Making a Profit From Free Software

N E W  Y O R K, Feb. 2, 2001 -- If you can get the Linux operating system for free, how are companies making money on it?

Unlike Microsoft’s Windows, nobody owns Linux. It’s a free project worked on by legions of volunteers who have adapted the program to fit specific needs from networking to servers to desktop applications. Many Linux programs, like the graphics software “gimp” and the Gnome desktop environment, are also free.

Linux distributors like Red Hat, Caldera and VA-Linux make their buck through “support and services.” They don’t own the basic operating system, so they sell boxes with documentation, support contracts, installation tools, add-on software, easy-to-use desktop environments — and legal protection for customers in case anything goes wrong. So far, they’ve been successful at penetrating more than 20 percent of the server market but hold less than 5 percent of the home and office desktop space, according to research firm International Data Corp.

“They’re trying to build other elements to their business that are going to be the cash generator. They’re offering services, they’re offering management capabilities,” said Al Gillen, an operating systems analyst for International Data Corp.

Linux software companies think they can master making a profit by selling applications built from free, open-source parts. Three of the most prominent, Eazel, Sun and Corel, have different strategies: one is going with support and services, one is using free software to drive purchases of costly hardware, and the third says, hey, time to pay for your application software.

An Open MindsetEazel’s Nautilus desktop environment — the most celebrated part of their business — is free, but that doesn’t worry them. The company which hopes to make Linux easy to use is banking its money on services.

Nautilus is based on the GNOME project, one of Linux’s two historic open-source desktops. Unlike Windows and the Mac, Linux doesn’t inherently have windows and icons as part of the operating system. Groups of programmers instead volunteered to build several competing “desktop environments,” the two most prominent of which are called GNOME and KDE.

As GNOME is open-source, Eazel can’t charge for it. But without open source, Eazel could never have developed their product, the company’s Brian Frank said.

“We would have had to develop an OS, develop a windowing system, develop a front end, then get around to doing services ... since we have an open source environment we can basically stand on the shoulders of giants,” Frank said.

Eazel’s main competitor, Ximian, also has a product based on GNOME.

Where Eazel and Ximian will compete, said Frank, is on things like documentation, technical support, installation services and the out-of-the-box ease-of-use that non-hackers prefer. Both Eazel and Ximian, for instance, offer catalogs of software that users can install from the Internet by pressing a button, avoiding Linux’s complicated installation procedures.

“We’re going to compete like crazy on services — it’ll be one of these weird 'coop-etition' type environments,” Frank said.

And Eazel has been aggressive in allying itself with Linux distributor Red Hat, computer maker Dell, and even Sun to get its Nautilus system onto office and home desktops. When a user starts up a Linux system from Dell, boots up a Solaris machine from Sun, or installs a Red Hat Linux CD, they’ll see Nautilus on their screens, along with enticements to use (and pay for) Eazel’s services.

Sun’s Linux Feint

Eazel hopes to get Linux users hooked on their interface to buy their services. Sun’s dreams are even bigger. The computer manufacturer and software company wants to get users hooked on Linux software so they buy Sun machines.

Like a fighter throwing a feint, Sun’s massive open-source efforts are almost a decoy from the company’s main business: selling hardware. More than 4 million copies of the company’s free, open-source StarOffice software have been downloaded with not a penny going into the company’s coffers, but company officials aren’t worried.

“This is not a revenue source for Sun,” said Gina Centoni, Sun’s senior director for Webtop applications.

The role of StarOffice — and of the open-source efforts at Sun — is to make the company’s Sparc workstations and Linux-like Solaris operating system viable on office desktops, Centoni said. Office desktop users need office applications. Without the applications for Sun’s machines, Sun won’t sell machines.

“Overall, at the end of the day, we sell Sparc, Solaris systems, storage and services,” said Herb Hinstorff, Linux program manager at Sun.

And Sun has a revenue-for-services model as well, Gartner Group analyst Chris Le Tocq said. StarOffice is the offline version of StarPortal, which is a network-centric application system where Sun charges for servers, services and support. Getting office users hooked on StarOffice is a way to promote StarPortal, he said.

“Their productivity software is designed to help sell services. Surprise, surprise,” he said.

Corel: Pay for It

Not all major Linux companies believe applications should be free. It’s time for Linux users to grow up, said Derek Burney, CEO of Corel.

“They’re going to have to learn that you get what you pay for,” he said.

The Canadian software company, maker of WordPerfect, CorelDraw and several popular graphics applications, didn’t find a profit paradise by selling a boxed copy of the Linux OS with its own user interface and setup services. The company is spinning off its branded version of the Linux OS to focus on its applications.

But Corel still has faith in Linux, and has contributed efforts to the WINE project, an open-source set of programming tools that enable developers to move software easily from Windows to Linux.

Like the folks at Sun, Burney said Corel’s open-source strategy is to feed its other businesses — by bringing more applications to Linux through WINE, they’ll increase the Linux market and thus open more Microsoft-free markets for their office software. There is no version of Microsoft Office for Linux, and Office is WordPerfect’s greatest competitor. On Linux, WordPefect competes against Sun's free StarOffice.

But analyst Gillen said Corel’s approach is realistic. Corporations using Linux may get the operating system for free, but they still pay for support, installation and hardware, and they might be amenable to paying for high-quality applications with top-notch support, he said.

“People who acquire Linux don’t necessarily expect everything to be for free,” he said.

But even if Linux partisans will pay, Corel has a tough row to hoe, according to Le Tocq. Either they’re banking on a vast expansion of desktop Linux or they’re trying to unseat entrenched competitor Adobe from its position as Windows graphics kingpin, he said. Both are tough tasks.

“[Corel’s] core applications are developed for windows,” Le Tocq said. By shifting from being an OS company to being an applications company, they’re “refocusing their strategy on their graphics products and essentially swapping Adobe for Microsoft” as chief rival.