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Redhat software was founded by Bob Young and others, based on the principle that it is possible to make money from free software. They do this by bringing the development of certain pieces of gnu software in house, and then having their own programmers maintain them. This improved code is then released under the Gnu Public License (GPL), leaving it free. This code is then integrated into their own distribution of Linux which is available for free download.
They make their money by virtue of having their programmers know the packages in their distribution very well because some of the code is being writen by them. They are thus able to sell copies of their distribution of linux with 90 days technical support for a reasonable fee.
As long as enough money is coming in to cover their ongoing costs, they can afford to keep improving the free software, which improves their distribution, and all the others as well for that matter.
One of the most visible things that you will spot is the Extreme Linux cd, used for Beowulf clusters, which was developed at nasa, and couldn't have been developed if the source code for the redhat 5.0 distribution had not been available. The other highly visible thing that you will spot is the RPM package format, which was originally developed entirely at redhat to help make their distribution much easier to install. This Redhat Package Manager proved so usefull that it was adopted by quite a few other distributions as well. In fact, some distributions take the entire red hat distribution source code as the basis for their own distribution, and then optimise it for their own purposes.
A while back they made the tactical mistake of stopping the production of boxed packs of their consumer level version of linux, and also adopted some intellectual property terms which stopped anyone else from shipping the freely available cd's.
At the same time they created a seperate project called Fedora, which was basically a puplically run version of the consumer level version which they had stopped selling.
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