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Not many companies can say that they've created multi-billion-dollar business by producing a free product, but
Red Hat(RHT - Get Report) can. The firm is one of the biggest providers of open source software, with its namesake enterprise Linux operating system the biggest piece of the empire. Red Hat's product is essentially free -- and its consumer Linux distribution, Fedora, is completely free -- but the firm makes money through training, maintenance and tech support fees that it charges businesses.
That unique model has done well for Red Hat in the past. Because open source software typically leaves a much smaller cost for enterprise customers, it's become a popular option for firms that don't want to shell out hefty licensing fees for business machines like servers and workstations. While producing an open source software product does open the doors to more competition -- rivals can modify their software or simply offer competing support services -- most customers want to deal directly with the source, particularly if costs aren't critically different.
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To counter some of that competitive pressure, Red Hat has been expanding its focus to include so-called middleware and other enterprise software packages that customers previously got from Red Hat's enterprise software competitors. By becoming more of a one-stop shop, RHT should be able to continue its impressive growth trajectory in 2012.
Shares are already up 38% this year, so while RHT is hardly a value stock at these price levels, this Rocket Stock should have more upside as a solid relative strength play.