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Traditional firms showing Linux the money

Santa Cruz Operation makes its most serious Linux move to date with an investment in Linux software site LinuxMall, while Motorola will soon announce an investment in Lineo.

Traditional high-tech companies are putting new money in Linux.

Santa Cruz Operation, which has been selling the Unix operating system for years, has made its most serious Linux move to date with an investment in Linux software site LinuxMall, which will be announced tomorrow.

And Motorola soon will announce an investment in Lineo, a company making a version of Linux for TV set-top boxes, medical imaging equipment, and other non-PC devices.

The sizes of the investments weren't disclosed. Motorola declined to comment on the investment.

The Motorola and SCO investments follow close on the heels of Intel's investment in Linux seller TurboLinux.

The Motorola investment in Lineo is one in a series of negotiations that the company is holding with different chipmakers, Lineo chief executive Bryan Sparks said in an interview today with CNET "We're soliciting investments from most," Sparks said.

The object of the investment round is to build up recognition of Lineo's name while giving the company a foundation of supported hardware that device manufacturers can use.

With Lineo's plan, chipmakers take an equity stake in the company, in return for which Lineo makes sure their version of Linux, called Embedix, works on the chipmakers' hardware, Sparks said. Embedix is based on OpenLinux, the version from Lineo's sister company Caldera Systems.

Lineo's investment plan began with Motorola, Sparks said. "We'll announce that soon," he said. "We have several [investments] that we're currently negotiating."

Lineo's investment solicitation strategy mirrors that of Linux seller Red Hat, which announced investments from Netscape, Intel, Oracle, SAP, Novell, and others as a way to increase corporate respect for an operating system that has noncommercial roots.

Lineo also hopes to follow in Red Hat's steps in holding an initial public offering. Currently, the company is planning an IPO for spring of 2000, Sparks said. The company currently has 35 employees and is based in Utah, but it's looking to add a software development center in Taiwan and a support center in Europe.

SCO warming to Linux
SCO, meanwhile, is moving to increase the perception that it's a Linux ally, not a Linux competitor, said Mike Foster, director of corporate marketing at SCO. "We are a strong supporter of the open-source movement," he said.

In August, SCO began offering professional services for those trying to set up complex operations using Linux.

In addition, the window is open for further Linux investments in LinuxMall, Foster said. "It's not a one-time thing. It's part of a program," he said.

LinuxMall sells Linux-related software, posts links to Linux news, and sells paraphernalia such as stuffed Penguins.

Also under the deal, SCO has the option of promoting and selling its own products and services at LinuxMall. SCO also gets a seat on the board of directors of LinuxMall's parent company, WGS.

Several analysts have observed that Linux threatens SCO because Linux is a clone of Unix and, like SCO's UnixWare, runs on Intel hardware. Foster counters this argument by pointing to SCO's stock price, which has risen from about 3 to about 13 in the last year, concurrent with the spread of Linux.

Foster believes part of that rise is attributable to the role Linux has played in breaking the perception that Windows will spread across the entire computing landscape. "Maybe Linux is putting the sales into Linux on Intel," Foster said. "It's not a Microsoft-only world."

However, there's no denying that the upstart OS has captured a lot of attention. Red Hat, the first Linux company to go public, currently has a market capitalization of $5.8 billion, more than 10 times SCO's value of $436 million.

Making money from Linux
Lineo faces a tricky balancing act in trying to convince customers to use Linux in their devices. The software can be had for free, a big allure for companies such as Sony that ship millions of products and want to minimize royalties they'd have to pay to license an operating system.

Lineo will charge royalties, Sparks said, but they will be low. Lineo also hopes to make money on helping companies get up and running quickly, either by selling the companies development software or by doing the customization work themselves.

"If we bring enough value, we think we can extract a royalty-based model," Sparks said.

Lineo won't just be a parasite on the hundreds of open-source programmers across the world who have contributed to Linux, Sparks said. The company will release some Linux enhancements to the community, such as software that allows a Linux gadget to start up using flash memory instead of a hard disk.