[eccr] The Economist: The rise of Linux is dividing the computer industry into winners and losers

Title: The Economist: The rise of Linux is dividing the computer industry into winners and losers

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Apr 10th 2003 
>>From The Economist print edition

The rise of Linux is dividing the computer industry into winners and losers


LARRY ELLISON, the boss of Oracle, the world's second-largest software firm, likes to make bold claims. Last week he was at it again, attacking his old foe, Microsoft, the world's biggest software company. Microsoft, he declared, risked being ³wiped off the face of the earth² by Linux, the free, open-source operating system developed by Linus Torvalds, a Finnish programmer, and a team of enthusiasts. As always, Mr Ellison's prediction should be taken with a handful of salt. But it contains a germ of truth, because the rise of Linux is changing the dynamics of the computer business. Some of the industry's titans benefit from its advance, while others lose.

The appeal of Linux is clear. It is free, unlike such rival operating systems as Microsoft's Windows and Sun's Solaris. And it runs on almost any computer, providing compatibility, flexibility and further cost savings. Linux is used mostly to run servers, the back-office machines that handle e-mail, web pages, file sharing, and printing. Several Linux boxes can also be ³clustered² together to create cheaply a machine with the power of a supercomputer. 

Linux has yet to have much impact in the highest echelons of business computing: telecoms-billing systems, airline-reservation systems, and so on. But it is advancing steadily. Once limited to dotcoms, it is now used by such firms as Merrill Lynch, Verizon and Boeing. ³2001 was the year of interest, 2002 the year of pilot projects, and 2003 is the year of deployment,² says Avery Lyford of Linuxcare, whose software simplifies the adoption of Linux by big firms. A recent report by Gartner, a consultancy, says that ³businesses are coming to regard Linux as a worthy alternative to Unix and Windows.²



The main loser (so far) as Linux advances is Sun Microsystems, one of the largest server vendors. Its Solaris software is generally deemed to be the most capable flavour of Unix, the family of powerful operating systems used in servers. But for many applications, Solaris is overkill, and Linux, a less capable flavour of Unix, is good enough. Many people who would once have bought expensive Sun boxes running Solaris are now running Linux on cheap, PC-like machines instead.

This has forced Sun to embrace the technology that threatens its existence. Last year, Sun launched its first Linux-based server. After several zigzags, it has now decided on its Linux strategy. As well as offering cheap boxes running Linux alongside its more powerful Solaris-based ones, Sun will include its server software with both Linux and Solaris, to make its Linux boxes more attractive and to allow users to ³trade up² to Solaris. Even so, many in the industry believe that, thanks to Linux, Sun is doomed.

The clearest winner is IBM, closely followed by Hewlett-Packard (HP) and Dell, each of which has done well selling Linux servers. IBM embraced Linux in 1999, and now offers it across its entire range, from lowly PCs to mighty mainframes. Linux has also boosted IBM's mainframe business, since a single mainframe can be set up to behave like dozens of small Linux servers. Firms with mainframes have thus been able to scrap entire rooms full of Unix servers, such as those made by Sun.

Linux also provides something IBM has wanted for years: an operating system that unifies its otherwise baffling product lines. Indeed, notes Art Olbert, an ex-IBM employee now at Linuxcare, Linux strengthens the hand of those firms that champion technological diversity, such as IBM and HP, and undermines firms that push their own technology at the expense of all others, such as Sun‹and Microsoft.

Wiping Windows

So is Microsoft about to be destroyed by Linux? Not yet. Microsoft's influence stems from the dominance of its Windows operating system, which runs over 90% of the world's desktop computers. But as Windows becomes more powerful, it has been advancing into the server market, since PC-like servers running Windows are cheaper than Unix boxes. The problem for Microsoft is that Linux boxes are cheaper still. Microsoft disputes this, pointing to a company-funded study which found that over several years Linux servers were no cheaper to run than Windows servers, largely because Linux experts demand higher wages. But many companies, particularly those with Unix folk already on the payroll, have found that switching from Windows to Linux saves money.

Furthermore, Windows is the preferred target for computer viruses. Servers running Linux are generally more secure. Microsoft now offers a cheap version of its Windows Server software specifically for use on web servers, to compete better with Linux. It is also making the Windows source-code available to governments for scrutiny. Many governments like Linux because it can cut costs and avoid vendor lock-in, and because they see open-source software as more trustworthy. 

The most likely outcome is that customers will face a choice between Linux, which is cheap and cheerful, and Windows, which offers more bells and whistles, is tightly integrated with other Microsoft products and is easier for unskilled staff to use, but costs more. In short, Microsoft will be not so much a loser from Linux as less of a winner. In the server market at least, Linux is providing Microsoft with some much-needed competition.

This explains Microsoft's strangest response to Linux: its doom-laden warnings that Linux and other open-source software will destroy the commercial industry entirely. According to Craig Mundie, Microsoft's chief technical officer, as the open-source movement grows, it will get better at producing free clones of commercial software. The best-known examples after Linux are Apache, an open-source web-server, and MySQL, an open-source database. Such products reduce the incentive for commercial firms to innovate; so the industry will stagnate and then collapse.

This echoes arguments made by drug firms against makers of generic drugs. (Never mind that innovation in software tends to occur in universities and start-ups, not big firms.) Microsoft is advancing it through a lobby group, the Initiative for Software Choice, hoping to dissuade governments from using open-source software. Steve Ballmer, the firm's chief executive, calls open-source software a ³cancer². Only in Mr Mundie's nightmare scenario would Linux and other open-source software wipe Microsoft from the face of the earth. Mr Ellison's prediction might then come true, but with a drawback: his own firm, Oracle, would be wiped out too.

From: http://www.economist.com/research/articlesBySubject/PrinterFriendly.cfm?Story_ID=1699434&subjectID=348909