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Linux may be open source software, but does that mean you don't have to pay for it?
Tim Reason, CFO Magazine
September 1, 2001
High tech is not an arena rich in historical irony, but it has its moments. One came last year, when Microsoft CEO Steve Ballmer told analysts that Linux, the (potentially) free software that continues to attract the interest of business customers, has "the characteristics of Communism that people love so very, very much about it." At roughly the same time, IBM, a company generally not known for its Marxist worldview, threw its considerable weight behind Linux, dedicating $1 billion to the software's development and pledging to invest more than $300 million in Linux services during the next three years. And defense witnesses in Microsoft's recent antitrust trial continually cited Linux as evidence of a robust, competitive marketplace--hardly a Communist ideal. (For the record, wasn't it Microsoft's distribution of free copies of Internet Explorer that sparked cries of market abuse in the first place?)
No less ironic is that IBM, the company credited with inventing and using FUD (fear, uncertainty, and doubt) as a means of fending off the threat of new technology, may help dissolve the FUD that Microsoft and other firms have thrown around Linux, the operating system software that can be downloaded for free from various Internet sites. Linux may not carry the high price tag of other operating systems, but IBM's embrace is purely pragmatic. As Linux gains wider acceptance, it creates a growing market for hardware and services. IBM, therefore, not only trumpets the availability of its own Linux-ready hardware, but also makes frequent mention of the growing number of software applications that can run on Linux machines. In June, the company counted 2,300 such applications--an increase of 30 percent from just three months earlier. "A mature operating system would have 10,000 applications," admits Daniel D. Frye, director of IBM's Linux Technology Center, in Beaverton, Oregon, but those that are available, he notes, "are the big ones--like SAP and Lotus Notes."
A Question of Support
Linux has been lurking "around the edge of the enterprise" for years, notes Frye, handling file serving, messaging, and other IT plumbing jobs. But now it is moving into the mainstream applications that run Corporate America, and its overall market presence continues to grow.
As Linux becomes a viable platform for business applications, one key question for finance executives is whether a system praised for being free will exact a high price in the form of service and support. Computer geeks may be thrilled by the communal spirit of collaboration in the Linux world, but once a company has placed a crucial application, such as ERP (enterprise resource planning), on the Linux platform, decisions about how or whether to acquire adequate service and technical support become an important element of corporate risk management.
Microsoft, in fact, recently underscored the importance of support by using it as something of a stick to force corporate customers to enroll in ongoing maintenance contracts. Linux enthusiasts point out that open-source software offers relief from that sort of arm-twisting. But it does create a situation ripe for the marketing talents of IBM and other companies (Linux distributors Red Hat, Caldera, Mandrake, TurboLinux, and SuSE among them) that are eager to convince Corporate America that the combination of free software and paid support makes sense.
Kevin Thompson, CFO of Durham, North Carolina based Red Hat Inc., says that of the 15 million to 20 million copies of the company's Linux product in use today, most were downloaded or copied for free; only about 1.5 million were paid for. But those that did pay were usually corporate customers eager to obtain some level of support. Typically, Linux distributors include some form of installation support with a paid download or CD package of the Linux operating system, which costs anywhere from $40 to $80. Beyond that, corporate contracts of increasing complexity and cost are available from distributors or third parties. IBM, for example, offers 24-7 remote support via phone and Internet, as well as service specialists who can supplement internal staff on-site if needed. Premier support contracts often include performance guarantees that pledge to resolve problems within a specific time frame.
Despite the vast number of free Linux downloads, Thompson insists that "most corporations are not going to download Red Hat Linux for free. They are going to want to acquire technology from a company that will support it. My belief is that very few corporations using open- source technology on a widespread basis have downloaded it for free."
Red Hat, IBM, and others seeking a living from Linux are betting on Thompson's belief. But is he right? Linux users provide one another with virtual--and free--support via a host of online forums in much the same way that they share source code improvements. Combined with Linux's vaunted stability, that makes support a tough sell. "It actually has been mildly frustrating that so many people are unwilling to pay us for service and support because the damn thing never breaks," admits Frye.
Who Needs It?
At NHL.com, hockey fans can perform sophisticated searches for particular players and particular feats--the regular-season save percentage by New York Rangers goalie Mike Richter, for example. The Apache Web servers, database, and Web-site search capabilities that support those features are all running Linux that was downloaded for free--that is, without support--from Red Hat's site, says Peter DelGiacco, vice president of IT for the National Hockey League.
New York-based oil company Amerada Hess Corp. also uses unsupported Linux for Apache Web servers as well as for much of its network management infrastructure. Granted, these are relatively straightforward applications for which Linux is well suited, so neither the NHL nor Hess needs much outside help. Frye maintains that will change. "Linux came from [an arena of] simpler applications and highly technical staff," he says. "[But] it is moving into [an arena of] complex, large applications with nontechnical staff, which will trigger a growing need for service and support."
But Hess also uses 300 Linux-based servers clustered together to create a supercomputing application for oil exploration, which is "a core, critical business application," says Jeff Davis, a Houston-based senior systems programmer. The supercluster helps create three- dimensional models of subsurface areas under the Gulf of Mexico, using enormous data sets that run into multiple terabytes. "We use it to decide what to do as far as poking holes in the ground," says Davis. And Hess does it alone. "We currently have no Linux support," says Davis. "I haven't come across anything I couldn't solve by looking at the Internet."
"Amerada Hess is an unusual customer," insists Frye. "It spends the money to have a highly technical staff that is comfortable working with the [online] open-source community." Frye prefers to point to Shell International Exploration and Production BV, in Rijswijk, the Netherlands, which also uses a cluster of Linux servers for oil exploration and modeling, but buys support from IBM. Shell's oversized cluster uses 1,024 servers, which exceeds Linux's usual buffer limits, explains Jack N. Buur, principal research physicist. "IBM was and is instrumental in solving these issues," he says. "Shell is not a computer hardware nor [an] IT company."
The jury is still out on whether it is Hess or Shell that is unusual. Examples abound of companies that run essential business systems on Linux without outside support. Long Beach, California-based Kenwood Americas Corp. moved its legacy business applications to a Linux-based server and ran into trouble. That could have been serious-- the system handles inventory control, accounts receivable, accounts payable, general ledger, sales analysis, order entry, and even employee time sheets and attendance records. But a quick search of Internet newsgroups helped Kenwood's systems administration manager, Gary Calvin, figure out what was wrong and fix the problem--in two hours.
What CFOs Should Know
As Linux matures, support, compatibility, and vendor viability become important issues. "I think a CFO is wise to be skeptical and make sure that vendors selling products based upon Linux have a long- term plan, appear to have lived up to their plans in the past, and are trustworthy," says IDC vice president Dan Kusnetzky, "just as I would expect them to be skeptical of an accounting software vendor."
Fair enough. But finance professionals are more likely to have heard about Linux on the news than in the hallways. "The vast majority of the Fortune 2,000 has Linux running somewhere--it's hard to keep it out," says IBM's Frye. "But in many cases, [it was installed] without the knowledge of the CIO or the CFO."
That's partly because Linux handles important but obscure IT grunt work unobtrusively, and partly because it requires no cost justification. "Actually, that is really one of the advantages of Linux," says Calvin. "You can bring it in the door without any justification at all and experiment with it on an old piece of hardware. You don't have to build a business case ahead of time. If it doesn't work, you don't say anything about it at all. If it does, then you just present the working solution."
And IT purchasing decisions typically don't--and shouldn't--begin with the operating system. "The operating system is obviously important, but it is the application that drives the decision," says the NHL's DelGiacco. He says the platform for NHL.com was driven by the market penetration of the Apache Web server, which happens to run very well with Linux. "The bonus was that [Linux] didn't cost very much."
Most CFOs must rely on their IT counterparts to make the right decisions about support. "I report to the head of finance," says DelGiacco, "but we are not going to have discussions about operating systems." NHL.com gets an average of 40 million page views a month, he says, but during the recent player trade deadline, that spiked to 4 million page views in a single day. "What finance cares about is, can [the operating system] handle the amount of traffic, and is it going to support our needs?" says DelGiacco. "I'd better have the right answers." CFOs wondering what the right questions are regarding Linux might begin by asking who will do what should something go wrong.
Tim Reason (timreason@ cfo.com) is a staff writer at CFO.
According to a Gartner Dataquest study, 8.6 percent of the shipments in the traditional U.S. server market during the third quarter of 2000 were Linux-based systems. That number is expected to grow to 10 percent this year. Framingham, Massachusetts-based IDC conducted a broader study of the market for server software and concluded that while Windows led with a 41 percent share of software shipments in 2000, Linux was a strong second with 27 percent, up from 24 percent in 1999.
Both companies' estimates have been hotly disputed in the press and in Linux newsgroups. One reason Linux is controversial is that it is difficult to determine the market share of software that is often downloaded for free and installed on top of existing operating systems. Gartner's research accounts only for servers that were shipped with Linux preinstalled. Conversely, IDC's higher numbers are also an inexact measure because paid copies are so cheap (often less than $40) that, in many cases, they may be purchased for experimental or personal use only. But since corporations are the customers most likely to buy preconfigured systems or pay for software in order to secure support, the increase in both the Gartner and IDC figures suggests that corporate interest continues to grow. --T.R.
WHO'S BUYING THE BEER?
With companies looking to pinch pennies, the idea of free software-- particularly operating systems, which typically come with hefty license fees--may sound intriguing. But Linux supporters are fond of explaining that the software isn't really free in the sense of "free beer"--that is, gratis--it's free in the sense of "free speech." Many advocates of free software prefer the less confusing term "open source" software, which emphasizes the public nature of the source code.
The premise of Linux is that users can modify, improve, and share the source code as they wish, but they can't turn it into a proprietary product. In general, Linux and other free software products are distributed under the General Public License (GPL). As defined by the Free Software Foundation, the GPL is a sort of inverted copyright (actually referred to as a copyleft) that "requires those who distribute a program to also pass along the right to use, modify, and redistribute the software." (Although it is the most well known, Linux is not the only open-source software available, nor is GPL the only copyleft license.) Nonetheless, the practical result of such licenses still is that Linux is typically available for download at no cost. --T.R.
LINUX BIG AND SMALL
APPLIANCE SERVERS: Linux works well for servers handling a single application like firewalls or Web servers.
DISTRIBUTED ENTERPRISE: Linux also works well in remote configurations. Example: Kenwood Americas Corp., which uses Linux as a file server to provide daily sales data and backup for its five outlet stores.
CLUSTERS: Look out, Deep Blue. Linux allowed Amerada Hess Corp. to string together off-the-shelf Dell desktop PCs and create a supercomputer that displaced IBM's SP2, the very machine that beat chess master Gary Kasparov.
MAINFRAME: Yes, the mainframe is back, and it's running Linux--an increasingly popular method of eliminating servers and lowering the total cost of ownership. That's what Winnebago Industries Inc. is doing now as it experiments with moving its mail server back onto the mainframe, an approach that may help it reduce the $100,000 annual expense by 30 percent.
DESKTOP: The practicality of Linux on the desktop is the subject of much debate. Most of Corporate America is addicted to the Microsoft Office suite of Word, Excel, and PowerPoint, and despite the availability of alternatives, most executives will think twice before prying their workforce off such an entrenched system. --T.R.