The first business models for Linux

So, what lessons can we learn from Dell as open source commoditizes the software world? Namely, that operating in a commodity market calls for entirely different business models than the business models that have preceded them. Beyond general conclusions such as this, what specific lessons are there to be learned from Dell’s success? As a start, we will look at the lowest layer of the software stack, the operating system, and attempt to draw parallels between Dell’s successful strategy and the strategies of today’s open-source operating system vendors, namely the Linux distribution companies.

To millions of users around the world, “Linux” is an operating system. They’re right, of course, but the reality is far more complex than that. First of all, “Linux” proper is just the kernel, or core, of the operating system—the rest of the software that comprises the “Linux operating system” is developed independently from the kernel, by different groups that often have different release schedules, motivations, and goals.¹

Traditional operating systems are built by cohesive teams, carefully coordinated groups of product managers, project managers, and programmers at companies and universities. In contrast, Linux is built by thousands of individuals, hackers and hobbyists and professional programmers, some paid to work on specific projects but the majority simply working on what interests them. And the reality is even more involved: Linux is not just a single system, but hundreds of subsystems, programs, and applications, themselves developed by their own communities of individuals around the world.

So, who glues all this mishmash together into something that actually looks like an operating system? Since nearly the inception of the Linux community, this has been the job of the “Linux distribution,” a curious term in itself for those coming from broader computing circles, again, used to operating systems being built by cohesive teams, or at least teams of cohesive teams.

A Linux distribution is a collection of software (typically free or open-source software) combined with the Linux kernel to form a complete operating system. The first distributions (HJ Lu’s boot/root diskettes, MCC Interim) were very small affairs, designed simply to help bootstrap the core of a Linux system, on which the user (typically a Linux hacker himself, eager to get into writing some code) could compile the rest of the system by hand and as needed.

A second generation emerged (SLS, Slackware, Debian) that aimed to expand the breadth and depth of software shipped by the first-generation distributions, including software typical end users of UNIX systems might find useful, such as the X Window System and document formatting systems. In addition, the second-generation distributions attempted to be easier to install than the first, as they were targeted not at Linux hackers eager to get into writing code, but rather at the ever-expanding collection of end users Linux was just beginning to attract at the time.

As Linux’s user base grew, many in the Linux community began to sense a business opportunity, and the first Linux companies were formed: Red Hat, Caldera, SuSE, and many others whose names have long been forgotten. These companies formed around the concept of selling commercial distributions to the expanding Linux userbase. A third generation of Linux distributions was born.

The commercial opportunity was ripe, as the primary means of acquiring Linux to that point had been the Internet, and up to that point, the primary users of Linux had been students at universities, where Internet access was plentiful. However, in the broader population where Linux was beginning to get noticed, potential Linux users were lucky to have dial-up access to online systems such as CompuServe. Combined with the rising popularity of CD-ROM drives and the growing size of distributions to incorporate more and more software to appeal to a wider and wider audience, the first business models for Linux were born.

This business model served the first Linux companies well through most of the 1990s, and indeed, this is where the term “Linux distribution” originated—the companies themselves were little more than assemblers and distributors of Linux software, including the Linux kernel, the GNU compiler toolchain, and the other software that came with a typical Linux system. As the typical Linux user because less and less of a technologist and more and more of a traditional end user, the focus of the distributions shifted from simple assembly and distribution and to making their respective distributions easier to install and use.

¹ To avoid confusion, I will use the term “Linux” to refer the operating system, following standard usage. When referring to just the Linux kernel, I will say “the Linux kernel.”