The Business of Open Source

Saturday May 17th 2008 by John Terpstra

A look at the challenges facing the Linux/Open Source desktop and server markets, with a close examination of current market dynamics.

It has been more than two years since the Yin and Yang article was published on LinuxPlanet, a long time in the information and communications technology world. The purpose of that article was to highlight the opportunity for greater entrepreneurial focus to gain broad, fast adoption of Linux and open source computing solutions. Absent significant market uptake on the personal computer (desktop and laptop) of Linux and/or open source products, goods, or services, those who measure market share will continue to ignore these as irrelevant to most users.

The process of gaining wide market share for Linux and open source solutions is challenging. The information technology (IT) market is littered with obstacles to success. Even well entrenched market leaders can be negatively impacted by these. The release of Microsoft Vista has shown that negative market forces can hold back even the heavy-weights of the IT game. A bad move, whether real or imagined can significantly alter the course of events. Bad press, or news of potential litigation can really place a damper on a product launch. Everyone who brings a product or service to market is subject to market forces that may exert a control that goes beyond that expected.

Much has changed in the IT world over the past two years. In this article we consider a few of the key developments over this period within the context of opportunity for getting the open source solution offering right to enable them to gain rapid market penetration. It is the author's hope that the statistics and opinions presented here will inspire you to help create the personal computing future that you would wish for.

In the spirit of open reflection, your criticism is not only welcome, but is actively sought. No one has all the answers, but by working together we can achieve more that the sum of single contributions. How do you think the future of Linux and open source will evolve? Will Microsoft be toppled from the average personal computer user's desktop? How? Who will make this happen?

The purpose of business is to make a profit, or at a minimum to be able to sustain operations from incoming cash flow. For the personal computing market this is particularly challenging. I invite you to consider why.

The holy grail of business is to sell stuff in acceptable volume at sufficient margin to be rewarding. The reward, or return, that justifies sustaining of the business depends on the goals and objectives of the organization. A not-for profit organization has entirely different objectives than a for profit business. In a market such as the information technology world, where component costs are falling rapidly and where consumers expect accelerated cost reduction and like to see increasing overall system performance , finding the right reward can be a vexing proposition.

Computer hardware vendors do battle with supply-chain and distribution-chain dynamics in a highly competitive world. This business environment results in extreme conservatism and reluctance to engage in products that may not move rapidly, or that may result in excessive post-sale support costs. Slow moving inventory is a sure recipe for financial loss where supply-side prices are constantly in rapid decline and where early obsolescence results in short product life cycles.

Sales of factory pre-installed Linux-based computer systems continue to be successful in the server market. The same cannot be said of desktop and laptop markets; these continue to be elusive, even in the explosive China market: "Although China's Linux market as a whole doubled from 2003 to 2006 to $20 million per year, sales of Linux desktop software grew more slowly. In fact, the market share of Linux desktop software in China dropped from 16% to 12% in the same period" If China is the world's fastest ICT growth market, how does this bode for the global market?

The lack of penetration of Linux-based laptops and desktop systems is also clearly demonstrated by the fact that the only systems offered require special order and production-line processing by all vendors. There are two notable exceptions—the OLPC platform and the ASUS Eee PC. Microsoft is now offering drastically reduced cost and limited functionality Windows platform solutions. This is a defensive strategy to block the adoption of Linux in this market. They seem to understand the significance of the thin-edge of the wedge. If Linux can gain significant market entry it may become a fatal Achilles heel for Redmond.

Published statistics for Linux-based market penetration by companies such as IDC are reported based on original equipment sales of pre-installed operating systems. Reliable statistics for the number of after-market installed Linux systems do not exist.

After-market installation of Linux results in a bias against original equipment manufacturer (OEM) involvement. All systems that are sold with an operating system other than Linux are already accounted for. Thus, after-market changes do not make a strong business case for the emerging Linux market segment. The result of after-market Linux installation is a negative inertia against OEMs taking a leading role in Linux adoption—something that shows no prospects for change in the immediate future. This counter-inertia is driven by the belief that when customers modify OEM equipment, it results in an increase in post-sale support costs that detracts from the real value of the original sale.

Some one I know purchased a laptop in late 2006. It came with MS Windows MCE pre-installed and had one of the famous Microsoft Vista Capable stickers on it. The owner upgraded his system to MS Windows Vista Premium and soon ran into hardware difficulties, so he contacted the vendor's support facility only to be told that before returning the system for warranty support, he must restore the system to as sold condition because the vendor could not support systems that have been modified by the owner. This demonstrates how OEMs struggle to keep after-sales support costs under control and also demonstrates the problem of after-market installation and support for Linux.

One must therefore consider how OEMs view the actions of original device manufacturers who provide Linux drivers for components used in systems that are shipped from the factory exclusively with MS Windows installed. Should this be seen as a hostile activity that undermines the profitability of the sale of OEM systems? What about Linux distributions? Do they cause the loss of profitability in OEM systems? Will we soon see the day that all desktops and laptops are sold with technology that will prevent after-market installation of Linux?

My HP dv9010us laptop has Broadcom WiFi miniCard that does not work under OpenSUSE 10.3 Linux. In order to get WiFi support under Linux, I purchased a Gigabyte Atheros chipset-based WiFi miniCard, but the BIOS on my laptop refuses to boot while that card is installed. Apparently HP deliberately crippled the BIOS to impede the ability to install an after-market WiFi card. The laptop refuses to boot with an Error 104 so long as the new miniCard is installed. Whatever the reason, this behavior by the OEM interferes with my rights as the owner of this device and forces me to go to extra trouble if I decide that it is in my best interests to replace this component. This demonstrates the challenge faced by consumers who want to run after-market Linux on a laptop.

Note: I just blew away the OpenSUSE installation and found that Ubuntu 8.04 finds the Broadcom WiFi card and with one click enabled the card. I now have WiFi support with the original WiFi card without the need to alter the system BIOS. Thank you Ubuntu and Canonical!

After-market Linux on systems present a problem for those who want to see public recognition of the more rapid adoption of Linux grow. After-market installation understates real adoption rates of Linux and open source software and over-states the installed base for competing systems.

The lack of concrete market share statistics for Linux and open source adoption at the desktop is depressing to some, yet considered to be irrelevant to others. Optimism and an expectation that desktop Linux and open source software will triumph despite apparent odds against it continues to abound from many quarters.

When the printing press was first invented few realized its potential and many saw it as just a novelty. The beginnings of WYSIWYG (what you see is what you get) desktop displays and printing capability likewise was not seen as a truly disruptive technology, but today we know otherwise. Of course, WYSIWYG displays coupled with the web has not completely displaced hard-copy printing, but the publishing industry is undeniably in a period of transition as a result of it.

The emergence of tools like Google and Yahoo have the potential to be highly disruptive to the desktop. Nicholas Carr's book, The Big Switch: Rewiring the World, From Edison to Google, makes a strong case to reconsider our presuppositions regarding the future of corporate information processing systems. Edward Cone's article provides stunning cause to question our assumptions about how users will interact with digital information over the next decade. If the data center gets displaced by disruptive technologies, what will become of the desktop as we know it? Will it too morph into a new technology that will become a commodity, low cost, household item?

You see, if the data center goes away, if the grid wins, if companies such as Google, Yahoo, etc. emerge as the sole keepers and processing engines of the worlds information, why will the desktop still be important? Would it not make sense to displace the desktop device with a tool that does not require constant updates and maintenance?

Imagine for a moment, what would happen if we could purchase a device from the local white goods store, one that has a battery life of over 48 hours or continuous use, can be read in bright sun light, and can be recharged from solar power. What if that device has fully embedded software that never needs to be modified or updated? What if Google or Yahoo could provide all the interface tools and applications the user would ever need? Would it not make Microsoft Windows (of any flavor) or Linux on the desktop totally irrelevant?

Carr says it all comes down to economics—that is what drives business decisions, but it also drives the consumer's decisions. In March 2007, I spent two days in electronics stores to observe how consumers purchase desktop and laptop systems. I was stunned to hear customer after customer ask for a desktop or laptop computer without without Windows Vista. Many knew of the problems faced by early users of Vista. They knew about lack of driver support for printers, scanners, cameras, etc. and they wanted relief from early adopter pains. Who can blame them? But, more importantly, there are lessons we can learn from consumer reluctance to embrace something that is new, particularly if it is in any way disruptive. But there is another aspect that we must not ignore: eventually consumers overcome their hang-ups. What happens then?

Vista is well on its way to becoming a ubiquitous desktop platform. In the end, unless there are other mitigating circumstances, Microsoft has won. It may have cost a bit to get it there, but in the short term the consumer caved in. Why? Because the choice that is being offered by stores like Best Buy is Windows Vista or Mac OS. Many consumers believe that MacOS is a better platform than Microsoft Windows, but it costs more—much more!

Carr presents a compelling argument. He says "Whether you look at record companies, or newspapers, or increasingly at movie studios and television studios, you see what happens when all of this stuff gets very, very cheap. They're competing against free products, sometimes, often products produced by amateurs or volunteers." Ultimately, free is hard to beat if the quality is good enough.

Will Linux be the platform that delivers just good enough in time to create a paradigm shift from the desktop and laptop to the new-school ultra-mobile, wireless enabled, consumer device that will work transparently the world over providing previously unimaginable access to the all the information that will be sage-guarded, housed, processed, and delivered to you over the grid? We do not know. We just do not know! But we must consider what will become of those who will not, or can not, change their computing practices.

There will always be a transition market, and there will always be a residual market. This is perhaps the area that should be the target for Linux and open source solutions development, look at is as a training and preparation ground for the disruptive change that may follow. One question still begs an answer: How will all of this be delivered to the end user, the consumer?

This question, along with the current state of the server markets, will be examined in this articles Next Part (coming soon).

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