How Linux Could Overthrow Microsoft

For as long as most technologists can remember, there has been “Wintel,” the $250 billion industry dominated by Microsoft’s Windows operating systems and Intel’s microprocessors. But “Lintel,” or the Linux operating system and Intel, is now encroaching on this empire, and behind it is the entire open-source software movement, which threatens to overthrow the Windows industry. Faced with this challenge, Microsoft is showing classic symptoms of “incumbents’ disease.” Rather than remaking itself, Microsoft is using legal threats, short-term deals, and fear, uncertainty, and doubt to fortify its position. But this strategy probably won’t work. The Linux operating system and the open-source model for software development are far from perfect, but they look increasingly likely to depose Microsoft.

With some improvements, the open-source model could even become the dominant global production model for software. If it does, it will be an irony. The open-source movement was launched 20 years ago by an antiestablishment technologist and for years was ridiculed by the mainstream computer industry. But it quietly drew more adherents every year, spreading first among iconoclastic hackers because its legal structure and culture offered them freedom from “the suits” – that is, the entire managerial, financial, and legal apparatus of the commercial technology sector. But now IBM, Hewlett-Packard, and Intel have become supporters of Linux and open-source development. Their goal is to reduce Microsoft”s prices and power by commoditizing mass-market software.

If that happens, it will be a further irony. Microsoft achieved dominance by imitating the products of others, encouraging the copying of the IBM PC and cannibalizing the proprietary computer industry. But now a revitalized IBM, aided by Hewlett-Packard, Dell, Intel, and Oracle, is fomenting revolution, while Microsoft increasingly resembles the old IBM, an entrenched monopoly that survives by forcing the world to buy its high-priced, aging, increasingly bloated products. (Microsoft said in April that one server product will run Linux – a symbolically significant concession, but hardly a sign that the ship is turning.)

How open source will fare without an enemy like Microsoft is one of several open-ended questions it must face. But then, it’s always faced open-ended questions, and those questions always, somehow, get answered. Indeed, at a recent conference, Linus Torvalds, the inventor of Linux, was asked about his long-term vision for it. He replied that he was an “anti-visionary.” When people looked too far into the distance, Torvalds said, they missed things in front of them and stumbled. In fact, the next step for Linux is obvious: it is becoming big business, fast.

This because for all its flaws, the open-source model has powerful advantages. The deepest and also most interesting of these advantages is that, to put it grossly, open source takes the bullshit out of software. It severely limits the possibility of proprietary “lock-in” – where users become hostage to the software vendors whose products they buy – and therefore eliminates incentives for vendors to employ the many tricks they traditionally use on each other and on their customers. The transparency inherent in the open-source model also limits secrecy and makes it harder to avoid accountability for shoddy work. People write code differently when they know the world is looking at it. Similarly, software companies behave differently when they know that customers who don”t like a product can fix it themselves or switch to another provider. On the available evidence, it appears that the secrecy and maneuvering associated with the traditional proprietary software business generate enormous costs, inefficiencies, and resentment. Presented with an alternative, many people will leap at it.

How Open Source Grew
The open-source model was invented by Richard Stallman, an exceedingly brilliant MIT computer scientist not known for his love of ideological compromise or corporate profits. In response to the fragmentation of the Unix operating system into proprietary, incompatible dialects, Stallman resigned from MIT in 1984 and started a crusade. He began work on an anti-Unix operating system called GNU, which stands (recursively, of course) for GNU’s Not Unix. He created the Free Software Foundation to distribute that work and the idea of an open-source license to govern it (see “Who Will Own Culture?”).

Although Stallman is rather doctrinaire in his antipathy for business, the world is indebted to him. In 1991, when a 21-year-old Linus Torvalds wrote the original Linux “kernel” – the part of an operating system that controls a computer’ hardware – for his personal computer, Stallman’s ideas informed his decision about how to distribute it. Torvalds is a quietly confident, consummately practical man who has proved to be an impressive leader and manager as well as developer. His creation attracted interest from other programmers, who began to contribute improvements, with Torvalds informally coordinating their work. In the mid-1990s, Linux benefited from two potent forces. The first was the Internet, which enabled electronic software distribution and decentralized collaboration among many programmers working independently. The second force was growing frustration at the limitations imposed by proprietary software vendors – particularly Microsoft and Sun Microsystems.

And so Linux entered commercial use. Its first, and still most successful, niche was Web servers; for at least five years, the majority of the world’s Web servers have used open-source software. Then, several years ago, IBM started to contribute money and programmers to open-source efforts. IBM, Intel, and Dell invested in Red Hat Software, the leading commercial Linux vendor, and Oracle modified its database products to work with Linux. In late 2003, Novell announced its purchase of SuSE, a small German Linux vendor, for more than $200 million. IBM invested $50 million in Novell. IBM, Hewlett-Packard, and Dell began to sell hardware with Linux preinstalled. IBM also supports the Mozilla Foundation, developer of the open-source Firefox browser, and with Intel, HP, and other companies recently created the Open Source Development Labs (OSDL), a consortium promoting the business use of Linux, which has hired Torvalds and other open-source developers.

Now, Linux is running on everything from $80 routers to cell phones to IBM mainframes, and is much more common on desktop PCs. Red Hat is a highly profitable $200 million company growing 50 percent per year, and commercial open-source vendors serve many important software markets. For instance, in databases, there is MySQL, which now has annual revenues of about $20 million, doubling every year. In application servers, there is JBoss, and in Web servers, Covalent.

In the server market, the eventual dominance of Linux seems a foregone conclusion. Michael Tiemann, Red Hat’s vice president for open-source affairs, told me, “Unix is already defeated, and there’s really nothing Microsoft can do either. It’s ours to lose.” Of course, Microsoft, which refused all interview requests for this article, sees things differently. But surveys from IDC indicate that in the server market, Linux revenues are growing at more than 40 percent per year, versus less than 20 percent per year for Windows. Unix, meanwhile, is declining.

Technologically, Windows and proprietary Unix systems, such as Sun’s Solaris, still have some advantages over Linux. But Linux is widely considered to be faster, easier to maintain, and more secure than Windows. As for Solaris, “Sun is very schizophrenic,” observed Tiemann. “They’re dead, too.” Sun recently decided to “open source” Solaris, but most observers feel that that decision has come too late. (Sun, naturally, demurs. “Open sourcing Solaris is a huge step forward,” says Simon Phipps, Sun’s chief technology evangelist.) When I asked Tiemann whether Microsoft could recover control of the server market if Windows went open source, he said no. “Windows is a proprietary, big-company product,” he said. “It isn’t modular or clean enough for outsiders to understand or work on, and it’s too big.”

In the desktop market, Linux”s progress is more difficult to gauge. There is sharp disagreement about how quickly open-source operating systems and productivity programs are colonizing PCs. IDC estimates that Linux holds about 3 percent of the global desktop PC market and that its share will double by 2008. Red Hat, Novell, Linspire, and others offer desktop Linux packages, and you can now buy Linux desktops and laptops from many computer retailers, including, interestingly, Wal-Mart. The Firefox browser, which runs on both Windows and Linux, already holds more than 5 percent of the world browser market. And then there is OpenOffice. In one of its quixotic attempts to snap at Microsoft”s heels, Sun decided in the late 1990s to purchase and then “open source” a small German competitor to Microsoft Office, just as Linux was starting to destroy Sun”s Unix business. OpenOffice runs on both Windows and Linux and, though presently a tiny player, is increasingly being adopted by individuals and businesses worldwide. Conversely, in the last quarter of calendar 2004, Microsoft”s revenues from Office and related software declined 3 percent relative to the year before, according to Microsoft”s publicly released financial statements.

Of course, Microsoft Office makes use of proprie-tary document formats, and OpenOffice reads them only imperfectly. (For this article, I sent some documents back and forth between the two suites; no data was lost, but formatting often suffered.) And Linux still lags Windows badly in support for the thousands of peripheral devices available for personal computers, in the number of applications that run on it, and in its ability to work with Palms and Blackberries. But for simple things, OpenOffice works, and its compatibility with Microsoft products is improving.

It is not clear that Microsoft can do anything to stop the open-source encroachment onto the desktop. Many of Microsoft”s PC products are now mature. Few users need any additional functionality, and Office exhibits very slow technical progress. Equally importantly, Microsoft has grown heavily dependent upon high prices and forced upgrades for its revenue growth and profitability. But many groups simply cannot afford Microsoft”s prices: students, poor people, educational institutions, and the majority of the developing world (see “South Africa,” April 2005). Microsoft”s products now represent a significant fraction of the total cost of a new desktop personal computer. Not only is Linux free or cheap, but because it is smaller than Windows and runs on many more devices, it can run on very inexpensive hardware.

Sensing a power shift, multinational companies and governmental bodies such as the European Union are beginning to insist that Microsoft provide open interfaces – that is, public descriptions of its software that let other programs interoperate with it. China, in particular, is determined to avoid dependence upon proprietary American software. It is concerned about trade disputes, about building its own software industry, and also about vulnerability to “back doors” that could be used for espionage. This last fear is not entirely irrational. Although there are no publicly known cases of espionage against China involving software, other technologies have been so employed. Five years ago China purchased a new, unused Boeing jet and hired U.S. contractors to refit it in Texas as China”s equivalent of Air Force One. Upon taking possession of the plane, Chinese security officers found that it harbored more than two dozen highly sophisticated, satellite-controlled listening devices, hidden everywhere from the bathrooms to the headboard of the presidential bed.

Geopolitical paranoia, however, is not the principal reason for the success of open source. The most commonly cited explanation is that evolutionary, decentralized, voluntary efforts can yield better results than those ordered by hierarchical management (see “Can Technology Raise Society’s IQ?” p. 80). But while this may be true, there is something even more fundamental at work.

The Open-Source Model versus the Proprietary-Software Industry
Proprietary software is licensed, not sold, with severe accompanying restrictions on copying or modification. This scheme was not devised by fools. It reduces piracy, rewards risk, and allows vendors to enforce compatibility. And when a proprietary vendor controls industry standards, it generates fantastic amounts of money; Microsoft alone has created about ten thousand millionaires through employee stock options. And yet there are now literally thousands of open-source development efforts like OpenOffice, Firefox, Linux, and Apache that have been downloaded tens of millions of times. Why?

Proprietary products cannot be customized by users. Product quality is uneven, in part because outsiders cannot examine source code. If a vendor controls major industry standards, as Microsoft does, it can force customers to upgrade – change to a newer version, and pay more money – almost at will. Furthermore, because lock-in to a proprietary standard is so profitable, imitation is a major threat. Software vendors therefore spend large amounts of money pursuing patents to deter clones and lawsuits by rivals.

Perhaps most importantly, proprietary vendors also treat plans, source code, and technology as secrets that must be carefully guarded. But in software development as in other activities, secrecy allows mistakes and abuses to be covered up. Bad work goes uncorrected; managers hide information to gain career advantage. To ferret out bad work, companies hire testing and quality-assurance groups that are kept separate from development groups, but this is wasteful. And if a software vendor has financial problems or an executive loses an internal political battle, a product can languish for years. If customers have problems, they tell the vendor and hope that it will listen. Sometimes it doesn”t, and that”s just too bad.

Open source inverts this model. Under the terms of the most common open-source licensing agreement, the GNU General Public License (GPL), a program”s source code must be made available whenever the program is distributed. Other programmers may do what they want with it, on one condition: any modifications they make must also be covered by the GPL – that is, their code must be made available. The GPL, in combination with the meritocratic culture of software technologists, has yielded a highly transparent, decentralized approach to software development, controlled by communities of engineers who determine the direction their efforts should take. Open-source development groups generally post all their work publicly, including specifications, source code, bug reports, bug fixes, future plans, proposals for enhancements, and their often vitriolic debates. Linux is open in this sense (and yes, Microsoft monitors it closely).

Relative to proprietary efforts, in open-source development there is little management hierarchy, strategic game-playing, patenting, and branding, and few flashy product launch events – in short, less crap. Even though the total Linux workforce is large – as many as ten thousand people – most of it is technical. Red Hat still has fewer than a thousand employees, though it is growing fast. By contrast, Microsoft has 57,000 employees. Microsoft”s legal department alone probably costs more money than the governance structure of the entire open-source movement. And there is no question that for many engineers, the comparative absence of crap is one of the major attractions of working on open-source projects – either as volunteers or as paid employees. “We have people lining up to work for us,” Red Hat”s Tiemann told me. “There are so many people interested in working on open source that we can be very selective.”

Furthermore, much of Microsoft”s technical workforce must work on quality assurance and bug fixing, which in open-source efforts often come for free from “the community.” Given its lower growth rate, Microsoft thus finds itself a victim of the forces that it once exploited: its average costs are fixed and high, while those of Linux are low and declining. Dion Cornett, who does investment research on open source for Decatur Jones Equity Partners, a Chicago-based investment firm, told me, “We estimate Microsoft”s development costs for server operating systems, from its public filings, at about $300 per unit. Sun”s costs for Solaris are even higher. Red Hat”s costs are about $100 per server now, and they”ll be under $75 within a year.”

Yet open source isn”t a perfect production system, either. Its strengths are also its flaws. Sometimes an old-fashioned top-down decision is useful, and the open-source model may not provide sufficient revenue to support everything users want when they want it. BitMover, a vendor of software development tools, used an intermediate model until recently. Its product was free to open-source developers on the condition that they did not use it to develop competing products. For proprietary software developers, it charged normal money. Recently the firm ended the free version, alleging that it had been abused. Larry McVoy, BitMover”s founder and CEO, has long been involved with open source, but is nonetheless somewhat skeptical about it. “Microsoft is successful because in open source, nobody gets paid to do the grunt work, like writing boring drivers for every printer on the market,” he told me. “Furthermore, open source is largely a copying machine, doing reimplementations of existing products; there”s very little innovation, in part because the rewards for it are so low.”

There is some truth in this. And while the problem is declining as commercial demand for open-source software increases, this creates a final irony. One objection to open source is that, in the end, it might just produce a new generation of big, bad, rich monopolists. With the growing importance of Red Hat, some critics see Microsoft all over again. In an open-source world, one might ask, how could Red Hat possess power in the way that Microsoft presently does? The explanation lies in the premium placed upon compatibility, stability, and service by large corporate customers. Red Hat examines every piece of code it ships; it certifies applications; it ports its code to seven different processor architectures; it provides and tests device drivers; it writes code to improve performance on specific machines; it guarantees service for seven years; it provides the same products in more than a dozen languages; it has someone there to answer the telephone 24-7. Customers who run their businesses on Red Hat won”t switch easily, even though a rival”s source code is equally available. The code that Red Hat ships therefore becomes, to some extent, the real Linux standard.

But for all this, Red Hat will probably never wield the same power that Microsoft currently has. One reason is that, because its products are subject to the GPL, other firms can and do take Red Hat”s code and sell it themselves.

What the Future May Hold
Given its profound benefits, it is interesting to speculate on how the open-source model might evolve. Many believe that the model can spread to other industries. An obvious possibility is publishing; several interesting experiments are under way, including Wikipedia, an open-source encyclopedia that lets anyone contribute articles or edit existing articles (see “Larry Sanger”s Knowledge Free-for-All,” January 2005). Another is the Public Library of Science, which provides free refereed scientific journals on the Web that visitors can reproduce or use to make derivative works, provided they credit the original authors. This scheme bypasses the huge, expensive (and phenomenally profitable) proprietary technical publishing industry. Biotechnology and pharmaceuticals are also considered to be fertile areas for open-source experimentation.

Finally, one wonders whether the best features of open source could be combined with the advantages of the proprietary model. One possibility would be to add mechanisms for compensating independent open-source developers. There are interesting precedents. For example, in the music industry, members of the American Society of Composers, Authors, and Publishers receive compensation whenever their work is performed in public or played on the radio or television. Similar compensation rights could be built into open-source code without causing the lock-in problems associated with proprietary software. Vendors and users could choose whether or not to accept code that required compensation; they could rewrite expensive code and replace it; compensation rights could be negotiated, including the possibility of automatically terminating them after a period of time.

Whether this happens or not, there seems little doubt that further evolution will occur. Steve Weber, a political scientist at the University of California, Berkeley, who has studied the open-source industry extensively and consults with IBM and other companies, says, “The model is still very young. There”s no doubt that the model will evolve along with the technology and the industry.” Its achievements are already impressive, both socially and technologically.

Creators, unite; you have nothing to lose but your suits.

Charles Ferguson has a PhD in political science from MIT, where he also completed postdoctoral work and where he will be a visiting scholar this fall. He is the founder and former CEO of Vermeer Technologies, which he sold to Microsoft for $133 million in 1996. Ferguson still holds a substantial quantity of Microsoft stock, a position that is partially but not completely hedged. He also holds a smaller quantity of Red Hat stock, a position that is similarly partially hedged. He has no other financial interest relevant to this article.