Linux throws down the gauntlet to Microsoft and opens up server market

Firms with cash-strapped IT budgets are seeking alternatives to the US software giant

Linus Torvalds is, like Bill Gates, living the geek dream. Both have created computing systems that can be found in companies around the world. But unlike the man behind Microsoft, Mr Torvalds' technology creation has not propelled him on to any rich lists.

His idea was simple – invent an operating system, post the code on the internet and let others modify it with the caveat that the changes had to be shared and for free.

The result? The system he created 12 years ago, called Linux, is spreading like wild fire and, if the forecasters are right, it could even take a third of the server market in Europe in four years from now.

Servers are basically computers, which can be accessed by several users at the same time, that provide services to other computers such as managing common files.

Mr Torvalds' novel approach to creating Linux not only elevated him to god status in the geek community but also sparked a fundamental change in the IT landscape. But, despite the widely-held belief that Microsoft will, as a consequence, be the obvious loser in the computer server market, it is still far from clear how badly the US software giant will be hit.

"There are a lot of arguments going on about who's replacing who and what's replacing what," said Tom Meyer of the research house IDC, adding it is not necessarily a given that Microsoft will come off worst.

"I think a lot of people focus on Linux versus Windows and it will be a battle but it's not just between those two," he said, pointing to the other main operating system Unix. Companies that stand to get hurt there include Sun Microsystems with its Solaris system.

What is clear, however, is that Linux is gaining ground fast. It has grabbed around a 13.7 per cent share of the $50.9bn (£30.5bn) server market so far, according to IDC, which is forecasting it to hit around 25 per cent in 2006.

A recent survey of chief information officers by Goldman Sachs found that about 53 per cent of respondents had deployed Linux in some capacity in their IT departments – up from 39 per cent three months before. Another survey conducted by CIO magazine in November found that 54 per cent of respondents expected open source would be their dominant server platform within five years. And the rise of Linux is not just a US phenomenon. The system is just as well loved on this side of the Atlantic.

"I'd say everybody is trying it [Linux] and everybody has used some of it. And even if the CEO doesn't know about it, the guys in the IT departments will be using it in some shape or form," said one UK technology expert. He cites Unilever and GlaxoSmithKline as just two examples of European businesses that use Linux extensively, but there are hundreds of others.

IDC's Mr Meyer has no doubt that Linux's share of the European server market will keep on growing. In terms of units shipped, he predicts Linux's share will have risen to 31.1 per cent in 2007. In the UK, the share was 14.9 per cent last year.

Not bad considering Linux is a relatively new phenomenon. The system dates back to 1991 when a young Finnish student – Linus Torvalds – started work on creating a new operating system. The key difference was that Mr Torvalds decided to post the code for the system, which he first called Freax, on the internet for others to download freely – a move that changed the market permanently.

That so-called "open source" system is, unlike Windows and other systems, publicly open and can be modified by other developers with the caveat that the modifications are also freely available.

The reasons for Linux's rapid uptake are simple. Even if corporates opt to pay for a version of Linux rather than rely on the free version on the net, it is still cheaper than rival systems. Linux also has a reputation for being extremely robust and reliable, which means it is far cheaper to maintain.

"It [choosing Linux] is mainly to save money. It needs less looking after because it's more robust," said another IT manager who did not want to be named. One survey found the cost of running Linux was around 40 per cent that of Windows. That it is "open source" is also a plus for many since it does not belong to anyone – something that is compelling for many organisations – and companies are free to tweak the code as they choose.

"The code is right there and you can play with it. And because no one company owns it, you never have to fear a company going bust and taking the system know-how with it," another tech expert said.

The major reason behind its rise, however, is that major vendors such as Dell, Hewlett-Packard, IBM and Oracle announced they would begin supporting open-source products. More recently, Sun said it would support the Linux system.

HP recently announced that its Linux-related business now amounts to sales of more than $2bn a year. Stars from the hit TV show The Sopranos will be at a party helping the company celebrate that success.

But while IDC reckons Microsoft will be hurt by the rise of Linux, it does not believe the impact will be catastrophic. In 2007, the Windows share of the European server market, it is forecasting, will be 51.6 per cent. In the UK, its market share was 58.4 per cent last year.

Even so, Bill Gates' company is taking the threat seriously. The US software giant recognised the new operating system as a serious danger at least five years ago.

A confidential Microsoft memo detailing the corporation's strategy against Linux and open-source software leaked out in autumn 1998 – documents which, because of their timing, became known as "The Halloween Documents". "OSS [open source software] poses a direct, short-term revenue and platform threat to Microsoft, particularly in server space. Additionally, the intrinsic parallelism and free idea exchange in OSS has benefits that are not replicable with our current licensing model and therefore present a long-term developer mindshare threat," the memo said.

Luckily for Microsoft, there are some factors at work that are playing into its hands and keeping the Linux wolf from the Microsoft door. One is apathy – companies, particularly small to medium-sized enterprises, would rather stick with what they've heard of and what they know – mainly Microsoft. Another reason is the tough economic situation in that big spenders on IT, like companies in the banking and telecoms sectors, have all cut their budgets in any case and aren't changing systems.

And in the desktop space, where Microsoft's Office software is dominant, Linux will have a much tougher job stealing share. It is currently on relatively few PCs and laptops although that is slowly changing.

What is certain is that with the open source revolution gathering momentum, nothing is certain in the server market. What Mr Torvalds began as a hobby has ensured the tech landscape has changed for good.