L I N U X :
Fad or Future ?
Separating Hype from Reality
The Linux operating system has taken the computing world by storm. Every major technology publication has feature articles promoting Linux and its potential to under-mine the dominance of Windows. Hardware and software vendors announce Linux products and services daily, and new companies focused exclusively on Linux have started to emerge. Linus Torvalds, the creator of the Linux kernel, is revered in the technology community as the David to Bill Gates’ Goliath.The stock market has taken notice as well. Linux vendors Red Hat, Cobalt Networks, Andover.net, and VA Linux Systems have all reached sky-high valuations upon their IPOs, while existing software vendors such as Corel and Applix have seen their stock prices surge at the announce-ment of Linux products. Additionally, a consolidation wave is already striking the Linux market as key players such as Red Hat, VA Linux, and Corel buy up other firms to broaden their Linux capabilities.
Over the past year, the rate of Linux adoption has been tremendous, and the trend should continue. In 1998, Linux was the fastest growing operating system with 190% year-on-year growth, capturing 16% of the new server market. Total shipments of Linux for clients and servers is projected to grow at greater than 25% annually from 1999 through 2003. According to a recent survey, over a third of enter-prises are using or plan to use Linux within the next year. We estimate that Linux has close to 20 million users today and project that the total Linux server market will exceed $5 billion by 2003.
Despite this initial success and media attention, Linux pen-etration has been limited to low-end servers and sectors of
Amidst all the hype, technology providers and users alike are unsure about the level of commitment they should make to Linux. At the strategic level, there are three major questions that need to be addressed to separate the hype from reality.
• Will Linux – like Unix – fragment into multiple flavors? • In which segments will Linux become a competitive
alternative to Solaris or Windows NT?
• How can technology providers make money in an open-source model?
In this paper, we present Booz•Allen & Hamilton’s views on these questions and make recommendations on how companies can best embrace the Linux revolution.
Will Linux Fragment?
A significant threat to the success of Linux is the possi-bility of fragmentation. The Unix operating system began as a single operating system in 1969, but was splintered by hardware vendors in the late 1980s, ultimately forming six major competing operating systems: Sun Solaris, HP-UX, IBM AIX, SGI Irix, Digital UNIX, and SCO UnixWare. This fragmentation increased supplier and customer costs for development, application porting and system maintenance, and slowed the adoption of Unix in a number of segments. Many fear that Linux is fated to repeat this course.
Today, more than 22 companies sell the Linux operating system (Exhibit 1 illustrates the top Linux distributors
by Barry Jaruzelski, Vice President Gerald Horkan, Principal Randy Lake, Associate
the common Linux kernel. The concern is that competi-tion among vendors will lead to a split into incompatible versions of Linux, which will slow adoption as applica-tion developers will be less willing to support multiple versions. Linux could become just another splintered branch of Unix. As an example of this threat, there is already a split in the Linux community between two competing graphical user interfaces, KDE and Gnome. We believe that Linux is unlikely to splinter in the near term:
First, in the past ten years, market power has dramati-cally shifted from hardware companies to software devel-opers, who have a vested interest in a unified Linux. Second, any changes to the Linux kernel must be approved by Linus Torvalds, resulting in a single stan-dard kernel. Of course, vendors will provide overlays and patches that improve the functionality for certain end-user environments, but all major Linux providers are currently supporting the Linux Standard Base (LSB) to prevent fragmentation beyond the kernel. The Linux license requires any improvements or modifications to the kernel to be shared. And, in the spirit of open source, Linux providers typically release the code for improve-ments or added functionality outside the kernel. For
instance, IBM has contributed a Linux developer kit for Java and SGI has announced plans to contribute the XFS file system and OpenGL to the open-source community.
Finally, we anticipate that consolidation will take place among Linux providers. Initially the bigger players will have an incentive to cooperate closely to grow the market. Yet, over time, there will still be challenges to a unified Linux.
As hardware vendors attempt to push Linux into high-end computing environments, there will be a conflict between tuned functionality and universal compatibility. For Linux providers, the challenge will be to deliver per-formance on Linux that can compete with proprietary Unix systems at the high-end without having to modify the kernel in ways that burden low-end users.
Also, Linus Torvalds has stated that he anticipates that Linux may fragment according to the different devices it runs on. There are currently efforts under way to cre-ate an embedded Linux standard and different standards for the desktop and server environments may emerge as well. This sort of fragmentation may actually be benefi-cial, as it will permit Linux to optimize for specific plat-forms or devices, without creating competing standards within a device segment.
Where Will Linux Succeed?
We believe that if Linux avoids fragmentation, it will join Solaris and Windows NT as one of the three domi-nant operating systems. Linux has already demonstrated success in the Internet infrastructure and technical com-puting markets. We anticipate that Linux will also become a viable option for embedded systems, allowing it to further penetrate the enterprise.
Contrary to the prevailing view among the press, which views Linux primarily as a challenge to Windows, we think Linux’s greatest threat is to proprietary Unix oper-ating systems, especially Sun’s Solaris. Sun’s recent move to make Solaris’ source code freely available is evidence of this. True, Linux’s ability to compete with traditional
Server
Desktop
N. America Europe Asia
Embedded
Segment F
ocus
Primary Geographic Market
Exhibit 1: Market Positions of Linux Distributors
Caldera
SuSE
TurboLinux
Red Hat
Lineo
* While the major Linux distributors have penetrated multiple geographic markets, this chart demonstrates only primary geographic focus. Source: Booz•Allen & Hamilton analysis
*
Blue Cat Debian
Unix is directly gated by its ability to scale to more processors. However, its widespread adoption in the enter-prise depends more on commercial application availability and support by the major enterprise hardware vendors.
Internet Infrastructure
Linux has proven itself a robust operating system for single-use appliance servers in the Internet infrastructure market. Linux servers are projected to represent 24% of appliance server revenue, or $3.8 billion, by 2003. As Exhibit 2 demonstrates, most enterprises running Linux are using it to provide Web/Internet infrastructure, database, e-mail, file/print sharing, systems management, and network management. We estimate that more Web sites run on Linux than on any other operating system. Linux is also a popular choice for Internet server and rendering farms.
Linux has succeeded in these environments due to its low cost, reliability, compatibility with older servers, and the availability of basic applications. However, though well suited for simple Web serving, Linux does not yet offer the high availability and monitoring tools required for larger e-commerce and application serving uses.
Technical Computing
Linux servers are being used in technical computing markets that deploy customized vertical applications, such as the scientific research, education, and bio/chem markets. For example, Linux is being used to run high-end customized computing clusters (known as “Beowulf clusters”) for universities and government research facili-ties. Higher-end systems for technical applications have been traditionally supplied by SGI and IBM. Since these computing intensive markets have traditionally been dominated by Unix – and Linux is a Unix derivative – users find Linux easy to deploy and manage. Many tech-nical computing ISVs have already ported their applica-tions to Linux and are just waiting for demonstrated customer demand to begin shipping them.
General Enterprise/Commercial Use
Enterprise Servers & Mission Critical Applications
Although Linux has had significant success in low-end and technical computing server markets, it has made limited progress to date in the general enterprise serving market. Linux is projected to have only 3%– 4% of traditional server revenues by 2003. Linux must make progress along several fronts in order to exceed these expectations:
• Technology gaps
• Service and support offerings • Application availability
Currently, Linux is not the optimal operating system for high-performance enterprise applications. Specif-ically, high-end networking is limited by the lack of a robust journal file system (JFS), and there is only basic support for symmetric multiprocessing (SMP), cluster-ing and storage-area networks. Because of limited SMP functionality, Linux can only support up to four proces-sors today, while high-end applications can require 64 or 128 processors. Also, administration tools and backup support are still limited. However, rapid progress is being made, and these technology gaps do not pose a long-term barrier to Linux adoption in the enterprise.
W eb/Internet Infrastructure Database E-mail File/P rint Sharing System Management Network Management
% of Enterprises Using Linux
Exhibit 2: Functional Use of Linux
0% 10% 20% 30% 40% 50% 60% 70% 80%
Similarly, while Linux offers only limited service and sup-port for the enterprise today, the situation is changing rapidly. A significant amount of support is already avail-able for free on the Web. Most Linux providers and hard-ware vendors have also begun providing Linux support, certification, and training programs. Of the traditional hardware vendors, IBM, HP, and SGI have made the most significant investments in their support capabilities for Linux, while a Linux start-up, LinuxCare, has also targeted this opportunity.
Application availability remains the most significant challenge to the success of Linux in the enterprise. Organizations do not purchase operating systems; they purchase applications and then choose the optimal plat-form based on application perplat-formance and overall IT architecture concerns. Thus, Linux will succeed only if popular enterprise applications are already ported to and tuned for the system.
All the major database vendors have ported to Linux, and IBM and Red Hat, with its Cygnus acquisition,
are promoting Linux-based software development. Addi-tionally, Corel’s acquisition of Inprise/Borland should enhance the prospects for Linux development tools. Still, most enterprise applications are not yet available on Linux.
For applications already running on a version of Unix, porting to Linux is not a significant challenge. But port-ing Windows NT applications is difficult and requires a much more significant resource investment from ISVs. Thus, until ISVs see enough demand from customers to justify porting, Linux’s opportunities in the enterprise will remain limited.
To summarize, Linux will continue to make inroads in the enterprise, but its penetration is likely to be slower than in other market segments. Exhibit 3 illustrates the markets where Linux is likely to succeed.
Desktop Systems
The corporate desktop is another challenging segment for Linux. In 1998, Linux had only 2% of client operating system shipments and is projected to have no more than 5% by 2003. The key barriers in this market include:
• The dominance of Microsoft Office
• Relatively complex installation and user interface • Lack of emulation software or data translation tools Microsoft Office is the de facto standard on the desktop, commanding even higher market share in office suites than Windows enjoys in desktop operating systems. Porting Office to Linux is feasible, but would require an invest-ment of Microsoft resources. More fundainvest-mentally, since such a move could threaten the Windows operating system franchise, it is unlikely that MS Office will be available for Linux. However, other vendors are targeting this market. For example, Corel and Sun are both offering office suite applications for Linux.
Some Linux vendors have begun to target the desktop mar-ket by simplifying Linux installation and the user inter-face, offering office productivity applications, providing professional services and support for desktop users and allowing users to run Microsoft Windows applications in Linux environments. Such efforts will indeed make it easier for desktop customers to use Linux, but they are unlikely to threaten Microsoft’s dominance.
Large
High Growth
Small
Potential for Linux Penetration Market
Opportunity
Exhibit 3: Where Will Linux Succeed?
Low-end Server Farms/ Internet Infrastructure Embedded Systems Thin Clients ASP Application Servers Custom Applications Technical Computing Low-end Desktop Corporate Desktop/ PCs Enterprise Application Servers
Limited Unclear Significant
However, there are significant opportunities for Linux in certain segments of the desktop market, namely: 1. Low-end desktop clients
2. Limited use, custom application environments 3. Thin clients
In the low-end desktop market, for example, free Linux could be used in sub-$200 desktops, where Windows would be too expensive. Linux is also being adopted for limited-use clients in environments that require stability and a high-degree of customization: Bristol Hotels & Resorts and Burlington Coat Factory have already adopted the system for their single-use desktops. Thin clients represent another potential opportunity. In the thin client model, application availability is not critical to an operating system’s success because applications do not run on the client operating system. Therefore, if the application service provider (ASP) model proliferates, Linux may have an opportunity to win over corporate users as a thin client, due to its low cost, stability, and networking features.
Embedded Systems
Embedded systems are small-scale computing devices like set-top boxes, appliances, and palmtop computers that are typically built for a single use. Historically, these devices have run light, proprietary, and highly customized operat-ing systems. In these segments, Linux offers low cost, sta-bility, connectivity, easy to modify code and improved secu-rity and support features. In addition, by adopting Linux, embedded system developers gain access to the large and growing Linux developer base.
Linux has had some recent big wins in this market. Intel chose Linux over Windows CE as the operating system for its low-cost Internet access devices. Tivo, an Internet gener-ation VCR, and Itsy, a prototype palmtop from Compaq, are based on Linux. Red Hat’s Cygnus controls 75% of the market for embedded systems compilers and recently released the first toolset for embedded Linux developers. Linus Torvalds is quite supportive of this market, as evidenced in the most recent release of the Linux kernel, which provides special support for embedded systems. There are two major challenges in this market. First, Linux providers must agree on a standard version of Linux for
embedded systems, as the full operating system is too large for smaller devices. Multiple efforts are under way to determine standards and a consensus is emerging. Second, Linux will face intense competition from Microsoft’s Windows CE and embedded NT and Sun’s Jini. The mar-ket is still up for grabs, however, and this space represents a real opportunity for Linux to take the early lead in the market’s evolution.
How Can Technology Providers
Make Money with Linux?
Linux provides growth opportunities for existing technol-ogy providers, but the challenge is how to differentiate in an open-source world, and how to migrate or protect a company’s existing installed base.
As shown in Exhibit 4, multiple levers can be used to differentiate technology vendors. Each will be discussed in turn.
Hardware Vendors
Providing differentiated Linux hardware is far more difficult than with Unix, since the platform will be an
Hardware
Industrial design Hot box
Software
Applications for enterprise/ desktop
Value-added software Compilers/development tools
Service & Support Solutions stacks Professional services Maintenance
Basis of Differentiation Market Impact Exhibit 4: Linux Market Opportunities
Significant Impact Limited Impact
open-source operating system likely running on commod-ity Intel chips. As a result, hardware vendors’ margins are likely to decline, and some doubt that anyone other than Dell can make money “selling boxes” in the Linux world. In this way, the Linux business model for hardware ven-dors resembles Windows NT economics. Thus, while most major hardware vendors have released Linux-friendly products, only IBM and SGI have made a significant tech-nology investment to date.
However, limited opportunities for platform differentiation do exist. For hardware vendors, a strong industrial design team will be critical to optimize the footprint and manage-ability for customer environments, especially in the large-scale Internet infrastructure farms where space is a premium and easy hot swapping is critical. There also may be oppor-tunities at the high end to deliver superior Linux perform-ance through innovative system architecture design. This will apply primarily to niche technical markets, where even small performance improvements are critical. In the open-source world, however, there is less room for pure hardware differentiation – one of the main reasons why Digital, Sun, HP, IBM, and others splintered Unix over ten years ago. Going forward, if Linux succeeds, the major hardware vendors will have to adjust their business models, relying even more on support and services and strong customer relationships to capture value.
Software Vendors
Linux offers two primary opportunities for software developers:
1. Performance enhancement overlays or development tools
2. Ported applications
There are several opportunities to improve the function-ality of Linux. Developers can provide software overlays for improved performance or usability, or provide development tools and compilers that will make it easier for ISVs to develop additional applications for Linux.
Software providers can also port popular applications. If already Unix based, this will not require a significant investment except at the high end. However, Windows-based ISVs should conduct a rigorous cost-benefit analysis
before making the investment. Porting makes sense where there is existing demand for applications, such as in Internet infrastructure and technical serving markets, or where there is no dominant operating system in place, such as the embedded systems market. However, in the desktop and general enterprise serving markets, ISVs must determine if there is a compelling reason for users to migrate to Linux.
Service & Support Offerings
In an increasingly commoditized hardware and software world, services remain the key opportunity to add value. To this end, there is demand for vendors to provide Linux solution stacks that combine hardware, software and services and are targeted to specific vertical markets or applications, such as turnkey Linux solutions for ISPs. In addition, there is an opportunity for service providers to provide customized Linux solutions for high performance end-users.
Service and support providers can differentiate their offer-ings by leveraging the expertise of the Linux developer community. They can hire open-source developers on a contract basis, create Linux incubators (e.g., providing free office space or equipment in exchange for services or equity), or create on-line developer portals. In order to build long-term competitive advantage, service providers must first engage the Linux community, and then continue to incorporate what they learn into their organizations to develop expertise in-house.
Retaining Existing Customers
Prior to betting big on Linux, vendors must consider how they will retain or migrate their existing customers. There is a risk that current customers will perceive a Linux campaign as a lack of commitment to their current proprietary platforms. Also, migrating a customer to Linux may act as a catalyst for customers to reevaluate vendors, giving competitors an inroad.
To address these risks, vendors must articulate a clear and consistent strategy, including a roadmap that demon-strates their commitment to existing customers. Vendors could also provide incentives to customers to migrate to Linux over time.
Conclusions
To summarize, let’s return to the questions posed at the beginning of this paper:
• Will Linux – like Unix – fragment into multiple flavors?
• In which segments will Linux become a competitive alternative to Solaris or Windows NT?
• How can technology providers make money under an open-source model?
Linux is unlikely to splinter in the near term, and it has already become a viable platform in the Internet infra-structure and technical computing segments. It also has a real opportunity to become a leading operating system for embedded systems and thin clients, but its ability to pen-etrate the enterprise server or desktop markets are less clear. The critical gating factors are application availability and improvements in scalability and administration. Exhibit 5 illustrates how Linux compares to the other major operating systems for the enterprise.
We anticipate that proprietary Unix operating systems will continue to lose market share to Linux. In addition, Linux may win share from Windows in some very low-end client and server segments; otherwise, it is unlikely to pose a major threat to Microsoft in the near term, particu-larly on the desktop.
In the open-source Linux world, there will be significantly less room for hardware differentiation, and major vendors will increasingly need to rely on support and professional services to generate profits. One of the biggest challenges for computer system suppliers and application developers will be articulating a clear roadmap for their current customers to mitigate migration risks. There are signifi-cant opportunities to develop solution stacks for specific verticals, which should provide customers a distinct value added and thus justify attractive margins. Software developers must clearly understand the investment versus return for porting or developing applications for Linux. In some cases, especially for non-Unix applica-tions, the economics are likely to be prohibitive. Finally, technology providers must leverage and learn how to work cooperatively with the often quirky Linux community.
The open-source model is a powerful phenomenon in the computer industry, with implications for software development and industry structure that have yet to be realized. The rapid growth and popularity of Linux signify the real potential for an open-source, components-based software industry, where applications are assembled from pre-built and tested best of breed software modules developed by a broad base of premier software developers. Given the market’s embryonic state, the full impact of Linux necessarily remains unclear. With the end-game still open, one thing is certain: for companies that can separate the hype from reality, there is still a substantial opportunity to join the competition and drive the Linux market. High Low Scalability * Limited Significant
Enterprise Application Availability
Exhibit 5: Relative Server Operating System Positionings by Year End 2000
IRIX HP-UX Solaris Windows 2000 Windows NT
* Scalability in a single system, excluding clusters
SCO UnixWare Tru64 Unix AIX Tandem Non-Stop Linux
Source: Booz•Allen & Hamilton analysis
Bibliography
1. Dataquest, “Linux Opportunity Greater in Server Appliances
than in Traditional Servers, Gartner Group,” 1999. 2. IDC, “Bulletin: Linux Operating System Market Overview,”
1999.
3. IDC, “Client Operating Environments: 1999 Worldwide Markets and Trends,” 1999.
4. IDC, “Server Operating Environments and Software Platforms: 1999 Worldwide Markets and Trends,” 1999.
Barry H. Jaruzelski
Barry Jaruzelski is a Vice President in Booz•Allen & Hamilton’s Communications, Media, and Technology Practice (CMT) based in New York. As an undergradu-ate at the University of Pennsylvania, Mr. Jaruzelski studied engineering and economics and later received an MBA from Columbia Business School. His past projects have included defining a growth strategy for an e-commerce software developer, defining a turn-around program of a workstation and server supplier, as well as establishing “a greenfield” NT business unit for a computer systems provider. He can be contacted at 212-551-6773 or [email protected].
Gerald C. Horkan
Gerry Horkan is a Principal in Booz•Allen & Hamilton’s CMT Practice and is based in the San Francisco office. He recently transferred from the Tokyo office. He has worked at Hewlett-Packard in California and Japan, and at Sun Microsystems. He received a BS in electrical engineering from Columbia University, with a joint BS in physics and mathematics. Mr. Horkan holds an MBA from the Harvard Business School and is fluent in Japanese. He can be contacted at 415-627-4221 or [email protected].
Randy M. Lake
Randy Lake is an Associate in Booz·Allen & Hamilton’s CMT Practice and is based in the San Francisco office. Prior to joining Booz•Allen, Mr. Lake was employed as a corporate attorney with Brobeck, Phleger & Harrison in San Francisco. Mr. Lake received a BA in political econ-omy from U.C. Berkeley, where he graduated Phi Beta Kappa. Mr. Lake also holds a JD from Harvard Law School. He can be contacted at 415-627-4258 or [email protected].
Booz•Allen & Hamilton
Founded in 1914, Booz•Allen & Hamilton is a global management and technology consulting firm serving clients in 90 countries around the world. With a team of more than 9,000 professionals, our goal is to assist our clients in defining and driving successful strategic transformations. The Communications, Media, and Technology Group (CMT) is one of the largest practices within the firm’s Worldwide Commercial Business.
www.bah.com
Booz•Allen’s Communications, Media, and Technology team interviewed a range of executives at 24 companies, including hardware suppliers, application software developers, and Linux distributors, to prepare this report.
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