In the 12 months of 1999, Linux rose from obscurity to
The year began with a bang for the upstart operating system.
In January, IBM, Compaq Computer, Dell Computer and
Hewlett-Packard started selling systems designed for use with Linux. And
the pace didn't let up. By the end of the year, four successful
Linux-related initial public offerings raised hundreds of millions of
dollars, at least three executives became paper billionaires and the
operating system had grown from a counterculture hobby into a corporate mainstay.
Linux is a modern-day clone of the Unix operating system born decades ago. It began as a project on Linus Torvalds' computer in 1991 and since then
has grown to the point where the biggest computing companies typically
either include it in their own product lines or take it seriously as a
Red Hat, the seller of Linux instrumental in fueling this growth, embodies
the history of Linux in 1999. Red Hat set the stage in 1998, securing
investments from Intel and Netscape. Red Hat then led the first wave of Linux adoption,
providing the technical support and a stable point of contact the computing
In the spring, Red Hat then cemented the legitimacy of Linux by soliciting
investments from IBM, Novell,
Oracle, Compaq, SAP and Dell. For Matthew Szulik, who took over as Red Hat CEO in
November, this was the single biggest event in 1999--bigger even than Red
Hat's IPO in August.
When the year began, Red Hat had 40 employees. Now, with the acquisition of Cygnus Solutions,
Red Hat has grown tenfold to about 410, Szulik said.
And some of those employees are crucial. Red Hat snapped up Alan Cox,
Stephen Tweedie, David Miller and other programmers at the heart of Linux development. "We were fortunate to have folks like Alan and Stephen
choosing to join us way back before it became fashionable, before there was
a true value established for the Red Hat stock," Szulik said.
Red Hat's IPO raised $84 million, providing serious capital for expansion
and further development of Linux. It was followed by Cobalt Networks,
Andover.Net and the biggest of them all, VA Linux Systems, which set a
record when its stock closed at 698
percent above the IPO price in the first day of trading.
None of these companies are making profits as yet. Their strategy is
similar to that of the Internet companies that are more famously lacking in
profitability: Stake a claim, hold an IPO to gain an unbeatable lead over
competitors, then reap the profits at some undetermined point in the
future. And, like a number of Net companies, profits eventually will derive
not from technological products but from the necessary trappings of
technology: advertising or support.
Red Hat reported a net loss of $5.2 million for the six-month period ending Aug. 31. VA Linux, which specializes in Linux-tuned hardware, lost $10
million for the quarter ended Oct. 29. Andover.Net lost $5.4 million for the year ended Sept. 30. And Cobalt lost $13 million in the nine months
ended Oct. 31.
Being unprofitable while paying for expansion is unavoidable. "We're
competing against organizations that have been in business for
years," Szulik said. And he was cagey about when the company will start
focusing on profits instead of just revenues. "Our emphasis is going to
continue to be on growing the top line.... We will continue to make
investments and scale our business and brand."
Microsoft probably stands the most to lose from ascendance of Linux.
Microsoft set up Windows NT as the server operating system that would take
on Unix. But while Windows NT in 1999 benefited only from bug fixes and its successor was delayed, Internet companies revived interest in Unix. And though most agree Linux is still rough around the edges, few deny it
has moved ahead rapidly.
Linux benefited from upgrades
that made it more business-friendly, then improvements aimed at desktop use
and visions from Torvalds that the next frontier would come in gadgets. While Red Hat, TurboLinux,
SuSE and VA Linux Systems aimed Linux at the server, Corel fulfilled its promise to begin
selling a version aimed at the Microsoft desktop stronghold. It even has
the potential to be used in the world's fastest supercomputer.
The extent of this seriousness is visible in the efforts of the Trillian group, a consortium working
to get Linux working on Intel's upcoming 64-bit chips. Where typically
Linux has lagged other operating systems that usually were ready for a new
chip arrival, the Trillian project, newly beefed up, aims to have a 64-bit
Linux for Intel ready by the time the Itanium chip arrives in 2000.
Microsoft has been ambivalent toward Linux. In March, a spokesman denied that Linux is a threat, and
in April, Microsoft chief executive Bill Gates predicted Linux would have a
At the same time, however, Microsoft has established and augmented its efforts to study and
Microsoft also tried to argue that Linux posed a competitive threat in
arguments to a federal judge that Microsoft doesn't hold monopoly power.
The judge was unconvinced, though, saying Linux doesn't yet compete in the
desktop market where Microsoft is strongest. Linux companies, many of whom
are motivated by the possibility
of taking Microsoft down a peg, were delighted by the judge's finding that Microsoft is a
Meanwhile, Linux has been expanding its turf while Windows NT contracts.
Since the Windows NT debut, Microsoft has abandoned plans to have it run on
Mips, PowerPC, and Compaq Alpha chips, NT now has a future only on Intel
Linux has gone the other direction. It began on Intel chips and has
expanded to all other major chips with corporate help. Compaq hopes Linux
will boost Alpha sales. HP is
quietly funding efforts to
bring Linux to its own PA-RISC chips. Even Sun Microsystems, a tepid
supporter of Linux, has begun selling Red Hat for its
Intel, though, is among the most aggressive boosters of Linux. It led the
field with its investment in Red Hat, and now has invested in Red Hat
competitors SuSE and TurboLinux. It invested in hardware
makers too, VA Linux Systems in
March and eSoft in November.
Linux connections have been the Midas touch for companies such as Applix,
K-tel and V-One and Corel.
But will Linux popularity become too much of a good thing? LinuxOne, which
filed its IPO plans in September when its first Linux product just entered
beta testing, hopes not. Despite the fact that large sections of its Securities and Exchange Commission filings
are identical to similar
documents from Red Hat, that it has zero revenue, and that it has sparked
continuing animosity from the Linux community, LinuxOne plans to go public
as soon as January.