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Linux sales surge past competitors

The operating system's sales hop over rivals to become the second most popular for server computers after Windows NT, but it's not making much money for those selling it, new figures show.

Linux has hopped over competitors to become the second-most-popular operating system for server computers after Windows NT, but it's not making much money for those selling it, new figures show.

About 1.35 million copies of Linux were sold in 1999, which is 25 percent of the 5.4 million total copies of operating system software, according to preliminary data from market research firm International Data Corp. Linux shipments surpassed that of tried-and-true operating systems Novell Netware and all types of Unix in 1999. Nearly twice as many copies of Linux shipped last year than in 1998, and it grew at roughly four times the rate of the server OS market as a whole.

"Linux is moving much more rapidly than we thought," IDC analyst Dan Kusnetzky said. "We had projected it would be No. 2 in 2002 or 2003. It happened in 1999."

But sales of Linux brought in only $32 million for the whole year, less than 1 percent of the $5.7 billion market. Windows NT, by comparison, brought in $1.7 billion.

"Microsoft makes more money before the morning coffee break every day of the year" than all the purveyors of Linux made in the entire year, Kusnetzky said.

Windows NT held the lead in unit shipments, with 2.1 million copies, or 38 percent of the market. That number grew from 1.7 million in 1998, but the market share of 38 percent stayed the same. Windows revenue rose from $1.3 billion in 1998 to $1.7 billion in 1999.

Unix unit shipments dropped from 19 percent of the market in 1998 to 15 percent in 1999, with about 810,000 shipments. Netware dropped from 23 percent in 1998 to 19 percent.

Linux is the core operating system software that controls a computer and is designed to work like Unix. It competes not only with Microsoft Windows, but also with NetWare and the various flavors of Unix, such as IBM's AIX, Compaq's Tru64 Unix, Sun Microsystems' Solaris and Santa Cruz Operation's UnixWare, among others.

Linux rising
Market share for server operating systems, 1998 vs. 1999, in percent.
OS 1998 1999
Windows NT 38 38
Linux 16 25
Netware 23 19
Unix 19 15
Other 4 3
Source: IDC
The surging popularity of Linux has been partially attributed to the fact that the programming code is exposed, or open, and can be customized by users. As a result, IT managers can obtain an efficiently tailored OS that also costs less. The OS is more popular in low-end file and print servers or slim servers stacked up by the dozen rather than the expensive multiprocessor machines where Unix currently prevails.

Unix is still a valuable product, though. The versions of Unix combined may make up less than a sixth of the market, but they bring in more than half the revenue, earning 53 percent of the $5.7 billion in server operating system sales in 1999, Kusnetzky said.

Linux shipments grew 92 percent from 1998 to 1999, faster than any other operating system and faster than the average 23 percent unit growth. That number could under-count the actual number of shipments, since IDC counts only sales of the software, not the free downloads. In addition, a purchased copy of Linux may be installed on as many computers as the customer wants, which isn't the case with most operating systems.

The statistics show a remarkable growth rate for the OS, which until recently was developed chiefly by hobbyists but now is part of the product lines of many large hardware and software companies. Last year, IDC measured a 212 percent growth rate, though they later reduced that number a little below 200 percent.

The statistics also clearly show the awkwardness of the financial proposition of Linux. Since it can be obtained for free or at low cost, companies are looking for other ways to "add value" to Linux--in other words, to find ways to convert its popularity into profits.

Chiefly, the strategy has been to sell services for Linux such as configuration, installation or technical support. Red Hat, the strongest advocate of this method, has indeed been increasing its service revenue, though the company still makes more money from software product sales and isn't profitable overall. VA Linux Systems advocates this approach, but it sells the computers as well.

Lineo, a company that sells a version of Linux for gadgets smaller than PCs, has begun selling Linux along with proprietary software such as a small Web browser.

TurboLinux has another strategy. It packages Linux with more expensive proprietary server software from other companies and of its own design.

And Caldera Systems, which has filed to go public, is working on tying Linux together with e-commerce software.

Sun--which makes money off server sales, as well as services--apparently believes free software has its advantages. The company decided to drop the license fee for copies of the upcoming Solaris 8 running on computers with eight or fewer processors. A copy of Solaris 8 and some bundled software costs $75.

Linux is growing more popular as a "client" operating system--the one used on typical desktop and laptop computers, though here it trails far behind Windows. Windows 3.x, 95 and 98 accounted for 66 percent of the 98.6 million shipments in 1999, and Windows NT won another 21 percent.

Linux grew to 4 percent of the client market, trailing MacOS's 5 percent share, IDC said.

That 4 percent, which amounts to about 3.9 million users, will be welcome news for companies such as Corel that are betting Linux will become popular for ordinary desktops as well as servers, opening a new market for its word processor and other office software and allowing Corel to compete better against Microsoft.

Though IDC didn't break down specific numbers, Corel chief executive Michael Cowpland said Corel earned $3.2 million in sales of its version of Linux between its introduction in mid-November through the end of 1999.