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Business Challenges and Risk for Linux

Open Source Business Model

The Open Source model of developing software uses over twelve different licenses. The most common license (and the one used for Linux) is the GNU (GNU is a recursive acronym for "GNU's Not Unix"; it is pronounced "guh-NEW") General Public License (GPL), which requires that “any modifications made to GPL code that is distributed must be made available to the community” (source: Fink, Martin, “The Business and Economics of Linux and Open Source,” Prentice Hall PTR, pg. 46). In essence, an independent software vendor would find it difficult to generate revenue by charging typical fees for software licenses if the product included GPL’d source code, because customers could download it for free off of the Internet. To be fair, it is possible to create products that work with Open Source software but are not under the GPL license, when the intricacies of the license are understood and measures are taken to separate source code from products.

This has been the approach of IBM in particular. There is no IBM Linux distribution, but rather, IBM resells distributions from vendors such as Red Hat. IBM’s strategy is to surround Linux with their global consulting services, middleware software, and proprietary hardware such as the mainframe. The outcome of such a strategy is still uncertain. IBM’s recent earnings report for the year 2002 showed that software, and especially middleware offerings, were flat to declining. Hardware sales have also declined.

Other vendors such as Red Hat support Linux because they feel they can differentiate their particular Linux distribution with support and training. Red Hat has the leading distribution of Linux with over 50% of the worldwide market share. In spite of their enviable market position, they have struggled until only recently to generate a profit. Another major Linux vendor is MandrakeSoft, which has also enjoyed some success in the Linux market, yet has recently filed for reorganization similar to the United States Chapter 11 (source: http://www.mandrakesoft.com/company/press/briefs?n=/mandrakesoft/news/2405 ) protection.

Linux vendor Caldera has retrenched by changing its name back to The SCO Group and focusing on its UNIX line of servers. Its Linux operations are in the red. Turbolinux has sold its Linux operations to Japanese software company SRA to focus on its own proprietary software business.

For customers, the continuing financial difficulties of Linux vendors leave an open question: will the version of the Linux distribution they use still be available in the near future, and will there be a vendor who can support it?