IBM and Linux

Forbes writes how IBM is using Linux to counter Microsoft:

IBM has a broader agenda–undermining Bill Gates’ company. Here lies the next big battle in tech, pitting two erstwhile allies against each other in a fight to rule the computer industry in the years ahead. As big corporate customers seek to lash together worldwide networks and imbue them with more online commerce, a new $21 billion market for Web-linked software has emerged.

Microsoft wants to dominate this business and make it a Windows world. IBM has embraced Linux and in doing so has stoked the biggest threat ever to confront the Microsoft monopoly. While IBM’s products run on Windows, it wants its customers to see how nicely they would run on Linux as well, using the free operating system as a lure. “Like getting free bread in a restaurant,” says Irving Wladawsky-Berger, vice president of technology and strategy at IBM and a pivotal proselytizer of Linux inside the company. Ultimately, customers may not need Windows at all.

IBM’s embrace of Linux attacks Microsoft at its very foundation. Windows provides 40% of sales and 65% of operating income for the software powerhouse. “IBM is trying to drive the value out of the operating system,” says Martin Taylor, a general manager at Microsoft. “I don’t think it’s a direct attack on Microsoft–but we are definitely a fairly big casualty.”

Last year 828,000 servers were sold with Linux instead of Windows, denying Microsoft up to $1.7 billion in potential sales. The pain has just begun. Sales of Linux servers grew 48% last year to $3.3 billion, while Windows servers grew 11% to $15.5 billion. By 2008, predicts IDC, Linux server sales will reach $9.6 billion, versus $21.7 for Windows servers. Worse yet, while so far Linux has been confined to servers, now developers are pushing the free operating system as a way to run PCs, too.

Wladawsky-Berger is betting that IBM can make money selling software and hardware around those free layers.”More money will be made in services and less in acquiring the software itself,” he says. “Make no mistake: This is a business.” Could Linux shift the balance of power in the computer industry to IBM’s favor? Wladawsky-Berger suggests Microsoft has made a blunder by fighting Linux instead of embracing it. “For five or ten years Microsoft will continue to do very well,” he says. “But perhaps they will become more of a legacy business, like our mainframes.”

For 20 years Microsoft has out-earned, out-smarted and out-maneuvered IBM. At long last IBM may have found a way to get even. Twenty years ago IBM ruled the computer industry. But today Microsoft runs the show. It earns 30% more profit than IBM on one-third of IBM’s revenue and has almost double its market value. With Linux, IBM hopes to get even.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.