New York Times, September 28, 1998
By Amy Harmon
URHAM, N.C. -- In an experiment that is half business model and half populist movement, a small company called Red Hat Software is charging $50 for an operating system called Linux that anyone can get free on the Internet, and it is paying programmers decent wages to write code that it will give away.
While that might seem the most contrarian of business plans, Red Hat is attracting blue-chip investors to the notion that free can be profitable.
The movement, known alternately as free software and open source, is built around freely distributing source code, the basic commands that programmers write. Publishing these instructions before they are compiled into the binary language of computers offers other programmers the chance to examine the code and suggest or actually write improvements.
At its best, the movement's proponents say, open source could harness the collective wisdom of the world's best software designers for social good, undermine Microsoft Corp.'s Windows monopoly and propagate an operating system that does not crash.
A great deal of their passion is inspired by Linux, a version of the Unix operating system developed by Linus Torvalds of Finland and numerous collaborators worldwide. Linux (rhymes with "cynics") has attracted a cult-like following among programmers and systems developers who say it is a more secure, flexible and economic alternative to Microsoft's industrial-strength operating system, Windows NT.
Despite that kind of following, the business-model half of the Red Hat experiment strikes many people as counterintuitive.
Robert Young, the chief executive of the three-year-old company in Durham's Research Triangle Park, insists that open-source products can make money. And although he has nothing against contributing to a utopian vision of software development in the process, his pragmatic focus has lately attracted interest from venture capitalists and corporate backers.
"The software industry is built on intellectual property," said Young, a 44-year-old Canadian who used to run a computer-leasing business. "You own your technology, and if you get it widely disseminated you can coerce your user base into buying new releases. We give up that control -- and those profits -- but that is exactly what is going to drive our success, because that is what's best for the user."
Among Red Hat's potential corporate backers are Intel Corp. and Netscape Communications Corp. An announcement is expected as early as Tuesday, when Young is scheduled to appear with executives from both companies in San Jose, Calif.
Such support, particularly from Intel, whose close ties to Microsoft have recently shown signs of fraying, would lend considerable credibility both to Linux and to Red Hat's plans to build a business by providing customer service and technical support for the free operating system.
Recent support for Linux and other open-source projects seems to suggest a growing acceptance in the software industry of an alternative to the tradition of proprietary code.
IBM, for example, recently licensed Apache, a popular program for serving up World Wide Web sites. Like Linux, Apache is a free, open-source product.
And Netscape last February published the source code to its Navigator browser for navigating the World Wide Web. Forced to stop charging for Navigator by Microsoft's free distribution of its competing browser software, Explorer, Netscape gambled that going one step further and releasing its code would give Navigator a competitive advantage over Explorer in the long run by spurring innovation.
"Open source has already radically changed the computer industry," said Tim O'Reilly, whose publishing company, O'Reilly & Associates, makes money producing user manuals for free software. "In the first round, open-source software will not beat Microsoft at its own game. What it is doing is changing the nature of the game."
Torvalds, who wrote Linux in 1991 when he was a student at the University of Helsinki, licensed it in a way that allows anyone to submit improved code and redistribute it at will. Since then, thousands of programmers have volunteered elaborate improvements of their own design for no more reward than the respect of the geek subculture.
Submissions to Linux's core code, or kernel, are subjected to instantaneous electronic peer review, a technological meritocracy that has so far insulated Linux from the kind of fragmentation that has befallen other operating systems built around the international Unix standard.
Despite the operating system's reputation for power and reliability, corporations have been reluctant to use Linux because nobody owns it. That is why the emergence of companies like Red Hat and Caldera Systems Inc. -- a Linux distributor with a business plan based on corporate training, services and support -- is considered crucial to the success of the free operating system.
Now, bolstered by commitments from companies like Oracle, Netscape, Intel, Informix and Corel, all of which have announced plans to support Linux in recent months, Red Hat and Caldera are getting more aggressive.
But their business plans are fragile. For instance, since Red Hat wants whatever code it writes to become part of the Linux kernel, it must be published under open-source rules. That means that www.cheapbytes.com can, and does, sell Red Hat's entire Linux package for $1.99 -- $48.01 less than Red Hat's customers pay.
Red Hat's Young estimates that as few as 1 in 10 of the people who use Red Hat have paid him for it. But that is one of the paradoxical pillars of charging only for support and services, not for intellectual property.
"My job is not to compete with Microsoft," Young stresses. "It's to lower the value of the operating system market. Microsoft makes $5 billion in operating system sales. If I get that market, I automatically make it a $500 million market."
Skeptics are quick to note that the technology companies lining up behind Linux, with its estimated 7 million users, have their own competitive reasons to oppose Microsoft, which has 300 million users for its Windows operating systems.
What is more, the skeptics point out, no one knows how long Linux's labor-of-love development by programmers will last.
"An operating system is a living thing," said Carl Shapiro, an economist at the University of California at Berkeley and a co-author of "Information Rules," a book to be published this week by the Harvard Business School Press. "Ongoing investment and upgrades are essential to attract customers. Nice cooperative thoughts are not enough."
Still, use of Linux is growing by more than 40 percent a year, according to IDC, a research firm. And a 1997 survey by another research firm, Datapro, found that Linux scored higher with users than any other operating system. Dell Computer, which last year began offering Linux to customers who ordered at least 50 computers a quarter, said that more interest had been expressed in Linux in recent months.
James Love, director of Ralph Nader's Consumer Project on Technology, which has encouraged the Justice Department to investigate Microsoft's Windows licensing deals with computer manufacturers, said his office had found it impossible to buy Linux already installed on a PC from a major commercial vendor. But he managed to install it on his own computer, and he was impressed.
"This is the first time we've seen an industrial-strength product developed without a corporation behind it, and we think it's amazing" Love said. "If the operating system is in fact a natural monopoly, then what could be better than having an operating system that nobody owns?"
No one argues that Linux poses a threat to Microsoft right now. But at a time when the next version of Windows NT appears indefinitely delayed by a complexity that has grown unmanageable, Linux enthusiasts are beginning to find back-door ways to introduce the operating system into their corporations.
For example, when Randy Kessel, a manager for technical analysis at Southwestern Bell, part of SBC Communications, installed Red Hat's Linux on the 36 desktop personal computers that monitor network operations in Kansas and Missouri, it was done on something of a dare.
After poor results testing a memory-intensive application with Windows 95, Windows 98 and Windows NT, a colleague had asked Kessel why, if he thought Linux was so great, he did not try it.
"So we took a mission-critical operation and we deployed a free operating system there," Kessel said. "And now we spend a tenth of the administration cost for those desktops that we do for the rest of the 315 we use."
Even so, he met resistance.
"The legal department says, 'When it fails, who do we sue?' " he said. "The IT department says, 'It's not a proved product.' Corporate security says, 'It's hackerware.' But it's the only thing that worked."
Other recent Linux converts include the movie director James Cameron's special-effects company, Digital Domain, which used the operating system to help create the illusions in "Titanic."
And when the city of Medina, Wash., was overwhelmed by documents -- including the four file cabinets filled with paperwork on the mansion built by Microsoft's chairman, Bill Gates -- it installed an electronic document retrieval system that runs on Linux.
Ray Jones, president of Archive Retrieval, which installed the system for Medina, said he was aware of an irony in his choice of an operating system. But he recalled feeling vindicated when a bug arose in the scanning process.
"We asked a question on the Internet, and within a couple of hours we had an answer," Jones said. "I fixed it myself with three lines of code. With a commercial product I'd have had to wait for Microsoft to fix it -- if it ever did. This way, the whole Linux community benefited."
Marc Ewing, 29, who started Red Hat in 1995 because he found downloading the various pieces of Linux a major headache, said developing software in isolation -- without public contributions -- "would be like typing with one arm."
And yet for Linux to ever compete with Windows, it must be easier to use. Now users must control Linux with a complicated syntax of arcane commands. So Ewing oversees six programmers working on a project called Gnome, an effort to hide the nuts and bolts of the operating system behind the kind of graphical interface familiar to users of Macintosh or Windows machines.
While they sleep, other groups elsewhere in the world are getting up to work on Gnome. Often by the next morning, someone will have translated the code into Portuguese.
But Torvalds, who now works for a chip design company in Silicon Valley, insists that the true strength of an operating system is reliability.
"You use a Windows machine and the golden rule is: Save, and save often," Torvalds said. "It's scary how people have grown used to the idea that computers are unreliable when it is not the computer at all -- it's the operating system that just doesn't cut it.
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