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Technology Stocks : Red Hat Software Inc. (Nasdq-RHAT)
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To: Thomas A Watson who wrote (1482)8/8/2000 3:09:43 PM
From: Knight  Read Replies (2) of 1794
 
WIND vs Linux in embedded space

Would appreciate comments on the following. (Disclosure: Right now I'm long WIND and have no investments in any of the Linux companies. If I'm off-base on this, or if anyone thinks I should hedge my bets, I would love to be educated.)

My reservations about an investment in RHAT (or any of the other Linux companies)are:

1) Where's intellectual property? (the question Tom raised)
2) What are the barriers to entry?
3) Business model (services vs. royalty)

The problem with services as the only revenue stream is that it is labor-intensive (i.e. high variable costs). A royalty-based business model is much more attractive because it offers higher margins, low (almost non-existent) variable costs, and the ability to grow exponentially to meet demands when/if network effects send the industry into hyper-growth.

Because of the above, I've been an investor in Wind River Systems for about a year and a half. I think WIND's prospects for huge profits are much better than RHAT (or any of the Linux players). This is *not* to say that Linux can't be a profitable business and won't be successful. Certainly, Linux already *is* successful. Also, it's quite possible that Linux could pose a formidable challenge to WIND (and others)in some/many segments of the embedded OS space. However, because of the factors I mentioned above, I believe WIND stands to profit much more from a victory in the embedded OS wars than RHAT (or any of the other Linux vendors).
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