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As They Say in Hollywood, "Will It Fly?"

Then there is the question of the business model. How can a company make money offering free software? The answer is simple: by selling software and hardware bundles, consulting services, and support. Wall Street's enthusiasm has fluctuated wildly. VA Linux, for example, went public just over 18 months ago—and gained nearly 700 percent on its first day of trading. Since then, however, prices of most Linux stocks have dropped significantly.

While some professional investors question how Linux companies can ensure profitability, two of Silicon Valley's most successful venture capital firms—Benchmark Capital and Kleiner Perkins Caufield & Byers—are old-time believers. In September 1998, Benchmark invested US$2 million in Red Hat. Eight months later, Kleiner Perkins invested a reported US$7.7 million in Linuxcare. Why? Both see a tremendous payoff for customers—and ultimately, for their own investors.

The key to your success, however, is how you manage the process. "For the first time, we can have people collaborating worldwide," says Kevin Harvey, general partner at Benchmark. "Any CIO who deals with bugs and updates will appreciate Linux. They'll find a better product, since customers can contribute."

The flip side of that coin is that "it's a disruptive technology. If you can accept that, it's perfect," says Ted Schlein, general partner at Kleiner Perkins. "The challenge for companies is to understand how you manage tens of thousands of engineers submitting bug fixes."

Mission Control, We Have Liftoff

Although linux has been available for nearly a decade, it has only recently made significant gains in the marketplace. According to the analysts at IDC, paid shipments of Linux accounted for only 6.1 percent of the server market in 1997. Two years later, that number had jumped to 25 percent. (Windows NT owned 38 percent of the 1999 server market.) IDC predicts Linux shipments will grow faster than all other server operating systems through 2004. And while Linux accounted for only 4 percent of the client market in 1999, IDC predicts it will become the second-most popular desktop operating system by 2004.

Within the computer industry, momentum suddenly took off last summer. The GNOME Foundation was launched to promote a Linux graphical user interface and productivity software designed to compete directly with Microsoft's Office suite. (GNOME—the GNU Network Object Modeling Environment—is an open-source user interface.) IBM, Compaq, Hewlett-Packard, Sun, and several other key companies supported the initiative. Within days, Hewlett-Packard said that Linux would be its third "strategic" operating system, joining heavyweights Windows and its own HP-UX. Compaq and IBM announced plans for shipping iPaq and ThinkPad laptops, respectively, with Linux. That same week, Michael Dell delivered the keynote address at the LinuxWorld conference in San Jose, California. And, the Network Internet Computer Company (owned by Oracle Chairman and CEO Larry Ellison) began shipping the NIC, a US$199 internet appliance that runs on Linux.

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