and Business Resources
MAY 16, 2002
SPECIAL REPORT: LINUX GOES
Giant Steps for a Software Upstart
Linux is gaining momentum in nearly all corners
of computing, and more and better programs now run on it. Now,
it just needs a business model
Shoppers at Sherwin-Williams (SHW
) paint stores in the Cleveland area haven't realized it, but during the
month of May, 2002, they've been key participants in an experiment by
the Ohio-based paintmaker. In pilot tests, Sherwin-Williams replaced proprietary
Unix software on computers that help customers match paint colors -- and
that run its stores' retail sales systems -- with cheaper and more versatile
Linux software. By May 23, Sherwin-Williams had seen enough: It announced
that it will install the Linux operating system in its 2,500 stores in
the U.S., Canada, and Puerto Rico.
Sherwin-Williams expects to save millions of dollars per year: No longer
will it have to pay a licensing, or subscription, fee for each computer
the OS is installed on. And by adding on Linux-based e-mail and Web-browsing
software -- both of which are essentially free -- it can avoid paying
for Microsoft's Windows operating system.
Beyond that, is the flexibility of using open-source software -- whose
core code Sherwin-Williams is welcome to customize to its needs. "The
switch to Linux gives us access to better technology in the point-of-sale
arena and ultimately provides better service to our customers," says Bill
Thompson, director of information technology.
The Sherwin-Williams installation is one of the biggest Linux retail roll-outs
to date, according to systems integrator IBM, whose Global Services unit
will manage the project. It's also an indicator of the extent to which
open-source software, formerly a fringe product, is working its way into
A lot has changed for Linux in the past two years. True, the basic tenets
of the rebellious open-source software-development movement popularized
by coder Linus Torvalds remain largely intact. Loosely organized collectives,
often from competing companies, collaborate to build software products
that no one owns, with source code that anyone can view and alter. Any
changes in the code are held by the community at large.
While such idealism worked fine in academia and among uber-geeks, it wasn't
immune to market economics as the movement matured. A slew of Linux startups
have disappeared in the past two years during the crushing information-technology
spending crunch. They were either bought out by bigger Linux companies
or shuttered when venture capitalists lost interest in open-source and
customers failed to appear quickly enough in sufficient numbers.
What's emerging now is an operating system -- the software that runs a
computer's basic functions -- that's more reliable, consistent, and businesslike,
approaching older and more robust forms of Unix in scalability and stability.
Steady improvements to the code have come as big tech players such as
IBM and Hewlett-Packard have thrown signficant research dollars at improving
open-source software. In short, the Linux movement is not only growing
up but it's also going mainstream.
The willingness of major companies to support and maintain Linux systems
has also helped convince customers that they aren't taking a big risk
by choosing open-source. And customer demand for Linux has convinced big
hardware makers, including IBM, Dell, and HP, to ship boxes preloaded
with it. More recently, software companies such as SAP, Veritas, and BEA
have been promoting versions of their products that run on Linux.
That's not to say big questions don't remain for both Linux and open-source.
No one has come up with a business model that's consistently profitable.
Despite casting a large shadow over the software industry -- Microsoft
CEO Steve Ballmer has gone so far as to call Linux a "cancer" -- total
revenues from sales of Linux products and services remain a tiny fraction
of the software market. Linux and open-source also remain particularly
weak in desktop software. For the vast majority of computer users, Linux
is nothing more than a buzzword and a penguin icon named Tux.
Certainly, however, Linux now occupies a significant role in corporate
computing. Look at the percentages of servers shipped by Dell that are
preloaded with Linux. In 2001, they represented 8% to 10% of Dell's total
server shipments, according to Randy Grove, vice-president for enterprise
computing at Dell. That number should climb to 10% to 12% in 2002.
For hardware giant Compaq (consistently either No. 1 or No. 2 in servers
shipped before its merger with HP), Linux is also playing a larger role.
According to Peter Blackmore, executive vice-president of HP's enterprise
systems group and former executive vice-president of sales at Compaq,
12% of customers purchasing Compaq Proliant servers now request Linux
software. He thinks that number will move into the high teens through
2002 and 2003. "I think the market reality is it's here, and people have
to absolutely embrace it," Blackmore says.
SUDDENLY, LAST SUMMER.
In some cases, make that a bear hug. In industry after industry, big companies
are turning to Linux. Boeing's Phantom Works used customized Linux software
to link a series of servers to perform tasks previously done on a supercomputer.
At film studio Dreamworks, clustered Linux machines performed complicated
graphics for the hit film Shrek.
According to Dell's Grove, the shift started in this area of the Linux
universe started last summer. "We began to see companies replace their
supercomputers with clusters of Dell servers doing everything from drug
modeling to geophysical analysis," he says.
Perhaps most important, Linux has started making inroads on Wall Street,
a huge market. In April, 2002, CS First Boston converted its worldwide
trading system to Linux. Merrill Lynch is likewise in the midst of a massive
effort to replace Solaris servers with Linux.
A big part of Linux' success is what it can run these days. With so many
big guns backing it, many large software companies have created versions
of their products that work well on Linux. That means customers buying
a Linux server can now choose between Oracle, IBM, and Sybase databases,
and can pick between Apache or iPlanet Web servers. Sun's still-popular
Solaris operating system has the edge in terms of total number of software
titles designed for it. But Linux appears to be catching up fast.
More promising for the penguin-heads is the degree of involvement some
of the big software shops are taking in open-source. Oracle worked closely
with Red Hat to ensure that Red Hat's latest Linux product, Advanced Server,
had specific capabilities that would please Oracle customers. Add up all
these factors, and it's no surprise that IDC says Linux should be the
fastest-growing server-operating system over the next several years. Its
market share is expected to grow at a compounded annual clip of nearly
That doesn't include other business areas where Linux is showing significant
promise. In embedded software, it's gaining ground among makers of everything
from set-top cable-TV boxes to cell phones. They like the "slim profile"
of Linux vs. other embedded systems, particularly for uses where computing
resources are limited, such as in the circuit boards of next-generation
In the server-appliance business, mostly targeted at small-business and
home-office users who want to easily network a few machines, Linux is
quickly becoming the de facto operating system due to its low price --
$0 per copy. According to Sun Microsystems, unit sales of its Linux-powered
Cobalt server are growing in excess of 25% per year.
Yet even after such stellar growth, Linux will pull in only $291 million
in revenues for server-operating systems by 2006, IDC estimates. That's
a paltry, single-digit percentage of revenues in a global market that
was worth $10.6 billion in 2001.
"A PARING DOWN."
As IDC analyst Al Gillen points out, the market clearly isn't large enough
to support the various players, which include five major companies specializing
in building Linux operating systems and untold numbers of newcomers distributing
their own versions of Linux. "You'll see a combining of the players and
a paring down," predicts Ransome Love, CEO of Caldera International, one
of the five.
The other possibility is a stiff hike in prices, which is already starting
to happen. In the past, versions of Linux conveniently packaged for easy
installation (intrepid souls could piece together free but messy-to-install
downloads) sold to businesses for $200 or less. German Linux-maker SuSE,
another of the big five, now sells enterprise-software packages that offer
far more capabilities than older, cheaper Linux ware for $1,000 and up.
Red Hat, the leading Linux vendor with approximately 20% market share,
is selling a one-year license to use its Advanced Server at $800 a pop.
Include service and support, and the tag goes up to $1,500 or $2,500 for
round-the-clock assistance. "Ultimately, high-end open-source systems
will cost as much as typical Unix systems," says Love.
These high prices have already started to rankle the developers community
that's the lifeblood of open-source. Particularly galling is when companies
such as Red Hat refuse to release the integrated code of the products
they sell and instead hand out the individual pieces, leaving it to savvy
developers to build their own Linux system.
"NO ECONOMIC VALUE."
Thus far, however, such conflicts have been minimal. And the issue could
go away as the entire software marketplace coalesces around subscription
models that take upgrade burdens off corporate info-tech staffs -- albeit
at a stiff price. "The concept of freely distributing binary code -- there's
no economic value to that," opines Love. "It will be a subscription-based
model that Linux will end up with."
That sounds much like the subscription model Sherwin-Williams moved away
from with its shift to Linux. But the paintmaker remains unfazed. Why?
because the flexibility of Linux means that Thompson can pick and choose
his subscriptions as needed and build his own software configurations
if he wants. That's particularly useful for Sherwin-Williams, which has
a strong tech staff that feels comfortable tinkering with software.
The one area for Linux and open-source that has thus far been nearly a
total flop is the desktop, including productivity software. Despite a
flurry of activity, Linux has only recently appeared on the desktop radar,
according to IDC. Some analysts think that will harm its ultimate adoption
curve as big corporations opt for Microsoft's soup-to-nuts offerings.
And the rough edges that Linux products still have -- limited support
of peripherals, for example -- remain a turnoff for many buyers.
NOT PREVALENT YET.
In fact, most hardware companies see Windows products also growing at
the expense of higher-priced flavors of Unix. But top-end Unix still has
a stronghold for some of the most resource-intensive computing practices,
such as databases that run retail systems or record-keeping. (These are
different than custom applications written for supercomputers, which is
a growth market for Linux.) "What we're seeing in the market is that Windows
is accelerating and Linux is accelerating," says HP's Blackmore. "In the
very high end, you aren't seeing Linux as prevalent yet."
That doesn't much bother the proprietary Unix makers, as they're happy
to continue raking in big bucks, while Linux does the dirty work of competing
with Microsoft for the lower end of the market. And advances in Linux
usability easily translates to Unix, which arose from basically the same
source code and methodology. "It allows us to compete much more effectively
with the Microsoft Windows proprietary environment than anybody else,"
says Vivek Mehra, vice-president of Sun's Cobalt division.
The performance gap between Linux and Unix should close in the next few
years. The sheer speed of the upstart's advances, resulting from the collective-development
approach, will overwhelm proprietary Unix efforts. Even HP's Blackmore
admits that eventually Linux will show up everywhere. The next release
is scheduled to double or triple its ability to cluster multiple servers
so that they act like a single, more powerful machine.
LOTS OF GNOMES.
And Linux desktop zealots maintain their day is coming soon. Ximian, a
company that specializes in Linux desktop software such as word processing
and e-mail clients, has just rolled out a software tool that lets its
users connect to Microsoft Exchange, the predominant corporate e-mail
Interest in desktop development continues to mushroom. Two years ago,
the annual meeting of GNOME developers (one of several Linux desktop environments)
drew 150 people, according to Nat Friedman, vice-president for product
development at Ximian. Last year the conference drew 300. This year 800
eager coders showed up.
By many accounts, the latest versions of Linux desktop software are finally
within striking range of the more polished Windows offerings. "These applications
have become commoditized. They're not that complicated anymore," says
Ximian CEO David Patrick. Does that mean we're headed for a Windowless
world? Hardly. Linux systems will ultimately cost real money, and Microsoft
will compete fiercely on price.
The same will be true in the server market, with Unix prices coming down
to match Linux and Microsoft continuing to play a strong game. IDC believes
market share for Windows server operating systems will grow from the low
40s to nearly 50% during 2002, mostly at the expense of Unix. And now
Redmond is also focusing on Linux and trying to sway customers from open-source.
Linux is "like someone giving you a puppy," says Peter Houston, senior
director of the Windows Server Group at Microsoft. "It may be free, but
you have to pay more to feed it and take care of it."
Still, from strange cult to common standard in less than a decade is no
small feat. Underestimate the penguin battalions at your own risk.
Editor's note: An
earlier version of this article included information on Mindbridge, an
intranet software company that uses Linux. On June 10, we deleted the
references to Mindbridge after it declined to reconfirm details about
it that were in the original story.
Salkever, Technology editor for BusinessWeek Online
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