April 4, 2005

The Business of Linux 1

by roy

This is the first of a series of posts in regard to the current acceptance of Linux as a serious contender in the operating system business.

I’d like to start by quickly reviewing which companies today are producing Linux products and how they affect small-to-medium-sized business,as well as home users.

First, the Big Players

Hewlett-Packard, IBM, and Novell are a few of the big names that are actively using Linux and Open Source products as part of their overall business strategy. To put it simply, these companies have realized that Linux is a growing force in the IT market, so they shouldn’t really be fighting it.

Says eWeek correspondet, Steven Vaughn-Nichols, “Anyone can get a copy, test it out, kick its tires and make up their own mind. Heck, with today’s CD-based Linux distributions such as Knoppix and Gnoppix, you don’t even have to install Linux on a PC. You just boot it up from a CD-ROM and give it a test drive. What could be easier?”

These are the sentiments that have been heard for the past five or six years from the Linux and Open Source movers and shakers. What’s more, if you’re like me, and enjoy tinkering with computers, Linux has been a field day. But now its solid business uses are becoming to the fore.

For example, Financial services companies are embracing Linux and grid computing because of the speed and power of the clustered technology that can be applied to market data, credit risk, trade management and anti-money-laundering applications.

Even SCO’s rampage of lawsuits hasn’t stopped the Linux movement. So far, SCO’s attempts to sue IBM have faltered, the company’s stock has gone down so low that NASDAQ has threatened to remove them from their index. Red Hat is still going strong as well, despite continued threats from SCO.

I have a problem with this viewpoint. What nobody seems to be saying is that Microsoft still dominates the desktop market, which massively outnumbers the server market. Think abut it: A small business, like a law office, probably has one server and maybe ten desktops. That’s ten-to-one in favor of the desktops. If you add, say, three laptops, you get a thirteen-to-one ratio.

Rumblings of Discontent

Not everyone is pleased with Linux, however. Predictably, the people at Microsoft see the OS as competition, although I’m not sure why. As I mentioned above, Linux’s only real slice into the OS market has been at the server level.

Developers outside of MS have come to the fore, however, and openly criticized Linux. One skeptic is Dr. Nikolai Bezroukov:

If the proponents of desktop Linux are really honest, they will move to a Unix platform that has all the things Linux lacks: a great user interface, a large number of applications, and the support of a profitable major vendor.

I’m talking about buying a Macintosh, of course. But running OS X would actually cost these Linux geeks money, and that’s something I am not sure any of them are willing to spend. Still, if these people hated all things Microsoft as much as many of them proclaim to, you’d think rallying around Unix-based OS X would be the best way to advance their cause.

The only problem with Mac is its cost: Linux is running on a more democratic hardware supported by two giants: Intel and Microsoft. In an interesting paper in Boston Globe Online the author aptly had shown why OS X represents a threat to Linux on desktop:

Linux, a cheap, highly compatible substitute for the advanced Unix operating system, has seized more than a quarter of the market for heavy-duty server computers. But at most, 2 percent of desktop users are running the software, partly because it’s notoriously difficult to use.

That makes Apple’s Mac OS X operating system at least as much of a challenge to Linux as it is to Microsoft. Mac OS X is Unix, but with Apple’s elegant user interface bolted on. Scientists at places like NASA are unplugging their old Unix workstations and replacing them with Macs. How long before Linux desktop loyalists abandon the digital wrestling match and switch to Apple as well?

In other words, Linux is a derivative of Unix, just as Windows is a derivative of the original Mac OS. The original Mac OS, if you’re unfamiliar with the story, was developed from devices that had been created by Xerox. (For more about this – and how Apple and Microsoft came into being, read the excellent history, Fire in the Valley.)

This means that Linus Torvalds is essentially doing the same thing that Bill Gates and Steve Jobs did. Open source fanatics would argue that at least Torvalds is doing this for altruistic purposes. After he gave away Linux, didn’t he? However, Bill Gates, through has charity work, has already given away billions of dollars. So who is really the more altruistic?

Of all the companies working to get open source into the enterprise environment, IBM seems to be making the most headway. As mentioned above, Linux requires a learning period for customers unfamiliar with the OS. IBM made that realization years ago and began building global “Centers of Competency” that train customers in open source. The company now has centers in India, China, Germany and Japan.

“These centers raise the awareness level of open source,” according to online journal NewsFactor. “They show how Linux can be used in specific industries, and that’s very compelling for many companies.

“Last year, IBM’s Linux business brought in revenues of US$2 billion, and the company’s worldwide Linux manager, Jim Stalling, expressed confidence that it would increase that revenue number by at least 50 percent in 2004.”

“Vendors will use open source as a competitive weapon, by open-sourcing pieces of technologies for strategic reasons,” says David Smith, a vice-president at the Gartner research firm. This gives many vendors the opportunity to “cherry pick what aids and abets them, doesn’t detract from their revenue, and hurts their competitors.”

What does this all mean to small and medium-sized businesses? On the one hand, they now have an option not to pay Microsoft’s exorbitant costs for its proprietary software, but on the other hand, they will have to pay developers for customized applications.

Is this a practical solution for your company?

Questions? Discuss this in our Internet Business forums for help and advice

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