The Penguin's Revenge

Look out, Microsoft. Linux may soon power more servers than you.
Magazine Contributor
6 min read

This story appears in the July 2001 issue of Entrepreneurs Start-Ups magazine. Subscribe »

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.

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."

You and IBM

The Linux penguin has yet to become a fixture on office PC screens, where Windows applications dominate. Even with a 50 percent increase in 2000 sales, only a measly 1.5 percent of PC applications were built on Linux at the end of last year, says IDC. Also, most Linux applications-such as a homegrown front-end for a telephone billing system-are fairly invisible, says Dan Kusnetzky of IDC.

Basically, Linux hasn't come out of the server closet just yet. In fact, your favorite Linux app may not even be at your job site, but rather at the other end of a phone line in the storage or database farm of your ASP. As the fastest-growing server operating system, Linux was the primary OS for 27 percent of the server operating market at the end of last year, compared to 41 percent for Microsoft Windows, reports Kusnetzky.

LOCATING LINUX:If you're patient, you can download the modular Linux operating system for free from any number of Web sites listed at Linux Online. Sun Microsystems' free 75MB StarOffice 5.2 adds the usual desktop productivity applications and a Web browser. A better option is to spend $100 or so for a CD-ROM with the OS, a graphical user interface, help and various useful utilities from a value-added reseller like Red Hat. Better still, Corel WordPerfect Office 2000 for Linux bundles productivity applications with Corel's version of the OS for $159 (street).

As the top revenue generator in the entire server industry, IBM is in the best position to profit. Its share of server revenues accelerated to 27 percent during the fourth quarter of 2000.

The popularity of Linux, however, is not nearly as apparent. Only a little more than 10 percent of IBM's servers shipped Linux as their primary operating system, reports Hoang Nguyen of IDC.

But Linux is a little like an iceberg. IDC only counts software actually purchased, but an equal number of Linux copies are downloaded from the Web for free. So to guesstimate how much Linux is actually out there, says Kusnetzky, you would double the number of copies purchased and multiply by 15-the number of times IDC figures every copy of Linux gets installed.

That suggests the old saw: "We're losing money on every sale but making it up in volume." In fact, the tech downturn is severely testing the business models of Linux pioneers like Corel, Linuxcare, Red Hat, TurboLinux and VA Linux. They're having trouble building enough volume with things like graphical interfaces, applications, training and support to overcome the fixed costs of giving away the OS.

Prospects are a lot brighter for hardware providers like Compaq, Dell and IBM, whose computers and integration services more clearly benefit from the sturdy operating system. IBM is putting Linux on everything from wristwatches to its S/390 mainframes. It's even using Linux for the supercomputer it's currently building.

The most promising area is in e-business servers, which IBM builds for enterprise computing and various kinds of ISPs. IBM is building both Linux application development tools and middleware to glue together different generations of computers. It's even capitalizing on the expertise of troubled Linux start-ups through joint ventures.

"IBM brings it all to the table," says Batchelder. "Not only the hardware, but also the installation, integration and support-an end-to-end data-center solution. Microsoft is architected to support third-party distribution channels and can't compare to IBM's direct-selling and support models."

You and your employees aren't about to give up Microsoft Office. But does anyone doubt that the current e-commerce decline is just a breather before a storm of B2C and B2B sales? The Internet is part of your rosy future, but there's a catch, says Kusnetzky. E-business demands a whole new level of performance.

Your employees may be willing to muddle through when the company LAN slows down. But your e-customers aren't going to tolerate a Web site slowdown due to high traffic loads or a server crash-nor will clients be around for long if you lose their purchase orders, for that matter. Yet hardware and software will continue to crash all the time, and Web servers will continue to be hacked.

That's where Linux comes in. Low software and hardware prices permit redundancy in different physical locations. Linux lets you deconstruct your work flow and spread its parts among servers worldwide. In this way, your site can more efficiently balance network loads and weather everything from a local power outage to a distributed denial of service attack, says Kusnetzky.

You don't want to develop that expertise in-house? That's no problem. There's an ASP happy to do it for you on its Linux servers-for a price.

Linux may never replace Windows on your office desktops. But it's increasingly looking like the safer solution for large-scale computing needs.

Mike Hogan is Entrepreneur's technology editor. Write him at

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