June 2005

How Linux Could Overthrow Microsoft

Continued from page 4

By Charles Ferguson

Furthermore, much of Microsoft"s technical workforce must work on quality assurance and bug fixing, which in open-source efforts often come for free from "the community." Given its lower growth rate, Microsoft thus finds itself a victim of the forces that it once exploited: its average costs are fixed and high, while those of Linux are low and declining. Dion Cornett, who does investment research on open source for Decatur Jones Equity Partners, a Chicago-based investment firm, told me, "We estimate Microsoft"s development costs for server operating systems, from its public filings, at about $300 per unit. Sun"s costs for Solaris are even higher. Red Hat"s costs are about $100 per server now, and they"ll be under $75 within a year."

Yet open source isn"t a perfect production system, either. Its strengths are also its flaws. Sometimes an old-fashioned top-down decision is useful, and the open-source model may not provide sufficient revenue to support everything users want when they want it. BitMover, a vendor of software development tools, used an intermediate model until recently. Its product was free to open-source developers on the condition that they did not use it to develop competing products. For proprietary software developers, it charged normal money. Recently the firm ended the free version, alleging that it had been abused. Larry McVoy, BitMover"s founder and CEO, has long been involved with open source, but is nonetheless somewhat skeptical about it. "Microsoft is successful because in open source, nobody gets paid to do the grunt work, like writing boring drivers for every printer on the market," he told me. "Furthermore, open source is largely a copying machine, doing reimplementations of existing products; there"s very little innovation, in part because the rewards for it are so low."

There is some truth in this. And while the problem is declining as commercial demand for open-source software increases, this creates a final irony. One objection to open source is that, in the end, it might just produce a new generation of big, bad, rich monopolists. With the growing importance of Red Hat, some critics see Microsoft all over again. In an open-source world, one might ask, how could Red Hat possess power in the way that Microsoft presently does? The explanation lies in the premium placed upon compatibility, stability, and service by large corporate customers. Red Hat examines every piece of code it ships; it certifies applications; it ports its code to seven different processor architectures; it provides and tests device drivers; it writes code to improve performance on specific machines; it guarantees service for seven years; it provides the same products in more than a dozen languages; it has someone there to answer the telephone 24-7. Customers who run their businesses on Red Hat won"t switch easily, even though a rival"s source code is equally available. The code that Red Hat ships therefore becomes, to some extent, the real Linux standard.

But for all this, Red Hat will probably never wield the same power that Microsoft currently has. One reason is that, because its products are subject to the GPL, other firms can and do take Red Hat"s code and sell it themselves.