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
business model should have been stumped this week. They could not have
encountered a more confusing set of signals about the value of
than the ones given out by two old war-horses of the IT economy.
which CEO you believe, Corel's Derek J. Burney or IBM's Lou Gerstner,
is either a fad, an inherently bad business idea abetted
naive enthusiasts and
market manipulators. Or it's the center of any viable technology
These two guys can't both be right, can they?
If there was ever a case of two very different companies putting very
spins on the value of Linux and Open Source, you got to see it played
this past week. Derek Burney of Corel took its Linux investment and
it away. On the other hand, Chairman Lou Gerstner of IBM announced it
going to drop $1 billion into Linux development. He said that
Blue planned to make Linux and Open Source software the centerpiece of
$4 billion strategic investment. In fact Gerstner says he is "betting
company" on an Open Source future.
It's pretty hard to get two more divergent views of Linux's future than
The Vancouver Sun was among
papers in Canada that reported last week that Corel had agreed to dump
Linux line of products, selling off the whole lot to a New York Venture
fund it called "Global Linux Partners" (actually
the Helixcode developers).
didn't exactly deny the reports, and if the reported $5 million
price is accurate, it represents a stunning "fire sale " price
the Ottawa-based software developer. Firms rarely sell off rapidly
firms, and if they do so, it is at a premium -- usually some multiple of
sales. In this case, Corel got less than the $6.2 million it generated
its small, but rapidly growing Linux product line, and less than half
the money it lost in the last quarter. Although Corel
take an estimated 20% of the venture fund as part of the deal, it is
an admission that the company couldn't make a go of its Linux business.
needed to partner with a developer of complementary products, or an
more likely to get along with the Open Source community -- or both. It
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
been using. According to a report released by the IDC, many enterprises
only buying a single copy of Linux and using across the enterprise.
to analyst Dan Kusnetsky, an average of 12 computer installations is
from each Linux packaged purchased from a vendor. And that was usually
a handful of machines in a Web server environment. Corel's vision for
was centered on the desktop. As that Linux desktop offering began to
the number of desktop installations per software copies purchased was
to grow dramatically. On top of that, the number of PCs being sold
started declining this fall -- for the first time in memory. It made
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
really the baby of Corel's founder, Mike Cowpland. Some of the
for Open Source dried up when Cowpland left. Meanwhile, over at
the company's "Mr. Fix-it" had become a Linux convert. And he had been
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
but it really switched into high gear last January. That was when
asked Irving Wladawsky-Berger, the general manager of the firm's Internet division,
manage the company's Linux strategy, and shortly thereafter made him
president of the Enterprise Systems division.
Wladawsky-Berger was a Linux convert. Having managed a variety of
units for the company, he appreciated that the proprietary
dreamed up by company engineers frequently made it difficult for
to talk to each other, or for programs to migrate from platform to
And he shared Gerstner's view that Linux could help. Wladawsky-Berger
said, Linux "is far more than just another operating system ... I
compare it to TCP/IP. I firmly believe that Linux could be to computing
TCP/IP has been to the world of networking." He foresaw it "becoming
application environment standard." With the backing of Gerstner,
has the clout to make things happen.
IBM is betting Wladawsky-Berger's division, and by extension, the
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
next year, with a team of 1,500 developers dedicated to Linux enabling
product and service array, the story made headlines around the world,
China to France. Gerstner said that the company would turn that
into the core of a $4 billion effort to develop a comprehensive array
e-business and outsourcing products and services. All this for an operating system
a global market of only $1.4 billion.
Is Linux worth billions to IBM? Possibly -- for the revenue model for
is entirely different, and the role played by Open Source and Linux is
too. For one thing, although IBM is the second largest vendor of
in the world (after guess who), much of that code is focused on the
back-end systems. The cost of building and supporting that software,
porting it across multiple platforms constitutes a competitive
and has dragged down sales. For IBM, Linux can solve many of the
of code development and portability among its own machines. This helps
costs and makes it far easier to integrate IBM equipment into customer
It's also a market sector that's Linux ready.
Week, Linux, and Open Source are becoming the default environment
the back-office, the chronically under-financed but critical operations
of most business. Many back-office managers adopted Linux out of fiscal
necessity, but the bullet-proof architecture combined with the
of cheap code elements needed to create home grown software threatens
make Linux an effective standard in many ops environments. And when
can't quite develop the system they need, they will be able to draw on
systems integration team, or similar big integrators that IBM plans to
Additionally, tweaked Linux helps IBM leverage its core strength, it's
iron. In many ways, the architecture needed to drive the combination of
Web server and massive back-end processing that is needed by Web-based
servers or e-commerce systems, looks a lot like old-fashioned
And this is still a place where IBM remains miles ahead of its
Recently IBM sold Telia a mainframe system and a "Shark" running Linux
allow the Scandinavian communications firm to provide VPN services to
customers. In the process it lets Telia rip out better than 70 Sun servers
replace them with a single system capable of running 1,500 virtual
at a time.
IBM has also Linux-ized its WebSphere application server and
DB2 universal database for use on clustered Intel boxes, IBM's S/390
the firms new zSeries midrange servers.
And although Linux has been criticized for not being "scalable," IBM's
version is considered powerful enough to win the company a deal to
a Linux-based, massively clustered array of 1,024 servers in the Dutch
of Rijswijk to crunch seismic data for Royal/Dutch Shell's exploration
As telecom melts into the Internet and ISPs, telcos and system
likewise morph into "smart utilities" Gerstner and Wladawsky-Berger see
as the glue that holds the whole system together.
Who knows, there just might be a business there.
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