IBM: Linux investment nearly recouped

By Stephen Shankland
Staff Writer, CNET
January 29, 2002, 9:00 PM PT

NEW YORK--IBM nearly recouped the $1 billion it said it invested in the Linux operating system in 2001, the head of IBM's four server groups is expected to announce Wednesday.

Big Blue said more than a year ago that it would invest $1 billion in Linux--spending money on tasks such as bringing the Unix clone to its full line of servers, bringing its broad software portfolio to Linux, training its services and consulting personnel, and placing advertisements such as full-page ads in major daily newspapers.

"We've recouped most of it in the first year in sales of software and systems," Bill Zeitler, head of the server group, said in an interview before his keynote speech Wednesday at the LinuxWorld Conference and Expo. "We think it was money well spent. Almost all of it, we got back."

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Zeitler declined to detail how much IBM spent on what initiatives, how much revenue each segment produced, or how much the company plans to spend in 2002. However, he did say the company increased its target revenue from Linux operations by 50 percent over the 2001 level.

But IBM's figures should be taken with a grain of salt, warns IDC analyst Dan Kusnetzky, who has tracked Linux for years as it rode a wave of enthusiasm in 1998 and 1999 that crashed in 2000 and 2001.

"I think they're including investments they made in other operating systems as well as software," said Kusnetzky, noting that IBM unified the groups that work on Linux, IBM's AIX operating system and Caldera International's UnixWare product. "They were setting the situation up so they could claim they were investing a very large amount of money. They don't have to break out what portion of the investment went to each operating system they are supporting."

But Kusnetzky gives IBM credit for the approach. "It shows a well-thought-out marketing strategy. They are taking more advantage of Linux and the open-source movement than any of their competitors," he said.

Indeed, IBM's support of Linux has succeeded in drowning out rival server companies with substantial support backing for Linux.

"I would say IBM has probably placed itself in the first tier," Kusnetzky said. "Hewlett-Packard is probably second along with SGI. Then there's probably Compaq after that. Sun has done a lot for the open-source community, but they somehow always say something in a way that would offend the open-source community."

IBM unquestionably has heavy support for Linux, most recently exemplified by its Linux-only mainframe that will go on sale in March after more than two years of effort getting the software working on the high-end, old-guard servers.

IBM has lured some prestigious customers along the way. E*Trade is moving to a Linux-only operation, starting with IBM Intel servers that replace Sun Microsystems systems, Zeitler said. Digital-animation studio Pixar is replacing the SGI machines used to animate "Toy Story 2" and "Monsters, Inc.," with IBM Linux workstations, Zeitler said.

HP also has been working to woo similar customers and will announce more than one in the near future, said Terry Brown, HP's manager of entertainment industry solutions. "We've been developing some key technology for this industry for more than two years now," he said. "It's good to see that other manufacturers are entering the market."

Linux forms the basis of a major push at IBM called "grid computing," servers and storage systems linked into a seamless network of computing power. Higher-level software on the grid makes sure the right computing power is allocated to the right computer users.

IBM's grid push includes Linux and is built atop software protocols it's developing with the Globus Project, which shares the nonproprietary open-source development philosophy at the heart of Linux.

Open initiatives such as grid computing and Linux will transform business computing by breaking the lock that companies held on customers who weren't able to easily switch to another's hardware or software. That old order includes IBM's mainframes, Zeitler plans to say in the keynote address.

IBM has thus far convinced mostly academia and research-heavy businesses to buy into grid computing, but analysts believe grids will spread in use and that Big Blue will benefit accordingly.

"Grid computing moves value to higher levels of sophistication where IBM can make money on software, services and more complex hardware," said Merrill Lynch analyst Steve Milunovich in a report Monday. "Grid computing is an example of IBM planning for where the puck is going."

Linux has overcome obstacles, but not all, Zeitler said. "Earlier in the year, the biggest concern I would get when calling a financial institution is, 'Who's going to support this?' We now have a good solid set of people we can point to," he said.

"The next thing people would say is, 'Show me a company...that's done this.' (Now) we've got 120 references."

But the Linux job isn't done. "I think the real challenge now is one of maturity in the market," he said.

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