Will the Open Source Business Model Die?

If I can make one fairly certain prediction for 2001, it is

that by this time next year, there are likely to be fewer Linux companies

around. For two years, at trade shows and on other occasions, I have been asking

people from TurboLinux, Red Hat, and other Open Source supporters how they

expect to make money, any kind of money. The answer usually is something like

this "We will sell support contracts."

The Open Source business model may make for an interesting

college thesis. In the real world, however, many of these ambitious Linux

companies are simply writing a story that’ll end in Chapter 11 (Bankruptcy).

And that appears to be the course many Linux companies are

on. The poor financial results of one Linux company after another go to show

that the Open Source model is a disaster in progress.

Case in point: TurboLinux. The Silicon Valley company has a

great solution to run everything from a single Linux workstation to clusters of

powerful Linux servers running large enterprises. The company is among the top

three or four Linux distributors. It’s the leading Linux distributor in Japan

and the rest of Asia. And the company has been pulling out all the stops these

past two years promoting itself in heavy advertising campaigns and large booths

at trade shows.

In the first week of November, the company reported a loss of

$29 million on sales of just $3 million. After so much marketing effort, that

clearly underscores the fiasco of the Open Source business model. Having burned

through tens of millions of venture capital dollars from Intel and others,

TurboLinux is now asking investors to open their wallets as it tries to raise

$60 million in new capital by going public. Wall Street, of course, needs

another Linux IPO like it needs a hike in interest rates. Most Linux stocks have

plunged from a year ago, leaving investors holding billions of real and paper

losses. VA Linux shares have lost 93 percent from where they stood at the end of

the first day of trading.

The problem with Linux and other Open Source solutions is

that consumers and most businesses don’t want to pay for support. The market

expects that if you throw out a solution, it’s supposed to work with little or

no expert help. Support is a last resort for when something unexpectedly goes

wrong or your own IT people can’t figure something out. And, of course, most

companies offer technical support for free as a strategic selling tool.

By making support the center of the Open Source fiscal

universe, the industry is sending the message that Linux needs a lot of support

and that’s probably too complex for the average IT staffer to figure out. And

for most people willing to try out Linux, that’s exactly what it is.

Worse, to be valuable, the actual support that’s delivered

must be instant and of such high quality that almost any problem is resolved in

one call. But with resources scarce these days, Linux distributors can’t

afford to hire and maintain a large staff of highly-qualified technicians who

need to be experts in Linux OS, applications, and networking. People who are

really good shouldn’t be doing tech support in the first place. They can snap

up jobs paying two or three times as much.

While Linux distributors may be going the way of the dot.com

industry, that doesn’t mean the Linux OS won’t become a long-term force in

the industry. On the contrary, the Linux OS will likely grow in popularity in

running networks, Internet appliances and other devices that can benefit from a

highly reliable, secure, scalable, and free OS.

But chances are Linux will migrate from a group of idealistic

start-ups to being absorbed by giants like IBM, Dell, and Compaq who see Linux

as a vehicle to better position themselves against Sun Microsystems and

Microsoft.

Paul Stewart



runs Silicon Valley News Service, an IT news service in the Silicon Valley