Saturday, January 22, 2005

Linus Torvalds once led a ragtag band of software geeks. Not anymore. Here's an inside look at how the unusual Linux business model increasingly threatens Microsoft.

The phenomenon that Torvalds kicked off as a student at the University of Helsinki in 1991 had long been a loosey-goosey effort, with little structure or organization. Young students and caffeine-jazzed iconoclasts wrote much of the code in their spare time, while the overtaxed Torvalds stitched in improvements almost singlehandedly.

Today, that approach is quaint history. Little understood by the outside world, the community of Linux programmers has evolved in recent years into something much more mature, organized, and efficient. Put bluntly, Linux has turned pro.

Torvalds' onetime hobby has become Linux Inc. "People thought this wouldn't work. There are just too many people and companies to hang together. But now it's clear it does work," says Mark Blowers, an analyst at market researcher Butler Group.

Not that this Inc. operates like a traditional corporation. Hardly. There's no headquarters, no CEO, and no annual report. And it's not a single company. Rather, it's a cooperative venture in which employees at about two dozen companies, along with thousands of individuals, work together to improve Linux software. The tech companies contribute sweat equity to the project, largely by paying programmers' salaries, and then make money by selling products and services around the Linux operating system.

The organization supporting Linux has matured more dramatically than most outsiders realize. While Torvalds remains at its center, he has ceded some control and accepted lots of help, thanks to some prodding from individual programmers ... and some coaxing from tech giants whose fortunes have become inextricably linked to Linux.

Linux has become the strongest rival that Microsoft has ever faced. In servers, researcher IDC predicts Linux' market share based on unit sales will rise from 24% today to 33% in 2007, compared with 59% for Windows -- essentially keeping Microsoft at its current market share for the next three years and squeezing its profit margins. That's because, for the first time, Linux is taking a bite out of Windows, not just the other alternatives, and is forcing Microsoft to offer discounts to avoid losing sales.