One Year Ago: Red Hat Finds E-Commerce At Hell’s Kitchen

Originally published on January 5, 2000 and brought to you today as a time capsule.

Linux vendor Red Hat (Nasdaq: RHAT) has announced that it will acquire privately held Hell’s Kitchen Systems (HKS), a provider of open-source e-commerce software and services.

Under the terms of the agreement, Red Hat will issue up to 398,335 shares of its common stock for the acquisition, picking up all the outstanding shares of HKS.

Positioning itself as a more viable software solutions option for businesses that are looking to migrate operations online, Red Hat will use the acquisition to bring e-commerce payment processing capabilities to customers of its products and services. Payment processing software, a star HKS offering, is a critical infrastructure component for e-commerce operations.

“Red Hat’s global reach and brand recognition delivers HKS’ e-commerce software to the open-source servers running the world’s Internet infrastructure,” commented Matthew Szulik, president and CEO of Red Hat. “The acquisition of HKS is another key addition to Red Hat’s strategy to create a next-generation software company spanning powerful servers, Internet infrastructure and pervasive, post-PC-centric computing platforms.”

Pick-ups, Partnerships Key

In November 1999, Red Hat acquired open-source development tools provider Cygnus Solutions in the company’s first major move since its high profile IPO. The transaction, valued at US$674 million in stock, gave Red Hat access to the development tools and engineering services provider’s desktop, client/server system, real-time operating system (RTOS) and embedded, post-PC centric platform expertise.

That same month, Red Hat struck up a strategic partnership with electronic security firm RSA to enable e-commerce professionals who use Red Hat software to encrypt transactions.

“Enterprises and Internet Service Providers are increasingly turning to Linux for reliable, scalable and flexible Internet solutions,” said Larry Weidman, HKS president and CEO. “Red Hat’s wide-reaching partnerships, complete line of open-source solutions, technical expertise and vision makes it an ideal match for HKS and other forward-looking companies embracing the next-generation of Internet computing.”

The Research Triangle Park, North Carolina-based Linux vendor will bundle the HKS credit card verification system software with the Professional Edition of its OS package, which will provide users with an e-commerce server and services solution.

The transaction is subject to approval by HKS shareholders and other customary closing conditions. HKS, based in Pittsburgh, Pennsylvania, currently works with e-merchants, financial institutions and Internet service providers (ISPs).


Having released an e-commerce server product in summer 1999, the online business market has become a target for Red Hat development efforts. Paul MacNamara, head of Red Hat’s enterprise business unit, told the E-Commerce Times that the company offers e-commerce professionals “flexibility, performance, reliability and low total cost of ownership.”

“Flexibility is becoming increasingly important for e-commerce companies,” added MacNamara. “So, having the source code gives users the flexibility to go in and tailor the operating system to their precise environments needs and could translate into a direct competitive advantage for an e-commerce company.”

Red Hat’s Size

Paul Mason, vice president of infrastructure software research for International Data Corp. (IDC), commented that his firm “has forecast the entire Linux Operating Environment market to grow at over 25 percent CAGR through 2003, whereas all other server operating environments are forecast to grow at only 12 percent CAGR during this period.”

Red Hat Linux holds a strong Linux market presence,” and enjoys almost a 55 percent share of worldwide shipments,” Mason added. “Red Hat shipped 1.4 million copies in 1998, and this represented over 42 percent growth from 1997 shipments.”

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