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Red Hat CEO Talks Turkey With The Motley Fool

Anders Bylund
September 23, 2010

Red Hat (NYSE: RHT  ) just knocked the cover off another quarterly report, and the market is sitting up to take notice.

In the second quarter of fiscal 2011, the inveterate Linux vendor reported 20% stronger sales year over year and roughly flat earnings; improving business conditions led management to raise guidance significantly. The stock reacted strongly to the news and is one of the biggest gainers on the market today. In fact, Red Hat is trading at 10-year highs now and looks set to run even higher.

If you bought Red Hat when I told you to act on a temporary dip six months ago, you're sitting on a 40% gain today. Over the same time period, that beats even fellow high-tech highfliers like Informatica (Nasdaq: INFA  ) , Apple (Nasdaq: AAPL  ) , or nearly any other market darling. Not bad for a company that makes a living selling software you can get for free.

But wait -- there's more!
That's the tale of the tape, but the real story is that Mr. Market is starting to take notice of Red Hat's unique business model. I'd love to say that investors and analysts understand it, but that watershed moment still seems to elude most of them.

In an exclusive interview after the traditional earning call, CEO Jim Whitehurst took the time to talk with me about what makes Red Hat a success in open-source software sales, where everybody from Novell (Nasdaq: NOVL  ) to Oracle (Nasdaq: ORCL  ) has largely failed.

"We're not selling software, right? The software is free," Whitehurst said. "We have to add value around the software, beyond the software. The point is, are your applications certified? Is EMC (NYSE: EMC  ) certified to work with that? All of that work goes into taking the open-source development model and making that into an enterprise-class, stable ecosystem that's just gonna work."

Whitehurst continued: "We recognize that we don't sell functionality because that's free. We're adding value around that. That's important, and I think that's missed by a lot of people."

Tipping the cap to c