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Services, Baby, Services

Services. In the past few years, as Linux has developed into a more mainstream operating system, a new axiom has emerged -- you can't make much money selling the OS itself, but many companies can make money by selling their services around the OS.

Services. In the past few years, as Linux has developed into a more mainstream operating system, a new axiom has emerged — you can’t make much money selling the OS itself, but many companies can make money by selling their services around the OS.

About a year ago, Tim O’Reilly wrote what I believe to be an incredibly insightful piece on this subject (found online at http://www.oreillynet.com/pub/a/linux/2000/05/09/lessons.html). I think that it is now worthwhile to re-visit this issue and take a close look at how some of the more promising open source business models have been evolving.

The first example that leaps to mind is Red Hat. While Red Hat has derived a great deal of their revenue to date from traditional “service and support”contracts with large corporate customers, it’s clear that they are continuing to look for new models that will support their business. The most interesting of these new models is the Red Hat Network (RHN).

The RHN is based on a subscription model, where users of Red Hat Linux register themselves with RHN. The Red Hat Network will then provide users with constantly updated packages and bug fixes for all of the software that is installed on their systems.

Basic service is free for all users of Red Hat 6.2 or greater. However, many useful premium services are only available for a fee — on a subscription basis. So basically, Red Hat is helping their customers by managing their software for them over the Internet. If users find this to be a valuable service (and I certainly believe they will), Red Hat will derive a large revenue stream from it.

Hmmm…The two key words here seem to be “managing” and “service.” This leads me to the next business model that I have seen emerging over the last year or so; there are now a slew of companies that have sprung up to offer managed hosting services to corporate America.

From traditional hardware manufacturers such as Dell (DellHost), Micron (HostPro), and IBM to new upstart “pure play” service providers such as Rackspace and Verio, an enormous number of service providers are offering corporate IT departments the option of outsourcing their entire infrastructure.

All of these providers offer their customers the opportunity to save time and money by having someone else deal with the headaches of managing their systems. Many of these providers do, in fact, use Linux as the foundation of their service offerings.

So, is it possible for you to make money utilizing the traditional “customer service and support” model and Linux? Absolutely. IBM Global Services, for example, is quite likely to make a mint. Many distributions and traditional support companies stand a rather good chance of capturing some of that business as well — not to mention the army of VARs that I believe will want to begin selling Linux to their clients.

The point I’m trying to make is that (as Tim O’Reilly also noted) opportunities here are much greater than what exists in the traditional model alone. Linux and the Internet together are causing dislocation in the world of information technology. Those companies that can identify these dislocations and use them to provide customers with better, cheaper, and more efficient ways of running their businesses will be the ones that are likely to benefit the most.

See you next month,

Adam Signature

Adam M. Goodman

President & Publisher

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