Author: JT Smith
Open Source business –
What’s Linux worth, in business terms? Business analysts and
techno-pundits trying to figure out the future of Linux and the Open
Source
business model should have been stumped this week. They could not have
encountered a more confusing set of signals about the value of
Linux
than the ones given out by two old war-horses of the IT economy.
Depending
which CEO you believe, Corel’s Derek J. Burney or IBM’s Lou Gerstner,
Linux
is either a fad, an inherently bad business idea abetted
by
naive enthusiasts and
cynical
market manipulators. Or it’s the center of any viable technology
future.
These two guys can’t both be right, can they?
If there was ever a case of two very different companies putting very
different
spins on the value of Linux and Open Source, you got to see it played
out
this past week. Derek Burney of Corel took its Linux investment and
gave
it away. On the other hand, Chairman Lou Gerstner of IBM announced it
was
going to drop $1 billion into Linux development. He said that
Big
Blue planned to make Linux and Open Source software the centerpiece of
a
$4 billion strategic investment. In fact Gerstner says he is “betting
the
company” on an Open Source future.
It’s pretty hard to get two more divergent views of Linux’s future than
that.
The Vancouver Sun was among
several
papers in Canada that reported last week that Corel had agreed to dump
its
Linux line of products, selling off the whole lot to a New York Venture
Capital
fund it called “Global Linux Partners” (actually
Linux Global
Partners,
the Helixcode developers).
Corel
didn’t exactly deny the reports, and if the reported $5 million
dollar
price is accurate, it represents a stunning “fire sale ” price
by
the Ottawa-based software developer. Firms rarely sell off rapidly
growing
firms, and if they do so, it is at a premium — usually some multiple of
their
sales. In this case, Corel got less than the $6.2 million it generated
from
its small, but rapidly growing Linux product line, and less than half
the money it lost in the last quarter. Although Corel
will
take an estimated 20% of the venture fund as part of the deal, it is
virtually
an admission that the company couldn’t make a go of its Linux business.
It
needed to partner with a developer of complementary products, or an
organization
more likely to get along with the Open Source community — or both. It
certainly
wasn’t much of a vote of confidence in the future of Linux.
It certainly wasn’t a vote of confidence in the business model Corel
had
been using. According to a report released by the IDC, many enterprises
were
only buying a single copy of Linux and using across the enterprise.
According
to analyst Dan Kusnetsky, an average of 12 computer installations is
made
from each Linux packaged purchased from a vendor. And that was usually
among
a handful of machines in a Web server environment. Corel’s vision for
Linux
was centered on the desktop. As that Linux desktop offering began to
mature,
the number of desktop installations per software copies purchased was
likely
to grow dramatically. On top of that, the number of PCs being sold
actually
started declining this fall — for the first time in memory. It made
for
a tough revenue picture. Maybe Corel had it right.
Then, what to make of the situation at IBM?
Never under estimate the power of connections and personalities. Linux
was
really the baby of Corel’s founder, Mike Cowpland. Some of the
enthusiasm
for Open Source dried up when Cowpland left. Meanwhile, over at
IBM,
the company’s “Mr. Fix-it” had become a Linux convert. And he had been
moved
into a position to direct he future of IBM’s most important division.
Big Blue’s gradual conversion to Open Source has been going on for some
time,
but it really switched into high gear last January. That was when
Gerstner
asked Irving Wladawsky-Berger, the general manager of the firm’s Internet division,
to
manage the company’s Linux strategy, and shortly thereafter made him
vice
president of the Enterprise Systems division.
Wladawsky-Berger was a Linux convert. Having managed a variety of
business
units for the company, he appreciated that the proprietary
architectures
dreamed up by company engineers frequently made it difficult for
systems
to talk to each other, or for programs to migrate from platform to
another.
And he shared Gerstner’s view that Linux could help. Wladawsky-Berger
once
said, Linux “is far more than just another operating system … I
always
compare it to TCP/IP. I firmly believe that Linux could be to computing
what
TCP/IP has been to the world of networking.” He foresaw it “becoming
the
application environment standard.” With the backing of Gerstner,
Wladawsky-Berger
has the clout to make things happen.
IBM is betting Wladawsky-Berger’s division, and by extension, the
company
itself on Open Source. When IBM told the global business press that
it planned to invest more than a billion U.S. dollars in Linux-oriented
products
next year, with a team of 1,500 developers dedicated to Linux enabling
its
product and service array, the story made headlines around the world,
from
China to France. Gerstner said that the company would turn that
investment
into the core of a $4 billion effort to develop a comprehensive array
of
e-business and outsourcing products and services. All this for an operating system
with
a global market of only $1.4 billion.
Is Linux worth billions to IBM? Possibly — for the revenue model for
IBM
is entirely different, and the role played by Open Source and Linux is
different,
too. For one thing, although IBM is the second largest vendor of
software
in the world (after guess who), much of that code is focused on the
company’s
back-end systems. The cost of building and supporting that software,
and
porting it across multiple platforms constitutes a competitive
disadvantage,
and has dragged down sales. For IBM, Linux can solve many of the
problems
of code development and portability among its own machines. This helps
lower
costs and makes it far easier to integrate IBM equipment into customer
accounts.
It’s also a market sector that’s Linux ready.
According to
Information
Week, Linux, and Open Source are becoming the default environment
in
the back-office, the chronically under-financed but critical operations
sector
of most business. Many back-office managers adopted Linux out of fiscal
necessity, but the bullet-proof architecture combined with the
availability
of cheap code elements needed to create home grown software threatens
to
make Linux an effective standard in many ops environments. And when
companies
can’t quite develop the system they need, they will be able to draw on
IBM’s
systems integration team, or similar big integrators that IBM plans to
cultivate.
Additionally, tweaked Linux helps IBM leverage its core strength, it’s
big
iron. In many ways, the architecture needed to drive the combination of
big
Web server and massive back-end processing that is needed by Web-based
database
servers or e-commerce systems, looks a lot like old-fashioned
mainframes.
And this is still a place where IBM remains miles ahead of its
competitio
Recently IBM sold Telia a mainframe system and a “Shark” running Linux
to
allow the Scandinavian communications firm to provide VPN services to
its
customers. In the process it lets Telia rip out better than 70 Sun servers
and
replace them with a single system capable of running 1,500 virtual
servers
at a time.
IBM has also Linux-ized its WebSphere application server and
its
DB2 universal database for use on clustered Intel boxes, IBM’s S/390
mainframes
the firms new zSeries midrange servers.
And although Linux has been criticized for not being “scalable,” IBM’s
tweaked
version is considered powerful enough to win the company a deal to
install
a Linux-based, massively clustered array of 1,024 servers in the Dutch
city
of Rijswijk to crunch seismic data for Royal/Dutch Shell’s exploration
business.
As telecom melts into the Internet and ISPs, telcos and system
integrators
likewise morph into “smart utilities” Gerstner and Wladawsky-Berger see
Linux
as the glue that holds the whole system together.
Who knows, there just might be a business there.
NewsForge editors read and respond to comments posted on our discussion page.
Category:
- Open Source
