Profits in Pirates

There's a great legend from the history of the Macintosh computer that says Apple (Nasdaq: AAPL  ) CEO Steve Jobs had a pirate flag flying over the headquarters of the group working on the first Mac. It's my favorite chronicle of Rule Breaking in the history of the computer industry.

Though I've argued recently that Apple remains a classic Rule Breaker, the technology that most fits the swashbuckling style of the old Mac in today's tech world is Linux. The computer operating system built and modified by thousands through a completely open source code has come to dominate the low end of the server market, and by 2008 could create a $35 billion industry globally, according to a recently released report from researcher IDC.

To arrive at that number, IDC predicted more than 25% annual growth for the entire market for Linux products. The report says that of the $35 billion, $14 billion will come from packaged software, $11 billion from servers, and $10 billion from -- get this -- personal computers.

No, IDC isn't predicting the demise of Microsoft's (Nasdaq: MSFT  ) Windows. But it is saying that PCs shipping with Linux will rise from 3% of the market in 2003 to 7% by 2008. And that probably means any thoughts of Mr. Softy feasting on Linux ought to be banished once and for all. If anything, by targeting Linux, Microsoft has made it the beast it has become.

So, who stands to profit from Linux's growing popularity? The top of the list would have to be Red Hat (Nasdaq: RHAT  ) . The dominant supplier of Linux here in North America, Red Hat will likely see more of its software installed as Linux PCs become an alternative to Windows. Though lesser in importance, Novell (Nasdaq: NOVL  ) , which bought the SuSE Linux platform, also could see gains.

The other major beneficiaries are likely to be hardware makers or whole infrastructure suppliers. For example, IBM (NYSE: IBM  ) has made huge investments to promote and adopt Linux as a core platform that can stretch from its mainframes to servers to PCs. Stitching infrastructures together is what IBM does best, witnessed by the huge contribution of its services group to the billions it takes in annually. Then there's Oracle (Nasdaq: ORCL  ) , which advocates a notion called grid computing, whereby thousands of networked systems join to create a grid of supercomputing power. Linux, says Oracle, could make for a great underpinning for server grids, which would, of course, be supported by Oracle databases.

Who will grab the biggest slice of the Linux pie is anything but determined. IBM has the biggest investment. Oracle has a great idea in grid computing. Red Hat has brand recognition. Any of these and dozens of others could win big, or earn little. So what's a Rule Breaking investor to do? Be on the lookout for the pirate flag.

For related Foolishness:

  • Sun Microsystems (Nasdaq: SUNW  ) decided to ape Linux and release its Solaris 10 operating system into the wilderness.
  • It seems like everything open source is targeting Mr. Softy, even this tiny monster.
  • Could Novell ever become top banana in the Linux market?

Have a take on a Rule Breaker? Share it with us. JoiningMotley Fool Rule Breakersgives you access to a community of Foolish investors who conspire with our analysts in seeking the Next Big Thing. A free 30-day trial is yours for the asking.

Fool contributor Tim Beyers swears he's going to try running Linux software on his Mac. Just because he can, really. Tim owns shares of Oracle stock. To check out the rest of Tim's portfolio, have a peek at his Fool profile, which is here.


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