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The Yin and Yang of Open Source Commerce - page 7

Introduction

  • November 1, 2005
  • By John Terpstra

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.

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