BUSINESSWEEK ONLINE : FEBRUARY 1, 1999 ISSUE
NEWS: ANALYSIS & COMMENTARY

Linux Might Not Break Windows, But...
The little jerry-built operating system is carving a niche

To hear Microsoft Corp. tell it, Linux--a computer operating system created by a Finnish graduate student and polished by programmers in their spare time--is a potential threat to Microsoft's Windows desktop operating system. Linux is proof, Microsoft is arguing in federal district court, that rivals can enter Microsoft's markets--and that the software giant does not exercise monopoly power.

Linux? The freebie operating system that nerds worldwide are using, but few ordinary consumers or major companies will load on their PCs? O.K., conceded Richard L. Schmalensee, Microsoft's first witness under cross-examination, ''Linux isn't viable now.'' But, the dean of MIT's Sloan School of Management added, ''in a year or two, the answer could well be different.''

''BAT OUT OF HELL.'' Well, perhaps. Not many people other than Schmalensee, some Microsoft execs, and a small group of Linux aficionados seem to think so. ''It's small potatoes,'' sniffs Chris Le Toq, software consulting director for research firm Dataquest Inc. For Charles Feld, chief information officer for Delta Air Lines Inc. (DAL), ''Linux isn't even on my radar. I'm not sure I could put together more than a sentence about it.''

Indeed, despite efforts by Linux fans, the software remains out of the mainstream--at least on desktop computers where the government asserts that Windows has a monopoly. Linux is most popular as an operating system for server computers used by Internet-access providers, Web sites, and universities. There, ''Linux usage is growing like a bat out of hell,'' says Marc Andreessen, senior vice-president of engineering at Netscape Communications Corp. (NSCP), which is creating versions of its server software packages to run on Linux.

But Linux isn't quite ready for prime time. Developed as a kind of hobby in 1991 by Linus Torvalds, Linux (pronounced LINN-ux) still bears some of the hallmarks of an engineering project. The software is difficult to install and use. No major computer makers ship Linux with desktop PCs, although some will fill orders for it. And most PC makers don't plan on pushing it as an alternative to Windows. ''If demand gets high enough, yes, but I haven't seen that yet,'' says Michael Lambert, head of Dell Computer Corp.'s (DELL) enterprise systems group.

Still, Linux is definitely a phenomenon in the server market. International Data Corp. says Linux server sales grew a stunning 212%, to 740,000, in 1998, capturing 17.2% of that market. That compares with a 35.8% share for Microsoft's Windows NT operating system.

Linux has two major advantages. First, its users like the ability to modify the source code--something Microsoft doesn't allow. The price also can't be beat: The software can be downloaded for free, which is why, says Torvalds, a softspoken 29-year-old, Linux' success is inevitable. Thousands of programmers are working on fixes and new ideas for Linux. ''This thing just keeps feeding on itself,'' he says. Companies that want to use it buy it in a package with related software that sells for about $50, compared with $800 for basic Windows NT. The top Linux companies--Red Hat Software and Caldera Systems Inc.--plan to make profits on support and service contracts.

Not surprisingly, Microsoft's rivals have been quick to jump on the bandwagon. Oracle Corp. and IBM have created versions of their database programs that run on Linux. Lotus Development Corp. is about to issue a Linux version of its Notes collaboration software. To sell more computers to Linux buffs, Hewlett-Packard Co. (HWP) will create Linux-based servers in the next few months, says Nigel Ball, head of HP's Internet application server unit. And Oracle promises to deliver versions of Oracle Applications for Linux. ''We're making Linux mainstream,'' says Mark Jarvis, Oracle's senior vice-president of worldwide marketing.

Still, companies that install systems for major corporations are skeptical. Linux is ''a cult thing,'' says John Parkinson, chief technologist for Ernst & Young. Linux fans hope to shed that image. Torvalds' upcoming version 2.2, for instance, works on servers with multiple microprocessors, a key requirement for corporations and Web sites.

Should Microsoft (MSFT) be afraid? Not yet. But, if Linux proponents can realize their ambitions, someday it will be more than a convenient argument for Microsoft's antitrust defense.

By Steve Hamm, with Ira Sager, in New York and Peter Burrows in San Mateo, Calif.

To read a letter to the editor about this story, click here.

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