in cash. What is Red Hat’s secret sauce, then?