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