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Wednesday, 16 February, 2000, 16:39 GMT
Linux - Microsoft's new nightmare
By BBC News Online's Kevin Anderson
The Linux operating system is enjoying a surge in sales and interest, becoming last year the second most-popular operating system for servers.
The swift success of Linux has surprised analysts, but they also wonder how the Linux vendors can make money with an operating system that can be downloaded for free off the Internet.
Linux surged from a 16% share of the server software market in 1998 to a quarter of the market in 1999, when it shipped nearly twice as many copies as during the previous year, according to figures from International Data Corporation (IDC).
But measuring the Linux market is difficult because its marketing model is different, says Dan Kusnetzky, and operating systems analyst with IDC, which began tracking Linux in 1995.
Linux's open-source model means that the software can be downloaded for free, and, unlike other operating systems, once users purchase or download a copy of the software, they can legally install it on as many computers as they like.
IDC only counts "revenue shipments", that is copies of the software sold by vendors such as Red Hat, Corel, Caldera or TurboLinux. Mr Kusnetzky admits that "the Linux community doesn't like that" as it underplays the true market share of the software.
But even with this difficulty in accounting for market share, Linux has progressed much faster than IDC had anticipated.
They did expect it to capture the number two spot in the server market by 2002 or 2003, not 1999.
Finding its niche
Linux has come a long way since Linus Torvalds completed his work on the core of the operating system as part of a project at university in 1991.
The operating system built by an army of volunteers has carved out a niche with academics, the science and technical community, internet service providers (ISPs) and the digital content creation community.
Internet service providers love the low cost and high reliability of Linux systems. The thousands of servers deployed by ISPs make the cost and licensing of Linux attractive.
The university research community, which craves supercomputing power on a budget, uses a Linux computer-clustering technology called Beowulf.
It allows them to combine the power of up to a few hundred low-cost computers to create a single, virtual supercomputer.
Hollywood loves Linux. The makers of the movie Titanic used Beowulf with a cluster of 150 DEC Alpha servers running Linux to render the digital graphics for the blockbuster, Mr Kusnetzky said.
Instead of spending millions of dollars on expensive high-performance computers, Linux users spend a fraction on the hardware and operating system and use the savings to create very powerful specialised software, he said.
Linux is a "disruptive technology," Mr Kusnetzky says. "It's the idea that it doesn't necessarily do as much as previous technologies, but it does so drastically cheaper."
As the disruptive technology matures, it replaces the previously dominant technology because it is so cheap, he added.
According to Mr Kusnetzky "Linux is extremely important to the world that is coming".
IDC predicts that Linux will be key in the development of "information appliances", low-cost devices designed to provide access to the Internet. The consultancy predicts that in the US shipments of information appliances will outnumber those of consumer PCs by 2002.
"If you are building some special purpose device, the cost of software is a make or break item, and a free operating system sounds awfully good," says Mr Kusnetzky.
Apps not the OS
But Linux still faces challenges. While it surged to win a quarter of the server market in 1999, it still only has a 4% market share on desktop systems.
Consumers choose an operating system based on the applications they want or need.
Users of publishing software Quark Xpress usually choose the Macintosh operating system, and users of Microsoft Office are very likely to run some version of Windows.
"Neither of those applications runs on Linux", notes Dan Kusnetzky, "so it's not even in the running".
Show me the money
The question for companies is how to make money on a free operating system.
"I haven't seen any business plan that has apparently solved the problem for profitability and revenue in this marketplace," said George Weiss, an analyst with the Gartner Group.
As the program is free, potential sources of income are support services and software customisation. Firms like Red Hat or TurboLinux sell the operating system bundled with other software, services and documentation.
Other companies, for example VA Linux, build systems loaded with Linux software.
Mr Weiss believes that these companies might not be viable on their own, predicting that there will be consolidation of hardware vendors, software distributors and service-based companies.
And the high volume of installations is not translating into high profits. "The distributions of Linux in the market are highly skewed in the Internet server, appliances and web servers with low average system prices," he said.
Although Linux's market share surged last year to 25%, its sales accounted for less than 1% of the $5.7b server software market.
The precessor of Windows 2000, Windows NT, rang up $1.7b in sales in 1999.
"Worldwide shipments for Linux last year brought in $63m in 1999, and Microsoft brings in more revenue than that every single day before coffee break," Mr Kusnetzky said.
But he predicts that Linux will break out of its niche market and be a mainstream OS within a few years.
Windows 2000 launch
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