Canonical seeks profit from free Ubuntu

The South African startup is starting in earnest a push to make money off the free version of Ubuntu Linux.

If you want to understand Canonical's Linux business strategy, think Red Hat 2000.

Canonical is the 65-employee start-up behind a popular version of Linux called "Ubuntu". The company is betting that it can win a place in the market using a strategy that dominant Linux seller Red Hat has dropped.

Red Hat offers two versions of Linux: Fedora Core and Red Hat Enterprise Linux. Fedora Core is free, but relatively untested and unsupported by Red Hat, while RHEL is supported and certified, but must be purchased. With Canonical's Ubuntu, however, the free and supported versions are identical--the approach Red Hat abandoned in 2003.

"We believe that Ubuntu should be free to everyone--not just a trial version, but our very best version," said Christopher Kenyon, Canonical's business development manager. The South African company even ships free CDs anywhere in the world. Using that strategy, it expects profitability within 24 months, he added.

Ubuntu has become popular among enthusiasts, though measurements of this are hard to come by; the most oft-cited statistic is Ubuntu's long-standing top placement at Linux version tracker DistroWatch. Canonical is counting on converting that popularity into business, and competitors should take note.

"If I were Red Hat or Novell, I would be watching Canonical's moves very closely," said The 451 Group analyst Raven Zachary. "It has the buzz in the open-source community that Red Hat had in the late 1990s."

Down-to-earth Linux
Canonical, founded in early 2004, is the brainchild of Mark Shuttleworth. In the years before Canonical, Shuttleworth founded security firm Thawte Consulting, sold it to VeriSign for $575 million and rode a Russian rocket to spend eight days in orbit at the International Space Station.

The company has built a certain whimsy into the Ubuntu project. Product names are one example: The first version, Warty Warthog, arrived in 2004, followed by Breezy Badger and Hoary Hedgehog in 2005, and Dapper Drake in June 2006. If the project makes its schedule, expect Edgy Eft to arrive this month.

And Ubuntu's name takes the open-source movement's feel-good collectivism to a new level: the African word translates to "humanity to others" or "I am what I am because of who we all are."

But the company has button-down business intentions. Dapper Drake was the first Ubuntu version with long-term support from any source--five years for the server version and three for the desktop, compared with 18 months for regular Ubuntu versions.

Ubuntu has largely been a desktop computer phenomenon. Shortly after the Dapper Drake launch, however, as well.

"We started the campaign in August as part of an awareness drive about Ubuntu on the server," Kenyon said. "People typically think of Ubuntu on the desktop, and even members of the broader technology community are unaware of the growth of use of Ubuntu on the server."

"I'm actively contemplating installing (Ubuntu) for a few friends and family, because I'm sick of de-spywaring their Windows machines."
--Stephen O'Grady, analyst, RedMonk

The desktop software has attracted fans. Among them is Linux user and RedMonk analyst Stephen O'Grady. "It's quite impressive," he said of Ubuntu, citing easy software installation, a thriving community of users and a clean, simple design.

"I'm actively contemplating installing it for a few friends and family, because I'm sick of de-spywaring their Windows machines," O'Grady said.

Canonical is donning the trappings of traditional software companies: It's seeking certifications that Ubuntu works with other products, and database giant Oracle has working to ensure its Oracle 10G Express version works on Ubuntu, Kenyon said. It can't yet supply client references, but it has customers among technology companies, financial institutions, start-ups, governments and schools. In addition, the company has a support staff based in Montreal.

Canonical charges $250 per year for PC support during business hours and $2,750 per year for round-the-clock server support. In addition, a number of business partners also offer support, Kenyon said.

That hybrid-support approach means it's not clear that Canonical will get the support revenue, Zachary said. "Will Ubuntu follow the example of Apache Web Server or JBoss? With the Apache Web server, expertise became distributed quickly within organizations, and revenue opportunities were relegated to individual consultants," Zachary said. "With JBoss (application server software), revenue opportunity consolidated around JBoss, which is now part of Red Hat."

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