The Penguin's Revenge

Look out, Microsoft. Linux may soon power more servers than you.

The Linux operating system may be growing like crazy, but the news hasn't been that great lately for last year's crop of Linux-something start-ups. They're closing, merging or laying off employees-just like their dotcom customers.

But even amid the economic downturn, installations of Linux OS, its applications and related hardware have continued to grow at startling rates. Linux technology is still being enthusiastically supported by thousands of programmers who volunteer their time to upgrade, test and extend it simply for the privilege of using it for free.


36%
of small and midsized businesses currently use an intranet.
SOURCE: Modalis Research Technologies

So who's likely to benefit economically from the growth? Increasingly, it's looking like you and IBM. You because Linux has established itself in record time as an Internet and enterprise-wide computing environment that's as bulletproof as it is inexpensive. IBM because it appears to be seizing the moment in this market space.

The same IBM that was given a wedgie by Microsoft in the previous operating system wars is pulling out all the stops for Linux. IBM's OS/2 lost the desktop PC revolution, and Linux is not making much of a dent there, either. But Big Blue didn't go away, and IBM never lost its grip on enterprise-scale computing, where Linux is similarly well-received. More important, both IBM and Linux look well-positioned to profit from the boom in Web-based distributed data servers-where computing is going, as opposed to where it's been.

"It's payback time," says Gartner Inc. research director Rob Batchelder. "Microsoft may have won the first round, but IBM has a very long institutional memory."

IBM CEO Lou Gerstner has promised to spend $1 billion to promote its Linux business in 2001-$300 million of it for services that will make large-scale computing managers comfortable with Linux. Unlike Linux start-ups, IBM has the brand name, products, services and know-how to really capitalize on a license-free OS.

"This must keep [Microsoft CEO] Steve Ballmer up at night," says Batchelder. "IBM is using Linux to do to him what he did to Netscape. He's getting a real good lesson in how to compete with something that is free."

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This article was originally published in the July 2001 print edition of Entrepreneur with the headline: The Penguin's Revenge.

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