A Linux start-up on the path to profits

newsmaker Canonical CEO Mark Shuttleworth is ready for Ubuntu to make the leap from the desktop to the server room.

Ubuntu has been a phenomenon in the desktop Linux niche. But Canonical Chief Executive Mark Shuttleworth, who founded the project, has his eyes on the more lucrative server market.

Despite abundant rivals, Ubuntu has risen to prominence within the Linux niche, but that's just a means to an end. Canonical plans to become profitable by 2008 by extracting revenue from the same server market that Linux leaders Red Hat and Novell specialize in.

Shuttleworth deliberately is taking a different approach from those rivals, though: The free, downloadable version of Ubuntu is the same as the supported, certified version. He hopes to satisfy conservative customers with five-year support plans on versions such as June's Dapper Drake; for the leading-edge crowd, versions such as last week's Edgy Eft come with 18-month support.

Shuttleworth sold his security firm, Thawte Consulting, to Verisign for $575 million in 2000 and sunk some of the proceeds into a trip into orbit on a Soyuz spacecraft. But his dissatisfaction with the practices of Red Hat and Novell led him back into the computer industry in 2004 with South Africa-based Canonical.

Shuttleworth discussed his agenda with CNET News.com's Stephen Shankland.

You had a lot of options when you were thinking about another start-up. Why did you choose this path?

I tried to avoid it. But I realized that I needed to be busy and active. I'm fascinated by Linux, passionate about Linux. I started making a list of potential projects, and Linux just kept creeping up to the top of the list. I recognized it was going to be a very, very tough competitive environment. It was by far the most audacious (plan), but it was also pissing me off at that time that the established players weren't going to converge on what I saw as the right strategy. In my mind there really was a clear opportunity both commercially and philanthropically.

I think if Red Hat had adopted this strategy--or you could say stuck with this strategy--then I don't think I would be underwriting Ubuntu.

"I started making a list of potential projects, and Linux just kept creeping up to the top of the list...In my mind there really was a clear opportunity both commercially and philanthropically."

It seems Red Hat's financial success, as opposed to its market share success, finally caught on when they started aggressively monetizing their market share by releasing Red Hat Enterprise Linux. Would Red Hat have succeeded commercially if they hadn't dropped their free, certified product?
I'm not exactly sure. I think we are in a quite a different world today than the one when Red Hat changed their strategy: Linux is much more widely used and it's much more capable as a platform than it was in those days.

Red Hat felt they needed to narrow their scope of their focus to specific market segments, and I think they will continue to dominate those market segments. I think they are a well-run company that makes basically good decisions. They have very good engineering capacity and so on. I don't see that we or anybody else is going to unseat them from that particular position, but the flip side is going to be finding a growth outside of that box. I'm not sure that Wall Street is a warm and cuddly partner in taking on longer-term challenges.

Do you expect most of the money to come from server or desktop support?
In the next three years? From the server.

And after that?
Then it gets more interesting. Who can tell?

So it's open after that?
Yeah. The desktop is very important to us because there's this opportunity to create something new that hasn't existed before. But for us, it's been a way of establishing ourselves. Because other companies had to effectively abandon the desktop, there was an opportunity for us to do something exciting in Linux. If we'd come out with a sever product two years ago, it would have been very difficult to gain this traction that we have now.

So, desktop Linux is a foot in the door to customers.
Very much.

I've seen a lot of desktop Linux startups fall by the wayside. I've seen Novell and Red Hat try but then step away. It seems you concur it's not a very profitable business.
I agree. I don't think there is money to be made in selling desktop Linux. I don't think the world is looking for another shrink-wrapped proprietary desktop environment. But there is an opportunity to create something great and that you can give away, and we've done that. I feel very good about what we've done on that front and that's opened the door.

Who is your existing customer base?
Right now, it's self-motivated early Linux adopters on the developer and individual side. On the enterprise side, it's people who are managing very large farms of very standardized Linux infrastructure--Web farms, Web hosting companies who provide very scalable outsourced services. Those are the two areas where Ubuntu has a very quick and easy-to-understand value.

"I don't think there is money to be made in selling desktop Linux. I don't think the world is looking for another shrink-wrapped proprietary desktop environment.

Now that you have your long-term support version, Dapper Drake, how will that market change?
We have to continue to deliver the cutting-edge stuff, which is really best encapsulated with our regular six-month releases. That keeps the forward-looking early adopters happy and that's a very essential audience for us. Then on the other side, we have to learn how to offer the things that some of the slower adopters, the more pragmatic adopters, are looking for, which is predictability more than anything else. Predictability around the hardware that we support, the ISVs (independent software vendors) that we work with, the services that we provide them, and so on. One challenge for us is going to be keeping those two quite different groups happy at a time.

Novell and Red Hat both selected the strategy where they have a slow-moving certified version and a fast-moving community version. You have a different strategy, where once every two to three versions, you'll offer long-term support, with the versions in between for including the cutting-edge features.
Exactly. There are a couple differences between our strategy and those of the other players. We would never characterize our six-month releases as beta releases or experimental releases. They are fully supported, and you can buy full contracts on them. They get security updates, which are freely available, so you don't have to subscribe to a network service to get them. They really are genuine, honest-to-goodness, high-quality releases, and they are being deployed in many cases in very high-volume enterprise environments.

Featured Video