Linux firms beef up services, e-commerce plans

Two major sellers of the Linux operating system are updating their strategies for making money off the open-source, Unix-like software.

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Two major sellers of the Linux operating system are updating their strategies for making money off the open-source, Unix-like software.

Red Hat, which has the largest market share, according to analysts, is expanding its support services to cover other open-source software besides Linux.

In open-source programming, software blueprints may be freely shared and modified. The Linux operating system is one example, but Red Hat now will begin supporting the Apache Web server software and the Sendmail email software.

And Red Hat competitor Caldera Systems has revamped its approach to become more closely tied with specific e-commerce software packages, chief executive Ransome Love said. The company will work to increase its sales through "value-added resellers," the companies that bundle up hardware and software packages for customers who don't want to assemble the components themselves.

The changes come during a critical time for Linux, a product on which many companies have staked their businesses. The operating system has gained a foothold in the product lines in many of the world's biggest computing companies, several of which have taken equity investments in Linux companies. Meanwhile, Red Hat has gone public, and others likely will follow, bringing the advantage of funding to finance growth but also the pressure of expectant stockholders.

The leading Linux companies have been adjusting their strategies to adapt to these pressures. Where the companies once all tried to sell Linux operating system in about the same way, the companies are diverging into different business strategies, said George Weiss, an analyst with Gartner Group.

Red Hat has been touting its focus on selling services, but the core revenue for the company still has been software sales, the company has said. Weiss, however, believes it's too early to judge the success or failure of that transition.

"I don't feel that any of the Linux distributors are stepping very firmly on a track they believe will take them to far greater heights than where they are right now," Weiss said.

There are many other companies trying to reach the same customers looking for Linux support, though. VA Linux Systems, a Linux hardware company that has filed to go public, also wants to make money from consulting services. A company called Linuxcare is dedicated to nothing else. Santa Cruz Operation has embraced Linux as a way to gainfully employ its own Unix-savvy consultants. And Covalent Technologies is expanding its Apache consulting business to include technical support.

Indeed, Linuxcare has always supported the Apache Web server, software that delivers Web pages over the network to Net surfers, a spokesperson for the company said. And the company employs Andrew Tridgell, a major developer involved in the Samba software that lets Linux servers behave like Windows NT file and print servers.

"We do have plans for expansion" to other open-source software support, the spokesperson said.

One of the big competitors will also be IBM, which has embraced the Apache software itself, Weiss said.

Red Hat, however, is reasonably well positioned to expand, given the company's successful initial public offering.

Caldera Systems plans its own IPO, but sources familiar with the company's plans said a hoped-for date of this month has been pushed out into early 2000. Love declined to comment on the company's IPO plans, saying only, "We are doing everything in our power to prepare ourselves for that option when it's appropriate."

Love described Caldera Systems' strategy update as "a honing, not a complete change. It allows us to...clearly differentiate."

"What's happening with Linux in general is that over time, the distribution business itself is going to erode very quickly," Love said. "Retail products are very low cost."

So Caldera Systems is aiming instead to tie up with e-commerce software providers that will sell software packages incorporating Linux for $10,000 or more.

Caldera Systems, though, still has to deal with the fact that Red Hat has much better brand name recognition, said Dan Kusnetzky, an analyst at International Data Corporation.

"Last Monday, I spoke in Brazil," where Red Hat isn't sold, yet everyone immediately recognized the Red Hat brand when Kusnetzky pulled out a red fedora to illustrate a point. And while wearing the hat, in the Miami airport, "three different people asked me if I worked for Red Hat," he said.

Caldera, he said, "has not done as good a job on brand management," Kusnetzky said.