The march of Linux: how much should Microsoft worry?

Lesley Meall discovers how Linux has turned into a serious proposition for business applications, not because it�s a free operating system, but because it is freeing corporates from the shackles of ever-increasing technology costs

We all know that Windows is the only operating system that matters: Gates has spoken, and for a decade the business world has listened, nodded sagely, and bought Microsoft - with the costly hardware upgrades and software licence fees this demands. But the past few years have been tough ones for the IT industry, and its clients, with both camps looking for ways to minimise their costs and maximise their profits. This has provided a powerful incentive for investigating alternatives, and helped boost the popularity of Linux-based systems. It is not yet a serious threat to the hegemony of Microsoft on the desktop, but that does not mean it won�t be... eventually.

�We are not seeing broad Linux adoption at the expense of Windows,� asserts Peter Houston, a senior director with Microsoft�s Windows server group, adding: �Linux growth seems to be coming at the expense of Unix share,� and then in what Houston calls �early adopter industries�, such as �financial services�, where companies tend to �take greater technology risks�.

The statistics go some way towards reinforcing this assertion. By the end of Q4 2002, Linux was powering 14% of the servers sold to run corporate networks, up from 9% the previous year, according to market researcher Gartner; by some measures, uptake is closer to 25%. This is a market traditionally dominated by Unix boxes because of the operating system�s proven reliability, and Linux uptake here doesn�t eat into Microsoft�s desktop market, but it does threaten to curtail its expansion into the server market. It�s an area where Microsoft is pushing hard, but its revenues grew a mere 5% in this sector last year, compared to 15.5% in the desktop market.

Tactical uptake

OpenForum Europe, a group established to promote open source take-up within business, confirms that although Linux uptake is on the increase, its use tends to be tactical rather than strategic because of the perceived risk. �Most companies don�t have the luxury of the big bang approach,� says Graham Taylor, the organisation�s programme director. �Support and integration are the key factors,� he explains. �Users need to see how Linux can be integrated into existing systems, so they�re making the migration bit by bit.�

Not everyone is quite so tentative. When Amazon made the move from Unix to Linux back in 2001, it did so on hundreds of servers running mission-critical applications; and it handled the entire transfer in a mere 90 days. This was clearly a high-risk transition, but the rewards were substantial. �When calculating the economics, most people focus on free licences, saving around $500 per box,� says Joe Barker, leader of Amazon.com�s Linux programme. But Linux is rarely free. It may be created collectively by thousands of volunteer programmers, but most customers buy boxed versions including support and documentation from specialists such as Red Hat and SuSe. Even if the operating system was completely free, the saving this represents would be trivial compared to the savings from Linux versus Unix servers. �We found ourselves replacing boxes costing $60,000 with new ones priced at around $10,000,� adds Barker.

The list of converts dipping their toes in the water now includes high profile corporates Amerada Hess, Boeing, DaimlerChrysler and Morgan Stanley, charities such as the Samaritans, government bodies as far apart as Germany and China, plus a growing band of SMEs in areas as diverse as animation, retail, catering, electronics and waste management - as well as financial services. So uptake is not quite as selective as Microsoft would like, and analysts and industry pundits think that 2003 will be the year when Linux penetration will climb to the point when it is taken seriously by many that previously disregarded its potential in the business sector.

But why Linux?

The need to get more bang for a buck has been one of the prime movers behind Linux�s more recent successes. �One of the great challenges for computing in any charity is to provide more for less,� says Mike Hermon, the Samaritans� information systems manager. He believes that �Linux-based solutions offer all the benefits of low-cost and efficient use of resources�. Samaritans applications are on the communications side, supporting e-mail applications - an area many companies have chosen as their first foray into Linux land. Many of the large-scale Linux implementations have so far been in this area but, in the US in particular, Linux is stepping out of the back-office and into the front line, where it is starting to carve a niche in applications traditionally handled by Windows.

While businesses are understandably reluctant to part with Microsoft applications such as Word and Excel, there are areas where they seem increasingly comfortable with the idea of cutting the apron strings. Pizza chain Papa Johns has replaced its old electronic cash registers with inexpensive Linux machines; likewise Regal Cinemas, a chain with 520 theatres in 36 states, now uses Linux-based systems to link its concession stands with its back-office accounting systems. Even Linux-flavoured cut-price ERP systems are now emerging from US upstarts such as OpenMFG. Though, it has to be said, the more specialised the application is, the more difficult it is for an open-source offering to gain critical mass.

Another major driver behind corporate uptake over the past couple of years has been growing Linux support from industry stalwarts such as IBM and Hewlett-Packard. It fits nicely with their strategic imperatives (such as reducing the dominance of Microsoft), and while many of the start-ups that helped keep Linux alive for the past decade have fallen by the wayside, the big boys have picked up billions in revenue selling and servicing Linux products.

IBM is the biggest beneficiary. By effectively commoditising the operating systems business, and focusing on the provision of technology services, Big Blue was able to bag $1bn in Linux-based revenues in 2002, more than double the figure for 2001. The company now has more than 4,600 Linux customers, and the involvement and support of other IT heavyweights such as Dell, Intel, HP and Oracle, means that increased corporate sales are almost a certainty. Whether Linux - or any other operating system - can ever decimate Microsoft�s dominance in the desktop market remains to be seen. But it�ll be a fight worth watching.

Lesley Meall is a writer on business and technology issues.