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IBM's Linux revenue: Services to overtake servers

With its ongoing investment in open-source, IBM is seeing signs of payback--faster than it expected.

SAN FRANCISCO--Selling servers is IBM's biggest Linux business, with nearly $2 billion in sales expected in 2004, but the company says services and software revenue will grow in coming years.

"The services business is growing much faster than we ever thought," doubling annually, said Jim Stallings, IBM's Linux general manager, in an interview at the LinuxWorld Conference and Expo. "Services is growing faster than servers, and middleware is growing faster than servers."

Middleware, foundational software that lies above the operating system, includes databases to house information and application servers to run Java programs on a server. Services includes providing support, helping companies migrate from one system to another, running customers' entire computing infrastructure and translating software so it runs on Linux.

In two-to-five years, Linux services and software revenue each will be larger than Linux server revenue, Stallings estimated. The statistics highlight the payoff to the billions of dollars IBM is spending on Linux and why it's so eager to defuse intellectual property threats to the open-source operating system.

Linux prices may have risen in recent years, but the open-source operating system now does more, Stallings said. "Now Linux is running bigger and bigger workloads and adding a lot more functions," he said.

Stallings also took issue with a prominent rival, Sun Microsystems Chief Operating Officer Jonathan Schwartz. Schwartz argues that the success of top Linux seller Red Hat has allowed the company to lock customers into their software, success that has forced IBM to back Novell's SuSE Linux.

Lock-in is a matter of degree, Stallings said, and it's less with Linux than with other operating systems. "There's a lot more freedom of movement from servers underneath and applications on top with Linux in the middle," Stallings said. "Windows has control points. There's no way out."

IBM did feel it important to help SuSE, though, investing $50 million in Novell when it acquired SuSE earlier this year.

"Customers are saying, 'I want at least two choices in the market.' We wanted to help make that happen," Stallings said. "The $50 million was not a life raft. We wanted to affirm to those customers that Novell was going to embrace SuSE, and we were going to support it and guarantee those customers a road map."

SuSE has been a tight ally with IBM in its effort to spread Linux to Big Blue's Power processor-based servers and its top-end mainframes. "SuSE clearly had a head start on that," Stallings said, adding that it's more widely used on those machines.

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