The Linux fiasco

DQW Bureau
18 Nov 2000

If I can make one fairly certain prediction for 2001, it is that by this time next year, there are likely to be fewer Linux companies around.

For two years, at trade shows and on other occasions, I have been asking people from TurboLinux, Red Hat, and other Open Source supporters how they expect to make money, any kind of money.

The answer usually is something like this "We will sell support contracts." The Open Source business model may make for an interesting college thesis. In the real world, many of these ambitious Linux companies are simply writing a story that will end in Chapter 11. And that appears the course many Linux companies are on. 

The poor financial results of one Linux company after another goes to show that the Open Source model is a disaster in progress. 

Case in point? TurboLinux. The Silicon Valley company has a great solution to run everything from a single Linux workstations to clusters of powerful Linux servers running large enterprises. The company is among the top three or four Linux distributors. It is the leading Linux distributor in
Japan and the rest of Asia. And the company has been pulling out all the stops these past two years promoting itself in heavy advertising campaigns
and large booths at trade shows.

Last week, the company reported a loss of $ 29 million on sales of just $ 3million. After so much marketing effort, that clearly underscores the fiasco
of the Open Source business model.

Having burned through tens of millions of venture capital dollars from Intel and others, TurboLinux is now asking investors to open their wallets as it tries to raise $ 60 million in new capital by going public. Wall Street, of course, needs another Linux IPO like it needs a hike in interest rates. Most Linux stocks have plunged from a year ago, leaving investors holding billions of real and paper losses. VA Linux shares have lost 93 percent from where they stood at the end of the first day of trading.

The problem with Linux and other Open Source solutions is that consumers and most businesses don't want to pay for support. The market expects that if you throw out a solution, it is supposed to work with little or no expert help. Support is a last resort for when something unexpectedly goes wrong or your own IT people can't figure something out.

And, of course, most companies offer tech support for free as a strategic selling tool. By making support the center of the Open Source fiscal universe, the industry is sending the message that Linux needs a lot of support and that it is probably too complex for the average IT staffer to figure out. And for most people willing to try out Linux, that is exactly what it is.

Worse, to be valuable, the actual support that is delivered must be instant and of such high quality that almost any problem is resolved in one call. But with resources scarce these days, Linux distributors cannot afford to hire and maintain a large staff of highly qualified technicians who need to be experts in both the Linux OS, applications, and networking.

People that good really shouldn't be doing tech support if they have any sense of self-worth. They can snap up jobs paying two or three times as much.

While Linux distributors may be going the way of the industry that does not mean the Linux OS won't become a long-terms force in the industry.

On the contrary, the Linux OS is likely to grow in popularity in running networks, Internet appliances and other devices that can benefit from a highly reliable, secure, scalable and free OS.

But chances are that Linux will migrate from a group of idealistic start-ups to being absorbed by giants like IBM, Dell, and Compaq who see Linux as a vehicle to better position themselves against Sun Microsystems and Microsoft.


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