Microsoft and the Linux Threat

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Authors: Ravi Madapati,
Faculty Member
ICMR (IBS Center for Management Research).

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Linux-based Business Models Contd...

Many companies have tried to create business models that try to combine Linux with for-charge products and services. But the major problem they face is that most Linux users are sophisticated enough not to need the services or bundles of complements that the commercial Linux companies offer.

Nonetheless, there are companies that have explored different ways to take advantage of Linux to enhance their platforms or generate complements. Companies like Red Hat, VA Software, Lindows, Caldera, and TurboLinux, sell special versions of Linux that package the free software with a bundle of utilities (such as special installation programs) and applications (such as Star Office, a competitor of Microsoft Office) as well as service and support. While a host of Linux-oriented start-ups were launched in the late 1990s, most of them were geared to selling to dotcoms-many of which went out of business after the bubble burst. A dozen Linux companies failed in 2001 and 2002, including Loki, a gaming company, and Eazel, which was making Linux easier to use. In early 2003, VA Software was struggling three years after it broke all IPO records with a share price that soared 698% on the first day of trading.

Red Hat has become a leading provider of Linux-based software services. It sells packages including Linux software for desktop computers and servers. But because of the ban on selling Linux itself, Red Hat essentially sells related software, ongoing technical support, and maintenance for corporations. Three years after going public, the company made its first-ever profits in its third quarter-ended November 30, 2002-a small $305,000, on $24.3 mn in revenues.

The Linux Threat

Linux has now emerged as a popular operating system. For developers and users, Linux offers several attractive features. Linux can be downloaded from many sources. It is available in many versions, one of them provides firewalls, another can boot the entire operating system from a floppy disk or CD-ROM and a third can be used to power TV "set-top" boxes. Linux scores over comparable commercial-release operating systems in various ways. It is free and the source code is easily available. On the other hand, existing commercial-release operating systems have various problems:

Slow release pattern:
Major upgrades to operating systems come very slowly. Windows 95 had been released three years after Windows 3.11; Windows 98 a few years later and so on. Linux updates on the other hand are released every six months or so. Minor upgrades take longer to acknowledge and fix in commercial systems. Recent problems with Netscape Navigator and Microsoft Internet Explorer are good examples².

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2] In the case of the "denial of service" TCP/IP bug, a Linux patch was posted for it mere hours after the problem was isolated. Anyone who is technically capable can fix the bugs, too, merely by changing the code in question and recompiling.