Table 1: US Business Distribution by Size--1988 and 2002
AREA	DATA TYPE	TOTAL	<20	20-99	100-599	500+
United States 1988	Firms	4.954,645	4,444,463	430,640	66,708	12,824
	Establishments	6,016,367	4,516,707	581,622	244,697	673,341
	Employment	87,844,303	18,319,642	16,833,702	12,761,379	39,929,580
United States 2002	Firms	5,697,759	5,090,331	508,249	82,334	16,845
	Establishments	7,200,770	5,147,526	692,775	332,508	1,027,961
	Employment	112,400,654	20,583,371	19,874,069	15,908,852	56,034,362
Source

The next challenge is to identify the relationship between the US domestic market and the nature of the global market. Our objective is not to be totally quantitative, but rather to gain an insight into the nature of the market globally. The CIA web site proves to be useful in this quest (see Table 2).

Table 2: Global GDP for 2004 (Est)
AREA	US$	Percentage
Total	55,500,000,000,000
US	11,800,000,000,000	21%
EU	11,700,000,000,000	21%
China	7,260,000,000,000	13%
Japan	3,750,000,000,000	7%
India	3,320,000,000,000	6%
Rest of World	17,800,000,000,000	32%
Source

Based on this information, we may conclude that the US domestic market is approximately one fifth the size of the global market. We must take account of the degree of maturity of the US market compared with that of lesser developed countries. It may be concluded that the number of businesses globally is likely to be between 3 to 5 times the US numbers. The factors chosen (shown in Table 3) are based on estimates of how representative the US market demographics are of the global average. It is understood that there are a greater proportion of large businesses in the US market than there are in less mature markets.

Table 3: The Global Server Market
Company Size	# Employees/Company	Average Users/Server	US Number (2002)	Global Factor	Global Number	# Servers	% of Total Servers	% of Companies
500+	3500	45	16,845	3	50,035	3,930,500	7.67%	0.18%
100-499	142	10	82,334	4	329,336	4,676,571	9.13%	1.16%
20-99	39	10	508,249	5	2,541,245	9,910,856	19.34%	8.96%
<20	9	7	5,090,331	5	25,451,655	32,723,556	63.86%	89.70%
Total			5,697,759		28,372,771	51,241,483	100.00%	100.00%

The Netcraft web server survey reports that as of October 24, 2005, there were 74.4 million publicly accessible web servers globally. The ISC Internet Domain Survey, July 2005, reports that there are 353.3 million hostnames in the public DNS today. As if this is not confusing enough, World Internet Usage and Population Statistics for September 2005 lay claim to 957.8 million Internet users globally (see Table 4). There are some clear gaps between the various statistics and the methods by which these have been obtained--it is beyond our scope to reconcile these. Even so, they demonstrate that the market is large, while at the same time making it clear that since only 14% of the world population is currently a consumer there is considerable growth potential. That potential is largely in the SMB/SME market segments--not in the enterprise space that has so far been at the core of market development activities by the present Linux businesses.

Table 4: World Internet Usage and Population Statistics
World Regions	Population (2005 Est.)	Population % of World	Internet Usage, Latest Data	Usage Growth 2000-2005	% Population (Penetration)	World Users %
Africa	896,721,874	14.0%	23,867,500	428.7%	2.7%	2.5%
Asia	3,622,994,130	56.4%	327,066,713	186.1%	9.0%	34.2%
Europe	731,018,523	11.4%	273,262,955	165.1%	37.4%	28.5%
Middle East	260,814,179	4.1%	21,422,500	305.4%	8.2%	2.2%
North America	328,387,059	5.1%	223,779,183	107.0%	68.1%	23.4%
Latin America/Caribbean	546,723,509	8.5%	70,699,084	291.3%	12.9%	7.4%
Oceana/Australia	33,443,448	0.5%	17,644,737	131.7%	52.8%	1.8%
World Total	6,420,102,722	100.0%	957,753,672	165.3%	14.9%	100.0%
Source

So far we have begun to examine the global IT market in a bid to better understand the potential for IT products and services. Our assumption is that any OSS or Linux business initiative will be under pressure to achieve financial viability quickly. This means that the most opportune market must be targeted with appropriate business solutions.

Up to this point we have started to see how many potential business consumers there might be and how many potential individual consumers there may be.

These statistics demonstrate that the market is huge, but we also know that innovation and creation of the right solutions package to each market will take great skill and dexterity.

Now we will the focus will be identifying the size of the market for server products.

Estimating the Global Number of Servers

The total number of servers installed globally can be estimated based on some insider market statistics. The values can be compared against IDC Market Research Information, however the comparison fails by a factor of two because of a significant use of computers that are sold as workstations that are actually used as servers in the <20 and 20-99 employee market segments (see Table 5). When the estimated use of workstations that function as servers is removed, the installed server base compares favorably with the IDC estimate of 21 million machines sold as servers [IDC Report: World-wide Client and Server Operating Environments Forecast and Analysis, 2002-2006: Al Gillen, Table 6].

Table 5: The Global Server Market
Company Size	# Emps./ Co.	Average Users/ Server	US Number (2002)	Global Factor	Global Number	# Servers	% of Total Servers	% of Cos.
500+	3500	45	16,845	3	50,035	3,930,500	7.67%	0.18%
100-499	142	10	82,334	4	329,336	4,676,571	9.13%	1.16%
20-99	39	10	508,249	5	2,541,245	9,910,856	19.34%	8.96%
<20	9	7	5,090,331	5	25,451,655	32,723,556	63.86%	89.70%
Total			5,697,759		28,372,771	51,241,483	100.00%	100.00%

Estimates of the installed desktop, laptop, and network client computer systems are difficult to obtain with accuracy. Based on various estimates, including the number of user licenses sold as claimed by vendors such as Microsoft, the total number of client and stand-alone systems is between 350-600 million. The real number is probably at the lower end of this estimate, given that a part of this sold infrastructure is clearly obsolete and that some licenses account for purchase of replacement systems.

Market demographics can be used to bring into question the behavior of the information technology industry as a whole. It also leads to a plethora of questions regarding the wisdom of the current commercial Linux businesses in their choice of target markets.

Market Schizophrenia

Microsoft is the dominant technology supplier across the entire information technology spectrum. Microsoft has approximately 60% market share in the installed server market, and approximately 90% in the desktop operating system market. Other sources provide estimates that are higher.

The heart of Microsoft's business server technology centers around a distributed network directory service called Microsoft Active Directory. Comparing the network directory service-centric focus with the number of sites that really need it, the question should be asked if there is an excessive preoccupation with this technology compared with needs of the market as a whole. In other words, 0.18% of all customers may need a directory service, yet 100% of Microsoft's server technology is predicated upon using it. Why is this so?

Technicians are easily excited over new technologies, and the more complex the subject may be, the more interesting it is to the technician, and the more confounding the impact on the uninitiated. Has the IT world allowed itself to be derailed with needless complexity? Linux does not need a directory service to satisfy the needs of 99.8% of the market place. Why does Microsoft Windows need it? While that question was a digression, it is a vital question all the same.

Since Table 1 shows that 0.18% of all customers (the percentage of 500-plus employee companies) account for 7.67% of servers sold, it is understandable that there should be strong competition in the enterprise market segment. But that does not adequately answer why it should dominate IT practices to the exclusion of any significant market presence for Linux vendors outside of this segment. Most of the IT world's needs can be met with simple, non-complex IT solutions. Should we not first strive to take care of our bases, before attempting to build castles in the sky?

The world is preoccupied with the need for Linux to achieve a dominant share of the high-end server market as the acid-test of being enterprise-ready. The mental assertion being that when Linux reaches maturity in the enterprise market place (500+ users per company) it will magically be ready for the market as a whole. This patently ignores the fact that small sites do not have the same complexity of needs as exists in the enterprise market.

There are approximately 50,000 enterprise-class companies in the world. Of these, a number have complex information technology needs, but certainly not all. If IT press reports regarding successful IT businesses are to be believed, the complex needs of enterprise class companies determine development objectives for the major IT vendors for all market segments. In practice of course, companies such as IBM and HP do produce products that are carefully designed to meet the needs of specific market segments--witness for example the HP OfficeJet all-in-one office fax, printer, and scanner product line.

Red Hat Software, SuSE, Caldera, Novell, TurboLinux, LinuxCare, and their peers in 1998-2000 were all focused on gaining credibility in the enterprise market place. It is a sad reality that every major IT company has its primary focus in the same puddle. IBM, HP, Dell, Intel, AMD, and Gateway are well aware that the bulk of profitable business is derived from a more mundane source--the small to medium business (SMB) market and the lower end of the small to medium enterprise (SME) market.

If the enterprise market is the only one that can be profitable, it is to be expected that a concentration of competitive activity should be observed. Perhaps it is necessary to consider a few additional factors so that the wisdom of the present fiasco can be better understood. Perhaps we shall see that the most profitable market has not yet been tapped.

The Slingshot Effect

One factor that led to the concentration of enterprise-only effort by Linux companies in the years 1999-2001, was the mention by Linux initiative leaders in companies such as HP, Compaq, and IBM that IT is just business. They indicated that the only justification to market Linux-based products and services is to increase overall company revenue. It was stated by more than one business unit leader that existing servers that are sold with Microsoft operating systems produce a higher per-unit revenue than if the same system were to be sold with Linux as the core operating system. Simply put, it is not in the interests of the major hardware vendors to actively promote the sale of business solutions that reduces overall revenue and at the same time antagonizes a major business partner.

Linux companies, on the other hand, sought to work with the large vendors in the hope of capturing large business opportunities that would rapidly catapult them towards commercial profitability. This was predictably a game of Russian roulette. In doing so, the Linux companies knew that Linux business units inside the large IT vendors were creating tensions. Not one company was willing to actively promote a Linux platform solution to the SMB/SME marketplace that would compete directly with Microsoft server-based solutions, even if it could be demonstrated that this was the most viable target market for a Linux initiative.

The determination of the Linux vendors to "make it big" resulted in nearly all development budgets being spent on chasing the needs of the enterprise customer. The result of this is that even today there are no Linux server solutions that are as simple to install as the Microsoft Small Business Server, and provide the same type of end-to-end business application solutions framework to the SMB/SME marketplace. On the other hand, after six years of intense development, Linux is a truly viable alternative to the high-end UNIX platform, and in many areas has replaced it. It is no accident that Sun Microsystems has released the source code for Solaris, except as a bid to quench the heat that Linux has created in their market stronghold.

Playing with the Big Boys

The Linux operating system vendors saw an urgent need to break into the market. They chose to ride to market on the coattails of the OEM hardware vendors. This automatically led to the decision to target the enterprise market space, a move that made it imperative to position Linux against traditional UNIX offerings, but in markets they did not already serve. For example, IBM and HP would rather capture UNIX business that was held by Sun Microsystems than to displace their own UNIX business with a lower-revenue Linux business solution. In hindsight, the fact that the primary hardware vendors were prepared to do this makes sense, and it was also a successful strategy for capturing UNIX business, which consisted of so-called "low hanging fruit."

This is a good moment to reflect on the Linux marketing strategies adopted by Compaq, HP and IBM, to illustrate the manner in which Linux business initiatives were clearly chosen so as to protect existing business units within these companies.

Compaq's high-end UNIX platform was the Tru64 Alpha CPU-based OS that they had acquired when they purchased Digital Equipment Coproration. The Intel CPU-based UNIX solutions Compaq were selling were based on SCO UNIX products (SCO OpenServer and SCO UnixWare). Tru64 and the Alpha CPU was a dying architecture and Compaq needed to replace it--Linux on Intel came onto the scene at an opportune time.

The decision to back an Intel-based Linux offering would keep the competition away from Compaq's major partner--Microsoft. This decision also pleased Intel because it helped to expand the market for Intel CPUs. This was clearly a simple business decision. Ultimately Compaq were unable to sustain competing activities with the result that in 2002 they were acquired by HP.

HP offer HP/UX-based UNIX business platforms. That is business they would not willingly cannibalize with a Linux solution offering. However, the major part of HP's revenue comes from Intel/AMD-based platform sales involving Microsoft business solutions. It is not in HP's interests to irritate Microsoft by helping Red Hat or Novell to sell a Linux-based business platform that will compete directly with a Microsoft solution.

Business is business--you make money by chasing the money, not by being altruistic. HP's behavior in the marketplace makes sense in this context. To top it off, they must keep share-holders at bay also. This is an ongoing challenge for HP, one at which they are being successful, according to IDC reports. On the other hand, we can expect that HP's shareholders would like to see the company more profitable with greater market share. How will they do that? What is the probability that HP will use Linux-based business to achieve this in the foreseeable future? Not very high, I suspect.

IBM has made a huge investment in Linux over the past six years. That focus has driven web-based Linux services, which is hardly surprising given the explosive growth of the web server market. IBM has driven a compelling argument for the use of IBM hardware and professional service sales into the enterprise market place and thereby created a market for Linux systems that could compete with Sun and HP offerings at the lower end of the enterprise customer spectrum.

IBM has been non-partisan with respect to Linux. They have supported all Linux vendors and continue to encourage business customers to purchase Linux-based solutions. Understandably, IBM has not specifically positioned Linux-based solutions into the SMB market because there really is no core infrastructure Linux-based solution that is suitable today.

I am sure that all three companies mentioned would agree that their Linux business initiatives have been financially rewarding and successful. But could they have been more successful?

It has so far been demonstrated that the global It market is largely untapped. Only 14% of the global population is an IT consumer today. Further, analysis of market statistics has demonstrated that the Linux businesses have so far targeted the top-end of the market very successfully.

The next focus of this discussion will attempt to identify market opportunities and what may be need to create a more OSS friendly, profitable, and significant Linux presence that can redefine the IT industry.

Chewing Over the Numbers

The last two articles dealt with the nature of the global IT market. These confirmed the success of Linux-based business so far, and yet the immense opportunity still open to those same businesses. This part explores that opportunity further.

A clear picture of Linux achievements can be obtained by comparing market share for operating systems over time. I have provided my own estimates that includes multiple Linux installation from a single media source, as well as IDC estimates for 2002, as presented by Sam Dochnevich, IBM, at the Desktop Linux Conference in Massachusetts in November 2003 (see Table 6 and Figure 1).

The growth in the Linux server market is greater than the losses of NetWare and UNIX servers. It is important to note that the Microsoft Windows Server installed base continues to grow, also. Surely the focus by the Linux companies (Red Hat and Novell) on the UNIX marketplace must be considered misplaced, because while Linux has gained ground in this market the question must be asked: "If the same effort had been expended at replacing Windows NT/200X servers, would Linux today have a larger share of the overall server operating system market?"

Table 6: Global Server Operating System Market Share
Platform	2000	2003	2006
Windows NT/200X Server	14.0 mil (58%)	16.0 mil (53%)	18.0 mil (50%)
NetWare	3.5 mil (14.6%)	1.6 mil (5.3%)	1.0 mil (2.7%)
UNIX (all)	2.8 mil (11.7%)	2.3 mil (7.7%)	2.0 mil (5.6%)
Linux (Servers)	1.5 mil (6.3%)	5.2 mil (17.3%)	11.0 mil (31%)
Total	24 million	30 million	36 million
Note: The above Global Server Operating System Market Share figures are estimates based on a number of private and public sources. Any use of these number should be done in light of other published figures such as the IDC survey reports.

Jean Bozman, IDC, said that the overall server market grew in 2004 by 10.9% by value. Sales of Windows-based servers grew 14.3% by value and 10.9% by number. By comparison, Linux server sales grew 45% by value and unit shipments grew 32%. However, it is interesting to note from this report that UNIX server revenue grew 2%, while the number of units shipped slipped by 8.7%.

During the years 2003-2005 neither Red Hat or SUSE have specifically targeted the SMB/SME marketplace with an office infrastructure solution. Had they done so, the Linux platform might have acquired a simple to configure, powerful installation, and management system much earlier. Novell SUSE YaST2 has come a long way, but it is not even close to the Windows Server 2003 configuration wizard.

From the October 2005 Netcraft Web server survey, approximately 70% of the world's 74.4 million web servers use the OSS Apache web server. Approximately 50% of the Apache installed base runs on Linux. The calculated Linux web server installed based is thus 26.4 million web servers.

My personal estimate is that there are approximately 16-18 million Samba servers, of which in the vicinity of 11 million run on Linux. The vast majority of these Linux/Samba servers are in use in small businesses and in home networks. The enterprise Samba customer is more likely to use Sun Solaris, IBM AIX, or HP-UX. The SMB/SME market has deployed a significant number of Samba servers, however reliable statistics do not exist as to the number of Linux/Samba servers in use in this market.

From the statistics that are available, we may seriously question why the projected 2006 Linux server install base will be only 9.9 million units according to IDC. The fact that so many Apache web servers run on Linux proves one market in which Linux has become a dominant platform and thus a serious player. Companies that focused on web services found the world as their oyster-bed, if they could just find the right combination of software and services.

Had Linux companies better focused their efforts on the SMB/SME market, the operating system market share picture would look far more rosy for Linux and OSS than it does today. There is some suggestion in what we have seen so far that Linux has performed well despite the efforts of the Linux vendors. It is as if the market has made a run for Linux, in spite of the lack of market presence by Linux vendors. It would further appear that most of this has happened outside of the enterprise market space that was at the center of the quest to prove that Linux is enterprise ready--whatever that means!

Linux has become a most stable and compelling technical product and platform, as is evidenced by the exceptional rate of adoption. The rate of Linux adoption does not show any signs of slowing down. It is astounding that despite the fact that Linux is more difficult to deploy than a comparable Microsoft Windows product, clearly customers have hankered after it. It is a fact that there is a huge market opportunity in the SMB space that is begging for an alternative solution to the one they are using right now.

Being able to identify a market does not help if the right products and services are not available. Additionally, it does not help unless there is a cost effective method of delivering those products and services to the business consumer. We must look at the existing IT market to learn how current products and services are delivered to the customer.

There are four core IT markets:

• The enterprise customer space (500+ employees)
• Small to medium enterprises (SMEs) (150 – 499 employees)
• Small to medium businesses (SMBs) (2-149 employees)
• Consumers, including small office/home office (SOHO) businesses

It is informative to see what are some of the characteristic buying behaviors of each market. I am indebted to a selection of VARs, each of whom gave considerable time to provide feedback and comment for this series. A representative of each VAR was contacted and asked a to describe the predominant opinion in his office. The number of employees in the VARs' offices varied from 1 to 11. The findings from the first interview were collated anonymously, then each person was asked to comment on the feedback obtained from the others. The resulting comments are summarized in the next three sections.

The Enterprise Market

The enterprise market is staffed with IT experts. Some enterprise market IT is outsourced, and sometimes all of it. The majority of large sites employ permanent IT staff who play a key role in specifying the solutions framework for IT investment. They exercise a controlling interest in the purchasing decision, albeit with considerable management intervention and oversight.

The buying process in enterprise companies can be complex. This means that the final purchase outcome is often somewhat haphazard when political and social factors exert a role as the purchase and deployment decision is made. For example, the CIO of a large financial market business took the advice of a friend who is member of his college alumni. He thus did something no one could have anticipated when he overruled his own staff and hired a full-time Linux support person to head up a new project. Sometimes, too, this works in the opposite direction.

One factor that weighs against adoption of a lower cost IT infrastructure in the enterprise market is the fact that some CIOs salaries are tied to the number of IT employees they manage and to the size of budget under their control.

New technologies are under constant review. It is not uncommon for more conservative sites to ask for cost estimates and then not to implement, or make a purchase decision for two years. Many ask for cost estimates so they can obtain budget allocations up to 18 months before activating the project.

Hardware purchases are generally planned well in advance and are subject to planned obsolescence (replacement) over a 3-4 year cycle.

The SME Market

The IT purchase decision in the SME market is generally a simple process, handled by qualified IT staff from begin to end. Accountants and financial staff like to feel involved, but they usually either rubber-stamp the purchase proposal, or delay it until funds are available.

Most purchases in this market are driven by technical needs. There is some tendency to outsource mundane IT management and installation work, but the bulk of it is handled in-house. The timing of a new project from concept to the start of deployment typically takes 6 to 12 months. Hardware life cycles are mostly 3-4 years, with some equipment subject to earlier replacement. There is not a lot of hardware recycling and the tendency is to live with the operating system that is first installed on new servers.

VARs reported relationships with the same set of customers for over 10 years, with a few as long as 20 years. The customer is loyal and typically does not like to waste time. Most SME customers despise operating systems religion. The only things that matter are whether the solution works and that it can be supported. Since the emergence of OSS a few customers demand a solution fall-back in case of trouble.

There is a tendency to stick with what works, and replace or change a solution only when the hardware is replaced. Customers are known to demand consistent services and support, and thrive on feedback.

The SMB and Consumer Markets

The SMB customer generally can not afford to have full-time IT staff. They rely heavily on independent consultants, and on contractors. Possibly a third of this market has a favorite vendor (consultant or contractor) whom they will call if there is a problem. There is little pro-active IT planning, systems are added when needed, and updates/upgrades mostly happen under crisis management conditions.

Consultants who support the SMB market report that most non-critical servers are in active service for 5-8 years without significant upgrade. Newer hardware is purchased for use in the most critical roles, displaced hardware is usually recycled to a lesser demanding role. Most servers function in a particular role for about 18 months before being redeployed for another purpose. Consultants generally help specify hardware configurations and help the SMB customer to make the purchase from a hardware vendor or reseller. Only under duress will they sell a server.

The VAR who sells to the SMB/SME is still a strong supporter of whiteboxes. The advantage of the whitebox is that components can be hand selected to create the right machine that the customer demands. If VARs start to specify more whitebox Linux servers the problem of Linux driver support will disappear. Soon retail stores will actively embrace the resale and support for Linux supported products. Whitebox systems are built ans sold by hardware low-end systems resellers, but they produce huge volumes of systems. A small whitebox reseller who has three employees in the San Francisco Bay Area ships 20-25 machines per day. VARs and consultants interviewed will send their customers to such vendors because they sell a low cost product.

The SMB customer is most likely to purchase 30-60 days from first request/contact, and often want the solution to be fully deployed within 14 days of confirmation of the order. SMB customers who have had good experiences with a VAR tend to be loyal, those that have had a series of bad experiences show no loyalty at all and of draw out payment terms. One VAR has had the same 51 SMB clients for over 15 years and wants no new problems (customers).

SMB customers who have had bad experiences resulting in lost business tend to whine and grumble at the VAR, even when the job went very well. These are the most cost conscious and will often ask if there is a lower cost solution. Most do not care what the IT solution is, they just want it to work. Two of VARs interviewed already install FreeBSD or Linux systems so they can make more money out of the deal than if Microsoft Windows had been installed. The remaining VARs all install Microsoft software because they do not have time to learn Linux.

VARs mostly sell solutions following being invited to a vendor demonstration of how the software works.

Consumers purchase their IT needs from retail stores and on-line, or per phone, from companies like Dell, Gateway, and HP. The retail assistance in stores such as CompUSA, Best Buy, Circuit City, Frys Electronics, etc. is often the sole source of advice.

Retail outlets do not actively offer a Linux desktop or server solution. The key to changing that is to gain a toehold on the SMB market. The means to getting the SMB market is the VAR, the consultant, and the contractor.

In this part of the series we have drilled deeper into the nature of the IT market, and while it is large, it is also complex. It will take time and effort to convert the SMB market to focus on Linux- and OSS-based business. Above all, if we want to enlighten the minds of the VAR and to remotivate him to do more profitable business, we must help him to see the future with glowing and compelling demonstrations. It will be necessary to nurture the VAR until he is self sufficient, and above all, we must build trust--the sole basis of customer loyalty.

Lastly, we must recognize that channel conflict is the kiss of death on trust.

Channel conflict results in loss of business for VARs. When this happens the VAR understandably becomes irritated because the supplier to the VAR has effectively declared war on business relationships that took time and effort to build. In effect then, channel competition undermines trust between the supplier and the VAR and also between the VAR and the customer. In the end, both the VAR and the supplier lose credibility.

The Competitive Situation

Could it be possible that Microsoft customers are not happy with the products they have been sold? Perhaps virii, worms, and spam are taking their toll on the established market for MS Windows based products. If this is correct, then Microsoft is caught in a race against time to bring out a product that can be used to shoehorn customers and to lock them into a long term software service commitment.

Additionally, we may observe that Microsoft's sensitivities in respect of Linux are well founded. It is possible that Microsoft's attempts to counter Linux in the enterprise market is nothing more than a plan that serves to buy more time in the SMB/SME market, where the vast bulk of the company's profits are obtained. If this is true, they may be using the anti-Linux "Get the Facts" strategy as a smokescreen while they dig deeper trenches in which to embed their business before the Linux vendors wake up to markets outside the enterprise.

Microsoft's presence in the enterprise market is not as strong as it is in the SMB/SME market. The enterprise market is the stronghold of the UNIX players. Microsoft's foothold in the enterprise market is undermined by the level of technical competence of IT staff in large businesses. In the SMB market there is little to no on-site expertise; these sites depend on outside contractors and value added resellers (VARs) to provide the technical support needed to keep information systems operative. Traditional Windows VARs have not embraced Linux to the same degree that the more technical consultants have done.

Over the past two years, Novell has started to rediscover their roots. Novell rose to fame as a result of its efforts in the late 1980s and early 1990s to build a strong reseller and support network for NetWare file and print service products. Novell ran regular partner meetings at which they taught VARs how to build and manage a service business. This was a successful strategy for several years.

When NetWare 4.0 was released, Novell decided to milk the now committed VAR channel by demanding complete re-training and re-certification. At the same time, they started to enter into direct sales deals with the major hardware vendors so they could sell servers that had NetWare pre-installed. Overnight, Novell started to compete with the very channel VARs that had helped them to build their business. This competition (or more accurately--channel conflict) came at a price. VARs lost critical support revenue because the hardware vendors sought to sell support agreements to provide professional services for network installation and management.

This made many NetWare VARs very unhappy. The timing was bad for Novell because this happened just as Microsoft Windows NT4 started to gain market inertia. Microsoft saw the light and moved into the breach that Novell had created through channel conflict. It did not take long before Microsoft also saw opportunity to abuse the VAR channel in the same manner. They made training and certification a profit center and introduced the same style of channel conflict as Novell had done earlier.

Another example of the consequences of channel conflict can be seen in the old Santa Cruz Operation (SCO), who acted the way Novell had done by dictating to the channel in a manner that was prejudicial to their educational and reseller VARs, with the same predictable results. SCO in effect undermined their own business and then blamed to loss of business on Linux. It is no wonder that SCO VARs actively embraced Linux in the wake of the damage done to them by the company they had helped from its earliest days.

When SCO introduced UnixWare 2 to the reseller channel, they advised VARs they would need to complete re-training and re-certification to remain authorized. This practice of coercing resellers is not unique to the companies mentioned, it is a practice that has been far too common in industry.

Distribution Channels

As channel VARs and service providers lost business to the software houses and major hardware vendors, original equipment manufacturers (OEMs) also started to play the channel conflict game. Rumors started that VARs are like snakes in the grass and can not be trusted. This brought about a high level of competition with VARs that drove down prices and continues to do so to this day.

Consumers generally approve of lower prices, and I am not advocating a proposition that prices should remain high through protectionist means. Prices (costs) should in general come down as a necessary consequence of the learning-curve effect. My objection is to the undermining of the channel by predatory behavior in the market place.

The distribution channels created in the 1980s through large distributors, second-level distribution houses, and resellers was thrown into disarray. VARs were made aware in the late 1990s that resale margins on hardware and software would not be able to sustain traditional resale-only businesses. They learned quickly that survival meant provision of installation and maintenance services.

Channel conflict had stripped the reseller of most larger customers (the medium businesses and upwards). This meant that the resellers who survived learned to provide a higher level of service to a large pool of smaller customers. This situation persists to this day. It takes a great deal of entrepreneurship to build and maintain a profitable support operation. Most that are profitable have more than five employees.

The VAR (reseller and service provider channel) has to pay companies, like Microsoft, for most support calls made to obtain resolution to technical problems. Their capacity to pay is diminished, therefore many struggle by, making only essential calls for assistance. At times customers feel let down by Microsoft products, complain at having to pay Microsoft license fees, and at having to pay for support services. The result is that many VARs, who are not sharp about collecting monies owed have a business that is continually challenged and subject to cash crunch.

In 1999-2000 TurboLinux commenced an initiative to leverage Linux through the US VAR channel. It was soon discovered that the VARs that serviced the 5-150 user customers were hungry to embrace an alternative to Microsoft Windows, SCO OpenServer, and NetWare. Unfortunately, even though a significant number of resellers signed up for a VAR program, TurboLinux made a belated decision to pursue business through the OEMs that targeted the enterprise market.

The 2004 Novell BrainShare conference, in Salt Lake City, Utah, brought home to Novell the message that the VAR channel is hungry for products and services that they can offer customers as alternatives to Microsoft Small Business Server and related products. Novell responded, but they have a challenge ahead to regain the confidence and commitment of long-standing VAR partners. They must also deliver a customer- and VAR channel-friendly product together with appropriate services. From recent feedback, it would appear that Novell are well on track to regain this vital part of the market. Novell are well aware that a significant staff reduction can undo the progress that has been made.

A key challenge Novell has is to turn the company from selling technology, rather to selling of business solutions. Customers are seeking an end-to-end business solutions platform, in packaged form, and without unnecessary hype and mumbo-jumbo. The solutions have to be simple to understand, quick and easy to deploy, and cost effective to maintain.

By opening up the development process of the desktop Linux product and establishing the OpenSUSE initiative, Novell haa shown great understanding of the marketplace. They recognize that in the absence of a sound and effective desktop Linux offering is fundamental to being able to provide the end-to-end business solution framework that is needed in the SMB/SME segment. Novell must now rediscover the heart of the consumer and create new ways of delivering the business enhancing solutions that SMB/SME's want and need, and that consumers in general require. One wonders if they gave the fortitude to do that without tripping over their own boot-laces. Novell's shareholders are understandably uncomfortable and are pressuring them to show greater market leadership and entrepreneurship.

Nervous shareholders can unsettle a business into actions that are antagonistic to its long-term goals and objectives. It is to be hoped that Novell do not make such a lamentable move. The desktop is as important to the SMB/SME market as is the server. Remember, the customer wants a complete solution that works reliably. Microsoft know that is what the customer wants, they too had best ensure that the next product shipped into this market does not repeat errors of the past. The SMB/SME market is apprehensive of all who offer a business solution and therefore Microsoft, Novell, Red Hat, and any other potential solution provider must act with confidence and with precision. In every respect the market is wide open for catalytic change. We live in exciting times.

The Importance of Customers

Our world is full of clichés, one of which says: Business is all about making money. The presuppositions that underlie this simple cliché are truly revealing. It is often used in a context that implies justification for treating people as less than human, and as if ethics do not matter. Business should be most concerned about serving customers to enrich their world, and the measure of how well this is achieved is the profit (money) made out of doing it well. You see, the question is one of what or who is central to a business. If the sole purpose of a business is self-enrichment, and if ethics and morals do not count, then why not just rob a bank?

So, reflecting back on the earlier discussion regarding channel conflict, it must be recognized that business involves relationships and trust. Any company that wishes to build a long-term stable and profitable business must protect its business relationships. This means that a hardware manufacturer, or a software development house, must respect and protect the relationships it has with its VARs, as well as those of the VAR with its customers. Anything that undermines that trust is ultimately destructive of the market as a whole.

Linux has not failed in the market at which it has been directed, it has performed like a star! But it can not be denied that Linux has failed to address the most significant market from which it could have grown exponentially.

The market for Linux-based business solutions has not gone away. The market has changed over the past decade, but it is still abundantly to be found in the breadbasket of a nations' productivity--the major contributor to its Gross Domestic Product, the SMB/SME market.

There is a saying, that the more things change, the more they stay the same. Another way this is sometimes expressed is, that with every change in the market there is a reaction that seeks to cancel out the net effect of the change. There is no substitute for clear perception, action with conviction, persistence and determination to succeed. There is also no-one who can catapult a business towards stardom than willing and committed customers and consumers.

It must be recognized that in the entirely unlikely and unreasonable event that Linux might totally replace all competitors in the enterprise segment of the market, in the grand scheme of things, it would still be a minority player. If any Linux or OSS business wants to stand a chance to succeed in the larger market it must tackle the opportunity as close as possible to where the tap-root of its greater financial well-being is found.

Nothing can be gained by whining and complaining about the problems of doing business in particular market segments. Even if the whole IT industry and many power-brokers within it are diametrically opposed to everything it will take to be successful, the business that moves forward with dedication, determination and self-discipline will find the road to success. Every great journey begins with the first step.

Conclusion

The question is not: "Will Linux make it in the SMB/SME market?", but rather "Who will be the successful entrepreneur who takes Linux into this market with a total business solution package that will capture the mind of the a needy and demanding market place that is keen to buy and willing to commit to the company that can deliver the goods?"

The bigger question is: "Do honesty and integrity in business pay dividends? Do customers care?" Too many business managers today compromise in this vital area and act as if unethical behavior, and callousness towards the customer are the most effective means of building a profitable business. I believe that we reap what we sow.

Open Source Software and Linux developers have delivered a technological wonder. The market is more than ready for the next step--that of taking the undeniably phenomenal business solutions that have been developed to the market that wants then in force. The problem does not rest with the technically brilliant people who have brought OSS technologies into being, they have made (and continue to make) their contribution to society. The challenge to create a viable business that can benefit from these great things rests with business entrepreneurs.

A self-perception that Linux is not ready for the SMB market is defeatist. If you believe that a small business can not compete with a large one, or that Linux businesses are too insignificant to compete with Microsoft (or any other large established vendor) this perception is self-fulfilling. It is tantamount to surrender before the battle has begun.

In every market, a new entrant who has a cunning new solution to an old problem will be resisted by existing players who view the encroachment on their turf with vitriol and disgust. The old guard will use every means available to resist change and to eliminate the offense of change. They will buy loyalties from anyone who is willing to surrender ethics and integrity to help stamp out the new kid on the block.

Every bully eventually poisons his own well, and eventually the customer/consumer will be motivated to resist coercion. Buyer's revenge is a sweet victory indeed.

Who will step up to the bar to change the market completely?

Do you have what it takes to match the needs of the moment?