Intel and Netscape Communications bought minority stakes in Red Hat, boosting the little software company's balance sheet and adding clout to a loose-knit coalition that's trying to make Linux an alternative to the Windows NT software standard.
Closely held Red Hat, based in Research Triangle Park, North Carolina, also received undisclosed investments from Greylock and Benchmark Partners, two venture capital firms. Financial terms of the transaction were not disclosed.
Red Hat sells a commercial version of the Linux operating system, a computer program developed by hundreds of programmers collaborating on the Internet. No one actually owns Linux and anyone can download and use it for free. But Red Hat is packaging the software, writing manuals, selling it on CD-ROM for US$50, and helping big companies use it to run their computer networks instead of Microsoft's Windows NT.
With Intel (INTC) and Netscape (NSCP) backing Red Hat, Linux likely will gain even more commercial appeal. About 7.5 million to 10 million copies of Linux are in use, according to market researcher International Data Corp.
"It's really a key validation point for customers looking for some indication that Linux is an industrial strength operating system," said Paul McNamara, vice president for strategic relationships at Red Hat. "We've seen huge growth in the Linux market in the [Internet service provider] space and other early adopter markets."
Red Hat also said it is establishing an enterprise computing division that will offer business-level products and services for Linux users. Currently, most Linux users have to rely on advice from fellow users when they encounter problems with the software.
Backing from Big Guns
Practically every Microsoft rival -- and even Wintel partner Intel -- is now backing Linux in an effort to blunt the spread of Microsoft's influence. Netscape, Oracle, Sybase, Informix, and International Business Machines are developing versions of their software products to run on top of Linux.
But corporate computer buyers and technicians have been reluctant to adopt Linux because they can't get as much technical support and software variety as they can with Microsoft and Windows.
"Red Hat is saying, 'We are going after the enterprise level," said Nathan Brookwood, analyst at Dataquest. "What Linux has needed is having a way a corporation can buy it and provide support for it. The freeware model is not a good one for corporations. Now they will have somebody they can call up."
Companies like Netscape and Oracle need Linux, or any other operating system not owned by Microsoft, to succeed. In recent years, Microsoft has used Windows -- the program that controls the fundamental functions of a computer -- to pitch other products, like browsers, business software, and database management tools.
"If Linux gets a lot of clout it will make it a more interesting and competitive market," Brookwood said.
Even Intel -- Microsoft's partner in making the PC the centerpiece of the computer industry -- is wary of Microsoft's clout. In recent months, Intel executives have clashed with Microsoft counterparts about who controls the technical destiny of the PC.
By having another operating system run on its microprocessors, Intel can shift the balance of power a bit more in its favor, analysts said.
"Microsoft and Intel are very much like siamese twins that hate each other," said Dan Kusnetzky, an IDC analyst. "Every now and again they poke each other." Intel doesn't "want Microsoft to think they are the only OS supplier."
Red Hat in the Ring
Tiny Red Hat also may pull off what giants IBM, Sun Microsystems, and Hewlett-Packard could not: unify the industry behind a single version of the Unix operating system.
Linux is based on Unix, an operating system AT&T programmers released 27 years ago. Although Unix developed into a powerful software standard, forming the foundation of the Internet, it became splintered as computer titans pushed their own "flavors," or versions, over the years. Microsoft Windows NT won a lot of adherents quickly, because corporate technicians wanted to avoid compatibility issues.
Red Hat officials said they think they can win business from their Unix competitors because, so far, Linux hasn't splintered. There's only one Linux "kernel," the core portion of the software that makes one version compatible with another.
"We think there will be some erosion of Unix flavors out there, only because Linux has avoided problems [that] Unix has had," said McNamara.
Microsoft has been watching Linux closely. In Microsoft's latest annual report for the fiscal year ended 30 June, the company acknowledged Linux as competition in the operating systems market.
Microsoft is "cognizant of Linux and Red Hat specifically as operating systems competitors," said Ed Muth, enterprise marketing group manager at Microsoft.
"Both Linux and Windows NT are growing in [market] share. Windows NT is growing much more rapidly, both in percentage and absolute numbers," Muth said. "But Linux is one of the few or perhaps the only version of Unix that is gaining any share."
