How Do You Solve A Problem Like Linux?
Ludwig Siegele's latest piece for the Economist starts out:
How can you compete with something given away free? That has been the question dogging big software firms, above all Microsoft, ever since free (“open-source”) programs made it into the mainstream -- notably Linux, which is now a serious rival to costly proprietary operating systems such as Microsoft's Windows."
The article goes on to talk about the struggles of Jonathan Schwartz, Sun's head of software. Sun's past fortunes have relied upon the costly sale of a proprietary operating system on high end equipment. Now faced with low cost, high performance hardware powered by Intel processors, Sun is attempting to have it both ways -- Sun still sells costly hardware running on Solaris but also sells inexpensive Intel boxes that run on Linux. But Sun's bread and butter is still the expensive stuff. And Schwartz's main message to that end is that so called "free" open source software comes at a cost -- as he puts it, "Linux is like a puppy -- in the beginning it's great, but you also have to take care of it."
Meanwhile, Microsoft may be taking a different approach to counteracting the open source movement. In a New York Times article yesterday (Monday), John Markoff describes Microsoft's commitment to greatly expand the amount of free software it will give away to nonprofit organizations (Microsoft gave away $207 million worth of software last year and intends to at least double that number this year). While at first blush this appears a good thing for Microsoft to be doing, many in the open source world view it as a ploy to squash alternatives to Microsoft's software. Open source developers view cash-strapped nonprofits as a key market for the fruits of their labor and view Microsoft's efforts to give its own software away free to those nonprofits as an effort to undermine the spread of open source software. As Mitch Kapor is quoted in the article, "Microsoft's culture is about unfair competitions." Therefore Kapor concludes that while "within limits, it is good for Microsoft to give away software to nonprofits that can't afford it," at the levels Microsoft is promoting it becomes anticompetitive and "a problem." Yet, as Microsoft points out, even if the nonprofit software program is wildly successful, it will represent no more than 2 or 3 percent of the value of Microsoft's total sales, which perhaps makes it harder to argue that it is anti-competitive.
What is most striking to me about the themes of these two articles (and many others I've read in recent months) is the powerful impact open source software is having on commercial hardware and software businesses. While those businesses that sought to directly exploit the open source movement for profit did not ultimately fare well as commercial endeavors, I would venture to guess that we have not seen the last of them. There can be little doubt that the influence of the open source movement on the overall high tech landscape will continue to grow and leave some bodies in its wake.
Categories
Software1 TrackBacks
Listed below are links to blogs that reference this entry: How Do You Solve A Problem Like Linux?.
TrackBack URL for this entry: http://ventureblog.com/cgi-bin/mt/mt-tb.cgi/72
Sometimes knowing the right question is better than knowing the answer. Read More
Great to see a VC comment on open source like this. Investing in companies that provide support and services around open source is probably an interesting perspective for the VC market in the upcoming months.
Matthew
Replace "open source" with "wireless" in your last paragraph and you have a similar insight. It will be interesting to see if the high tech community's approach to wireless will draw on anything learned from the open source movement over the last +5 years.
This article raises an excellent issue. I have been spending a lot of time talking to CIOs at major companies (mostly on Wall Street) who are definitely interested in investing their own resources to customize and implement Linux because the cost savings downstream in terms of hardware and software are so great. Also, if some of these Linux virtualization technologies really mature, the support costs will plummet and the question will go from "Why Linux" to "Why Solaris" in the second half of the decade.
Just because Microsoft would only realize 2% to 3% additional profits if it did not give away its software, that does not necessarily make its action any less anticompetitive. The move is obviously a preemption against those non-profits moving to an Open Source product. If they were to move to Open Source, Microsoft loses licensing fees for supplemental products in the future, and they allow another little chink in their armor by letting ANYONE who doesn't already know, that there is a suitable, cheaper substitute. The move is absolutlely anticompetitive.
They know the non-profits could care less whether they are fostering more competition in the marketplace. When they do a cost vs benefit analysis, they see that OS allows them to do everything that Microsoft does and for little cost, but its not Microsoft. On the other hand, by going with Microsoft they see they can obviously do everything that other Microsoft users can do, for little or no cost, AND it is Microsoft behind it. Microsoft knows thats how they will think, and so it knows it can win by using the ol' "give it away free, because we can do it free longer than they can, and we raise our price once they're gone" routine, which has been used in an anticompetive manner before (see Standard Oil) and which is a main factor in the creation of antitrust law.