That anecdote was from the Against Intellectual Monopoly book:
>For example, Red Hat is a company that sold a modified
and customized Linux system with easy installation and many
other useful features. Although the underlying Linux system is obtained by Red Hat for free, the customization and testing conducted by Red Hat is costly. Using prices quoted on the Internet on July 10, 2002, Red Hat charged $59.95 for a package containing its system. Because it is based on the underlying Linux system, Red Hat must also make available its code to competitors.
>As a result, anyone who wishes to can sell their own “Red Hat” system. And, in fact, there were at least two companies, Hcidesign and Linuxemporium, that did exactly this. For example, on July 10, 2002, Hcidesign offered for sale Red Hat Linux 7.2 for a price of $16.00, about 1/3rd of the price charged by Red Hat. Linuxemporium.co.uk offered a similar deal.
>So how does Red Hat stay in business? For starters, it turns out that Red Hat sold many more $59.95 packages than Hcidesign and Linuxemporium sold $16.00 packages. Moreover Red Hat is a large well known company, while no one has ever heard of the other two, nor does it appear that they ever represented a dangerous market threat to Red Hat.
>How could this be? Or more accurately, how could this not be? Have you ever used software that worked properly? If you had a problem with software you bought, and had to call the seller for advice – who would you prefer to call – the people who wrote the program, or the people
who copied it?
>The story is not over yet, please bear with us. Taking years in writing a book chapter is not a proof of high productivity, but there is a silver lining. On December 24, 2006, we went back to the Internet to see what happened to these three companies. All three of them still exist, and many other have joined the game.
>After years of having all its innovations mercilessly “pirated” Red Hat is still the market leader, has a world wide web of offices, sells lots of Linux-based software products while also giving away lots of others for free and its revenues are soaring. Hcidesign, in spite the advantage of being a legal pirate does not seem to have done very well; it is still there, but it is selling very few products and all Linux-based products are now off its shelves.
>Linuxemporium had a more interesting life. After either changing its name to or been acquired by ChyGwyn, it is back in business under the original name and it is thriving. Indeed, it has pioneered an entire new line of business: it sells at positive prices software that is downloadable for free from the original companies, by claiming it sells “high class software for the cognoscenti”. The power and creativity of competitive markets sometimes surprise even us!