Buying Schering-Plough!
Rob Landley
([email protected])
Austin, TX (Aug. 20, 1998) -- Before diving into tonight's article about a new threat to Microsoft's operating system monopoly, I must first announce that your Cash-King squad has decided to purchase Schering-Plough as our ninth Cash-King holding.
With nine C-K stocks and our Fool-4 stocks, we now believe that we have a portfolio sufficiently diversified for ANY AMOUNT OF MONEY -- from $5,000 to $500 million. This style of investing also doesn't bring with it the dreaded annual expense ratios of mutual funds, the active commissioned trading of a Wall Street brokerage firm, nor the rampant market underperformance that publicly haunts the industry. We hope you're enjoying this as much as we Fools are.
Here's the link to our buy report: C-K Buying Schering-Plough.
In tonight's article, I'd like to talk about something that Netscape's Mark Andreessen calls Windows NT's biggest threat. It's a product that has won support not only from Netscape but also from Intel, Sun, IBM, Oracle, Computer Associates, and dozens of other companies. In fact, it's featured as the cover story of the August 10th issue of Forbes Magazine. And, no, it's not Java.
It's called Linux.
Never heard of it, you say. So, why should our mighty Cash-King, Microsoft (Nasdaq: MSFT), be concerned? In today's column, I'd like to talk about Linux, explain a little about what's happening in the software industry today, and try to convince Microsoft investors that they should be paying close attention to developments like Linux.
Linux is a Unix-compatible operating system that was started in 1991 by a graduate student at the University of Helsinki named Linus Torvalds. Building on the work of Richard Stallman's Free Software Foundation, it quickly grew from a single student trying to teach himself the excruciatingly technical details of Intel's 386 CPU into an operating system enhanced by thousands of programmers and used by millions of people today (Sizing the Linux Market).
Linux has been so successful for two connected reasons, both having to do with the Free Software Foundation's GNU Public License (GPL), under which all Linux code is released to the public. First, this license allows anyone to download, use, and distribute the Linux operating system, for free. Plenty of people are willing to try something that's free. Second, the "source code" to the whole of Linux is also freely available, allowing thousands of programmers to contribute to the development of Linux and to provide the same sort of peer review process that scientific discoveries undergo.
Anyone who finds a problem in Linux can get the source code and try to fix it themselves, or ask (or hire) a skilled programmer to do so. The same applies to anyone who wants to improve the program, either by optimizing it or by giving it new capabilities. Improvements are generally submitted back to the original supplier of the program, which evaluates them and can include them in the next version.
Contrast this model with the norm, where the source code to most commercial programs is confidential, jealously guarded, and only the compiled versions are ever released to the public. Someone who finds a bug in a conventional program like Windows has no choice but to call Microsoft's extremely expensive tech support team, try to convince them that the problem really does exist, and hope that one of Microsoft's programmers eventually has time to find and fix it. They then have no choice but to wait for a patch or a new version from Redmond, which could literally take years.
The Linux model subverts that. With thousands of programmers testing, fixing, and improving the code, "open-source" software advances far more rapidly than traditional software. Flaws are found and fixed quickly, bad ideas get weeded out, good ideas gain support and are extended. This peer review benefits the development of programs the same way that it benefits the development of scientific theories. And many people are willing to expend amazing amounts of time and effort simply to impress their peers.
This is why Netscape recently released the source code to its Web browser, using a variation of the same public license that Linux uses. Netscape found it simply couldn't compete with the number of developer hours that Microsoft could devote to its browser. Investors know that while Microsoft has a more than 20-year operating history and $12.3 billion in cash today, Netscape is just a few years old with less than $200 million. Netscape just couldn't invest in development like Microsoft can.
But the new Linux model may change things. Microsoft can't compete with the number of hours the thousands of users of programs like Netscape would like to spend testing and modifying them, and bragging to their friends about how they're partly responsible for the success of a popular program. I believe this model can work, though I can see flaws in it, too. Where are the stock-option benefits of developing code for a free standard? That's one issue.
But you'd be surprised. In my opinion, and that of many others, as a result of seven years of open-source development, Linux is now demonstrably faster and more stable (on equivalent hardware) than any version of Windows, including NT. A heck of a lot of the ISPs out there are running under Linux, and companies like Netscape, Corel, and Oracle are starting to create Linux versions of their most popular software. Unfortunately, you still can't walk into a computer store and pick up a copy of Linux yet, but there are plenty to download or mail order. Support for running Windows programs under Linux is also in development, along with emulation for dozens of other operating systems.
Linux also has the advantage of being available now from multiple vendors. Compare this to personal computers, which are available from Compaq, Dell, Gateway, and dozens of smaller companies. No one is ever locked into an exclusive contract with a single PC provider unless they want to be. You can buy from all makers. Similarly, Linux is now available from Red Hat, Debian, SuSE, Caldera, and Slackware, plus dozens of smaller software vendors.
Linux is even at the core of a new class of mainframes, called Beowulf clusters, which were invented at NASA's Goddard Space Center and are being duplicated at laboratories and universities around the world. Basically, a Beowulf cluster convinces a roomful of networked computers to act like one big supercomputer, using Linux and some freely downloadable software. Beowulf clusters can't be made using Windows, because if a single machine crashed it would take them all down, and many supercomputer simulations require months to run to completion.
I don't have space in this article to cover Linux's adoption in corporate intranets, or most of the hundreds of links I found researching the subject. Believe it or not, there's a very good chance your ISP is using Linux right now. Even one of The Motley Fool's business partners, America Online, writes free software for Linux.
I want to be very clear to recognize that Microsoft is still the undisputed leader in the operating system market, by a long shot, but it's no longer the fastest growing segment. Linux is the only non-Microsoft operating system that is currently gaining market share. When Microsoft testifies at the DOJ hearings that it is worried about threats to its operating-system monopoly, it has good reason to be. Java is just the #2 threat. The #1 threat, currently, is Java running under Linux.
I encourage you to drop by The Fool's Microsoft message folder to discuss and debate Linux developments, which Mr. Softy is taking very seriously. Also, below are some links to Linux-related sites and articles... Fool on!
- Rob Landley (Oak)
How open-source software works
Recent articles about Linux
The Linux Homepage
Red Hat Software
Debian
Caldera
SuSE
Slackware
Some more of my thoughts on Linux
Stock Change Bid AXP -3 7/8 97.13 CHV - 3/16 80.50 CSCO +1 3/8 102.63 KO + 3/4 79.44 GPS + 7/8 64.38 EK - 13/16 86.06 XON + 9/16 71.31 GM -2 1/16 66.50 INTC -3 9/16 86.00 MSFT +2 112.56 PFE -3 5/16 105.69 TROW + 9/32 36.28 |
Day Month Year History
C-K -0.50% 0.22% 15.83% 15.83%
S&P: -0.59% -2.59% 9.02% 9.02%
NASDAQ: -0.56% -2.13% 10.86% 10.86%
Cash-King Stocks
Rec'd # Security In At Now Change
2/3/98 24 Microsoft 78.27 112.56 43.82%
2/3/98 22 Pfizer 82.30 105.69 28.42%
5/1/98 37 Gap Inc. 51.09 64.38 26.00%
6/23/98 23 Cisco Syst 86.35 102.63 18.85%
2/27/98 27 Coca-Cola 69.11 79.44 14.95%
2/6/98 56 T. Rowe Pr 33.67 36.28 7.75%
2/13/98 22 Intel 84.67 86.00 1.57%
5/26/98 18 American E 104.07 97.13 -6.67%
Foolish Four Stocks
Rec'd # Security In At Value Change
3/12/98 20 Eastman Ko 63.15 86.06 36.29%
3/12/98 20 Exxon 64.34 71.31 10.85%
3/12/98 15 Chevron 83.34 80.50 -3.41%
3/12/98 17 General Mo 72.41 66.50 -8.16%
Cash-King Stocks
Rec'd # Security In At Value Change
2/3/98 24 Microsoft 1878.45 2701.50 $823.05
2/3/98 22 Pfizer 1810.58 2325.13 $514.55
5/1/98 37 Gap Inc. 1890.33 2381.88 $491.55
6/23/98 23 Cisco Syst 1985.95 2360.38 $374.43
2/27/98 27 Coca-Cola 1865.89 2144.81 $278.92
2/6/98 56 T. Rowe Pr 1885.70 2031.75 $146.05
2/13/98 22 Intel 1862.83 1892.00 $29.17
5/26/98 18 American E 1873.20 1748.25 -$124.95
Foolish Four Stocks
Rec'd # Security In At Value Change
3/12/98 20 Eastman Ko 1262.95 1721.25 $458.30
3/12/98 20 Exxon 1286.70 1426.25 $139.55
3/12/98 15 Chevron 1250.14 1207.50 -$42.64
3/12/98 17 General Mo 1230.89 1130.50 -$100.39
CASH $94.76
TOTAL $23165.95
*Please note: On 8/4/98 $2,000 cash was added to the
portfolio for future investment. This will be reflected
in the numbers as soon as possible.
*The year for the S&P and Nasdaq will be as of 02/03/98
