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IBM Bets on Linux

by Glen Emerson Morris
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The recent announcement by IBM that one billion dollars, or 20% of its R&D budget, would go to developing Linux products would have seemed unthinkable five or ten years ago. However, times have changed a lot since IBM was the monolithic monopoly that set the world's computer standards and prices. These days, IBM will settle for just setting the prices, and it thinks it has a plan that just might let it.

At stake is more than just IBM's market share and profit margins. A move to a common, and free, operating system like Linux would substantially lower the setup and support costs for e-commerce in general, even at high traffic levels. It would also make it much easier and more economical to scale up an e-commerce site as business picked up, something difficult to do with IBM and Microsoft products.

If successful, IBM's strategy for 2002 would not only make IBM the world's pre-eminent source for Linux software, it would also make Linux the world's pre-eminent operating system, at least as far as the business world is concerned.

Whether IBM will be able to pull this off is still uncertain, but it's clear they've already made progress. IBM has adapted every model mainframe they sell to run Linux, in effect the first time IBM has offered a common operating system on all its systems in the company's history. In addition, many of IBM's programs are currently available in Linux versions. IBM also has some 2,000 programmers working on developing future Linux applications and tools. Though their work may not be finished until 2004, these programs will make it far easier to create high volume business and e-commerce applications, even on non-IBM systems.

This is a major change for IBM. It may be hard for younger people today to understand, but IBM was once as widely hated by information technology departments for its predatory practices as Microsoft is today. The concept of IBM giving away tools worth millions may initially seem hard to accept, at least until one considers how many products Microsoft has given away. Like a company giving away razors to sell blades, IBM is giving away operating systems to sell it's computers.

For those familiar with IBM's history, it is extremely ironic that IBM now feels that its best chance of successfully competing with Microsoft is by adopting a free and open-source operating system. IBM once believed in proprietary operating systems so much that it developed a number of them. In retrospect, it probably developed too many operating systems for its own good.

IBM's former marketing strategy was to have a separate operating system for each model mainframe it marketed. This allowed IBM to offer systems that were more tailored to customer needs, but this approach had serious limitations. The computer system a business needed at the time of purchase could be substantially different than what it might need in a few years, or in the case of e-commerce businesses, what it might need in a few months. IBM customers who needed to move to larger mainframes found they had to rewrite their software to run on the new systems, sometimes at great expense.

IBM correctly understood that most large businesses wouldn't have much choice but to stay with IBM, despite the additional expense and inconvenience, because it was still cheaper than moving to another proprietary platform.

These days, that's not the case. With Linux available, and an ever increasing array of software for it, most companies have a serious alternative to proprietary software, including that of IBM, Sun, and Microsoft.

This point was made clear to Microsoft after a campaign it launched in mid-2001 to increase licensing fees backfired. Microsoft blundered when it expected IT departments to come up with unexpected large cash payments near the end of year, long after department budgets had been set, and largely spent. In the weeks between Microsoft's announcement of the policy and the time they delayed implementing it until the next year, many corporate IT departments started making plans to replace Microsoft products with something they could afford, like Linux. Much to Microsoft's dismay, a number of corporations found that migrating to Linux would be far easier than they had estimated.

IBM also noticed this point, too, and realized that many major corporations are seriously concerned that using Microsoft software is leaving them vulnerable to what they consider price gouging by Microsoft. Linux is being seen as a way to control long-term costs, and preserve IT budgets for products companies actually want to buy. But there's more to IBM's strategy than just saving businesses money.

By concentrating on proprietary operating systems, IBM, Sun, Microsoft, and Apple have all put making money off of the operating system ahead of making money off of software that actually made money for businesses. IBM believes that by limiting high margins to software that actually generates revenue for companies, they will be growing the very customers needed to buy their top end servers. It's a radical idea, based on sound principles.

The nicest thing about IBM's Linux strategy is that, win or lose, it will probably make life easier for all businesses attempting e-commerce. The same can't be said for Microsoft's marketing strategy. This is why, in the long run, IBM's bet on Linux just might beat the odds, and make profitability a sure thing.

Copyright 1994 - 2010 by Glen Emerson Morris All Rights Reserved

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