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A Pair of Kings; I Don't Do Windows; Profits
& Purse Strings
Aired February 24, 1999 - 10:00 p.m. ET
ANNOUNCER: Coming up, a computer program that's
totally un-PC.
UNIDENTIFIED MALE: There's certainly a strong case
for people really disliking Microsoft. Most of the is
because their operating systems really suck.
ANNOUNCER: The system that has millions of users
saying "I don't do Windows." And, oh, and did we
mention it's free.
(COMMERCIAL BREAK)
BAY: As if Bill Gates doesn't have enough to worry about
fighting antitrust charges in federal court, now, there's a
grass- roots challenge to Microsoft Windows, the world's
dominant computer operating system. Just the kind of
threat Bill Gates says he fears: "a guy in a garage with a
better idea." The new system is called Linux. And, as our
James Hattori reports, it's gained followers because it's
very un-Microsoft. And because, unlike Windows, it's
free.
(BEGIN VIDEOTAPE)
BILL GATES, CEO, MICROSOFT: Microsoft Windows
has become the platform that the PC industry builds on.
HATTORI (voice-over): Bill Gates and his huge
Microsoft monolith don't scare easily, just ask the
Department of Justice. But the billionaire Harvard
dropout has said, even his empire could fall to the next
big idea hatched by some genius in a garage.
BOB YOUNG, LINUX: I'm not an expert -- watching
Microsoft, but I do know that so many of my users would
prefer to use any product other than a Microsoft product,
if given a choice.
In a way, Bob Young hopes to be the guy in the garage.
His weapon is a software program called Linux, which
many computer developers claim is better and more
powerful than Microsoft Windows. And believe it or not,
it's free.
(on camera): How do you make money doing that?
YOUNG: That's a $64 question. It's one of the innovations
that Red Hat has been credited with.
HATTORI (voice-over): In 1995, Young, a computer
industry veteran, became co-founder and chief executive
of Red Hat, a privately held software company in North
Carolina.
YOUNG: Wow, not that's pretty slick. HATTORI: Like
Microsoft Windows, Linux is an operating system, the
digital engine of a computer. The number of Linux users is
tiny compared to Windows, which is installed on 90
percent of personal computers. But Linux is growing fast.
YOUNG: Our estimates are that there about 10 million
Linux users out across the world. And we -- the most
interesting number, is we're convinced that number is
doubling every year.
HATTORI: Now, in fact, anyone can grab Linux by
downloading it off the Internet. So it is free. But what Bob
Young figured out was that consumers would pay $50 for
a more convenient form of the program on a CD,
especially if they could get instructions and technical
support. The hard part, early on, was convincing
investors.
YOUNG: And they'd scratch their head and say, Wow,
you know, this is really fascinating, but don't call us, we'll
call you.
HATTORI (on camera): So tell me, how does Red Hat
make money?
YOUNG: We make money effectively in two ways. One,
we sell software that you can get for free on the Net, and
we sell a lot of it. We keep selling more than we ever
expect to. And the other is, we sell support and services.
HATTORI (voice-over): But none of that would have
happened, without this man.
YOUNG: We're all basking in reflected glory, here.
HATTORI: If Linux were a cult, 28-year-old Linus
Torvalds would be the exalted leader. Torvalds wrote
Linux in 1991, while a college student in Finland.
TORVALDS: It started out as a one-person project, just
for my own personal needs.
HATTORI: His "personal needs" grew into a global
phenomenon that threatens Microsoft's software
development model. Not only did Torvalds, who now
lives in Silicon Valley, create the Linux program and put
it out on the Net for anyone to use, he also made it what's
called "open source." Open source means Torvalds,
unlike Microsoft, freely shared the program code, the
technological keys to the vault, that allows experts to not
only customize Linux, but to change and fix it as they see
fit.
TORVALDS: Flexibility is a big part of -- of why Linux
is so popular, and why I really like -- having the -- this
open source approach.
YOUNG: You or I wouldn't buy a car where you couldn't
open the hood to the car. And you say, Well, what do you
know about maintaining a modern internal combustion
engine? And the answer is, not very much. But being able
to open up the hood to your car means that you can either
try and fix it yourself, you can get Uncle Joe up the street
to try and fix it, or you can take it to one of a hundred
thousand repair shops across the country.
HATTORI: Lou Mazzuchelli (ph) is a high-tech analyst
for the investment firm Gerard, Klauer & Madison.
LOU MAZZUCHELLI, HIGH-TECH ANALYST,
GERARD KLAUER & MADISON: When you buy
Windows NT from Microsoft, you get a little disk with the
bits on it, and that's it. And if there's something you don't
like about it, you have to wait, typically a year or more,
before Microsoft even addresses that fix, and very often,
they don't even get the fix right.
HATTORI: Linux's reputation for stability is attracting a
growing number of mainstream corporate customers.
GREG HANKINS, MINDSPRING ENTERPRISES: I
think people are reaching the frustration point with
Windows and Windows NT, where they're realizing they
have all these problems with it, and they're looking for
other alternatives.
HATTORI: At Mindspring Enterprises, an Internet
provider, engineers say the computers running Windows
are more prone to crashing and less versatile than those
running Linux.
HANKINS: In my entire history of using Linux, I've
actually had it, maybe, crash twice.
HATTORI: Still, while experts seem to love their Linux,
it's not for everyone, yet.
YOUNG: My mom is not going to buy a computer to run
Linux on to keep her recipes on, but that's not where our
market has been, and that's not the core of our market.
HATTORI: Moms would be hard-pressed to find
consumer programs for Linux.
(on camera): One trip to your local computer store
software department gives you an idea of how Linux
stacks-up, at least in terms of popularity. Row after row
of software, nearly all of it Microsoft compatible, and
here, tucked away in a lonely corner, this is the entire
Linux library; in a store with maybe 2,000 different titles,
only four Linux programs.
YOUNG: Yes, we'll eventually look after my mom with
the ease-of- use tools that she's looking for. But, right
now, the core of our market is in the technical computing
field. That's the market where Linux is -- has a huge
market share and a huge mindshare.
HATTORI: So what do you get out of it? Do you get a
royalty? Do you get any money from Linux?
TORVALDS: No, I get a lot of personal satisfaction from
doing a job well done. I don't get any money from Linux,
per se, what I do get is -- I mean, secondary effects of
doing Linux. I have obviously a lot of name recognition
that -- in the area, so I don't think I'll need to worry about
money in the near future. HATTORI (voice-over): The
growth of Red Hat and Linux has not escaped Microsoft's
attention.
YOUNG: They're actively watching Linux. These guys are
first class marketing people, and so they watch all their
competitors all the time.
HATTORI: Recently, an internal Microsoft document,
circulated on the Internet, described open-source software
like Linus as a, quote: "Direct short-term revenue and
platform threat."
LOUIS MAZZUCCHELLI, GERARD KLAUER AND
MADISON: Right now, the concept of Linux is probably
more of a threat to Microsoft than Linux itself.
HATTORI: Still, a Microsoft spokesman says the
company considers Linux a competitor to be taken
seriously, especially against its popular Windows NT
operating system, which Microsoft markets aggressively.
YOUNG: We've been aware that Microsoft sales teams
have been going out to our key accounts and actually
trying to switch them away from Linux to Microsoft
products. Three years ago when we first became aware of
this.
HATTORI: Still, Red Hat officials aren't concerned;
they're too busy selling Linux.
YOUNG: It wasn't that long ago that 100,000 was a year's
worth of sales, and now it's the initial assembly run.
HATTORI (on camera): Perhaps, the last place you'd
expect to find Linux gaining a technological toehold is
here in the city of Medina along the shore of Lake
Washington near Seattle, because the city's most famous
resident, who lives right up the road, just happens to be
Bill Gates.
So you didn't consult with Bill on the system you needed
here?
DOUG SHULTZ (ph), CITY MANAGER, MEDINA,
WASHINGTON: No.
HATTORI (voice-over): According to City Manager
Doug Shultz, when Medina decided to modernize its
records archive, he looked around for the best system and
bought a computer that runs on Linux, not Microsoft
Windows. Incidentally, the biggest project in the archives
is Bill Gates' new $50 million home.
SHULTZ: The project took several years, so we're talking
about thick rolls of plans.
HATTORI: Linux received a critical boost over the last
year when two major companies, Oracle and Netscape,
invested in Red Hat. And now, in perhaps the most
significant sign yet of industry acceptance, IBM has
announced it will pre-package Linux into its Netfinity line
of network server computers, with Red Hat selling
technical support. (on camera): While that bodes well for
Red Hat, Microsoft doesn't give up turf without a fight.
But Bob Young has no qualms at all, playing David to the
software Goliath.
YOUNG: Bill Gates has more money than you and I could
ever dream of, and if he doesn't make quite as much
money in the operating system business in future as he's
currently making, I'm not sure any of us should be too
concerned.
(END VIDEOTAPE)
BAY: IBM's deal with Red Hat is just one of several
recent victories for Linux. Dell Computer,
Hewlett-Packard and Silicon Graphics have also agreed
to make it available on some of their machines. And just
this week, new competition for Red Hat: a San Francisco
firm called Linuxcare has popped up, offering a hotline
and technical support for companies that use Linux.
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