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Intel, others take stakes in TurboLinux

TurboLinux got a multimillion-dollar shot in the arm with investments from Intel, Broadview, and August Capital that will help the company take on the Linux top dog, Red Hat.

TurboLinux got a multimillion-dollar shot in the arm with investments from Intel, Broadview, and August Capital that will help the company take on the Linux top dog, Red Hat.

It's the third Intel investment announced so far in companies involved with the upstart operating system. The first investment came a year ago in TurboLinux competitor Red Hat and the second in March in Linux computer maker VA Linux Systems.

The amounts of the Intel and Broadview investments weren't revealed, but August Capital, which led the round of investment, contributed $5.5 million, said partner Andy Rappaport in an interview with CNET

What will be done with the money? "We're going to grow like a weed," said TurboLinux vice president Lonn Johnston. The company currently has 85 employees, but it now will build up a senior management group and add more programmers in its new Silicon Valley headquarters, Johnston said.

Intel declined to comment on the announcement.

Though Linux sellers argue that there's plenty of room for each other in the fast-growing computer market, TurboLinux still must deal with the head start of Red Hat, still flush from its phenomenal initial public offering in August.

TurboLinux's biggest obstacle is establishing its brand name, said Giga Information Group analyst Stacey Quandt.

"Right now, Red Hat has the mind share in the North American market. That's their biggest challenge," she said.

TurboLinux made up a little ground by signing on Dell Computer, which previously had sold only Red Hat Linux on its computers. In Japan, Dell has been selling servers with TurboLinux since July and last week also began selling workstations with TurboLinux. Johnston said 5 percent of Dell servers shipped in Japan now come with TurboLinux.

Red Hat, though it posted another loss in its most recent quarter, does have the lead in Linux software sales, according to a study of more than a hundred businesses by Access Media. The study found that of those planning to buy a version of Linux, about 57 percent planned to use Red Hat. TurboLinux, formerly known as Pacific HiTech, didn't even make it on the list.

TurboLinux, which has moved its headquarters from Tokyo to Silicon Valley, got its start in Japan, where International Data Corporation and others say it's still dominant. The company also is pushing hard to establish itself in China as well.

Open or closed?
TurboLinux is trying to strike the right balance between Red Hat's complete embrace of the open-source philosophy and the closed, proprietary world of the traditional software realm. Red Hat argues that it will make money by selling services such as customization and technical support, though its chief revenue source so far has been from sales of the software itself.

In open-source programming, the original blueprints for software are freely shared among anyone who wants to contribute to the effort and distribute changes. Red Hat has pledged that all its software will be open source, but TurboLinux believes companies can add value to Linux by adding proprietary software on top of the open-source foundation.

"We still think you can make money the old-fashioned way, by selling software," Johnston said, noting that it's very difficult to hire personnel fast enough to expand services quickly.

"Some developers...perhaps will feel somewhat alienated, but I think that's going to happen inevitably and I think the bulk are pragmatic," Rappaport said.

TurboLinux is looking for the right balance, he said. The company contributes to open-source efforts, for example when it helps with the core of Linux or with programming tools. "At the same time, they marry that with commercial code where commercial code is appropriate," he said.

Johnston declined to detail how much money TurboLinux earns, saying only that revenue "is tracking pretty close behind Red Hat's, but we didn't lose money" overall. Red Hat reported revenues of $7.2 million for the six months ending August 31, but an overall loss of $5.2 million.

A new edition of TurboLinux, version 4.0, will ship in less than two weeks, Johnston said. And by the end of the month, the company will begin selling new software that makes it easier to manage large numbers of Linux boxes. That software will be proprietary, not open-source, and will cost $995 for use on two Linux computers and $1,995 for use on an unlimited number, Johnston said.

Linux business frenzy
The investment in TurboLinux is one of a surge in Linux-related business deals.

Last week, VA Linux filed its intent to hold an initial public offering with the Securities and Exchange Commission. Earlier, Cobalt Networks, Andover.Net, and LinuxOne all made similar filings.

TurboLinux could go public in 2000, Rappaport confirmed.

In addition, venture capitalist firms have been increasingly active in open-source projects. Benchmark Capital, an investor in Red Hat, also has invested in open-source programming site Collab.Net. August Capital has invested in open-source programming tool company Cygnus Solutions as well as Cobalt Networks. And Kleiner Perkins Caufield & Byers has invested in Linuxcare.

Intel has been active in Linux investments, hoping to include Linux in its "unifying architecture" plan to make sure all sorts of operating systems run on Intel hardware. Intel invested a total $2.5 million in VA Linux systems, VA revealed in its filing to go public.

However, all these deals pale in comparison to Red Hat's IPO, which raised $84 million and has given the company a market capitalization of $6 billion. Its stock surged from its opening price of $14 to its current value of nearly 90.