In through the out door: Red Hat's open-source software is an open book that it urges users to rewrite--and a glimpse into the future of business.

• Author: Gearino, G.D.
• Position: COVER STORY

Standing on a stage at N.C. State University, Red Hat Inc.'s president and chief executive describes to students and faculty his first visit in 2007 to the company's headquarters, which are on the university's Centennial Campus. It was a Sunday morning, Jim Whitehurst recalls, and when he arrived at the appointed time, he found the doors locked. Whitehurst, who had been Delta Air Lines chief operating officer and was being considered for CEO at Red Hat, was flummoxed. His taxi had disappeared from sight, and he was alone outside an apparently empty building, his initial interview seemingly gone awry before it had begun.

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His audience is captivated. Here's the top guy at the world's leading seller of open-source software telling a story every student who ever has suffered through some indignity as an intern can relate to. And Whitehurst surely reacted with the same thought any entry-level newbie would allow himself: What the hell kind of operation is this?

But his tale is only getting started. After finally being rescued from the sidewalk by Red Hat Chairman Matthew Szulik (then also its CEO) and taken to a coffee shop, he got stuck with the check after Szulik sheepishly confessed to leaving home without his wallet. Another high-ranking officer took him to lunch. Again, a money problem emerged, and again, Whitehurst paid. "At the time I was thinking, 'Are they really interested in me or just hungry?'" On the way to the airport, the exec realized he desperately needed gas, which Whitehurst bought. After making him pony up all day, the least they could do was offer him. a job.

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What Whitehurst doesn't point out to his listeners, however, is that he probably was the subject of the world's first open-source CEO job interview. He did the traveling and the paying--the heavy lifting, in a sense--while Red Hat reaped the benefit. That's the essence, and beauty, of the world of open source, and no company has capitalized on it better than Red Hat.

In tech circles, "open source" is a widely understood concept, a phrase as common as "showing blitz" is to a football fan. But it bears some explanation because within that phrase is not just the foundation of Red Hat's success but also a peek into the future of business. Open-source software is that which is available to anyone for tinkering. It is more common for software, particularly when engineered to power home computers or network systems, to be closed-source--which is to say, its coding is a closely guarded and copyrighted product. The benefit is obvious: If you have exclusive custody of the coding behind a desirable piece of software, you can become very rich. This is how Windows made Microsoft Corp. fabulously profitable. But open-source software is tossed out into the world for anyone to play with, with profit motive set aside in favor of communalism. Red Hat was the first notable company to successfully bridge that divide. It is a capitalist enterprise that has managed to extract profit from a community endeavor.

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Red Hat packages and sells a computer operating system available for free to anyone with the rudimentary tech skills to download it. Not only that, the company works hard to put no-cost versions into the hands of users and encourages them to tweak it. Joel Berman, Red Hat's senior director for global field marketing, likens the process to a farmer who welds a custom-made implement to his tractor--with the difference being "what [that farmer] didn't do was go back to the manufacturer and say, 'See what I did.'" Red Hat, in contrast, wants so badly to know what farmers are doing that it gives them tractors and...