Linux: A very different business model

For its 31 January edition, Business Week has an intriguing story online about Linus Torvalds, the Finnish creator of the Linux Unix-like operating system.

The story has insight commentary on how the Linux open-source developer community works in conjunction with big-name ‘establishment’ companies, and the real threat Linux presents to Microsoft and its Windows family.

What’s clear from its interviews, Business Week says, is that the organization supporting Linux has matured more dramatically than most outsiders realize.

Some choice extracts from the story:


Not that this Inc. operates like a traditional corporation. Hardly. There’s no headquarters, no CEO, and no annual report. And it’s not a single company. Rather, it’s a cooperative venture in which employees at about two dozen companies, along with thousands of individuals, work together to improve Linux software.

The tech companies contribute sweat equity to the project, largely by paying programmers’ salaries, and then make money by selling products and services around the Linux operating system. They don’t charge for Linux itself, since under the cooperative’s rules the software is available to all comers for free.

The Big Companies’ Involvement

Tech giants such as IBM, Hewlett-Packard, and Intel are clustered around the Finn, contributing technology, marketing muscle, and thousands of professional programmers. IBM alone has 600 programmers dedicated to Linux, up from two in 1999. There’s even a board of directors that helps set the priorities for Linux development.

Community Culture

Dick Porter, a T-shirted coder who often works under an apple tree in his garden in Wales, is on the same team with Jim Stallings, a hard-charging ex-Marine who travels the world making deals for IBM. What they have in common is a keen interest in making Linux ever more capable. The result is a culture that’s cooperative, meritocratic — and Darwinian at the same time. Any company or person is free to participate in Linux Inc., and those with the most to offer win recognition and prominent roles.

"Linux is the first natural business ecosystem," says James F. Moore, a senior fellow at the Berkman Center for Internet & Society at Harvard Law School.

The Challenge

Put it all together, and Linux has become the strongest rival that Microsoft has ever faced. In servers, researcher IDC predicts Linux’ market share based on unit sales will rise from 24% today to 33% in 2007, compared with 59% for Windows — essentially keeping Microsoft at its current market share for the next three years and squeezing its profit margins. That’s because, for the first time, Linux is taking a bite out of Windows, not just the other alternatives, and is forcing Microsoft to offer discounts to avoid losing sales.

In a survey of business users by Forrester Research Inc., 52% said they are now replacing Windows servers with Linux. On the desktop side, IDC sees Linux’ share more than doubling, from 3% today to 6% in 2007, while Windows loses a bit of ground. IDC expects the total market for Linux devices and software to jump from $11 billion last year to $35.7 billion by 2008.

If you want a business-focused look at this important segment of the technology industry, and undertand a little about a wholly different business model than you might be used to seeing, this story makes excellent reading.

Business Week | Linux Inc.

When you’ve read this article, you might want to take a look at what Microsoft said about ‘the Linux threat’ in Steve Ballmer on Customer Focus: Comparing Windows with Linux and UNIX last October.