Linux is gaining in popularity while the Linux industry is shrinking. While major players in the open source world lay off people, or merge, or watch their share prices hemorrhage, research maintains that Linux growth isn't slowing.
This paradox confounds competitors, who still must cope with the rise of Linux use without having a clear target vendor to aim for. But even more so it confounds Linux fans, who want their industry to exhibit the necessary stability to take on proprietary software vendors. So we're back to the basic question of how one can make a buck from free software.
We can see that the market for Linux-related services is growing -- what's at issue is who stands to reap these rewards. One of the greatest income opportunities for Linux lies in "the channel". Comprised of middle-tier companies that exist between vendors and end users, these value added resellers (VARs) stand to make even more money than the major distributors.
So much in the Linux vendor world today hinges on the business model of giving away the software, and then selling the consulting, customization, and training. A highly centralized version of this approach -- as currently promoted by every distribution vendor, as well Linuxcare, VA Linux, IBM and others -- is only effective when targeting the largest of potential end-user customers since it relies on the clients having in-house IT staff that can lean on the direct services of the distant support organizations.
But while most of the major vendors are chasing the big customers, they're ignoring other opportunities to make money. Who's looking after the needs of small to medium-sized businesses? Folks seem to forget that this is how Unix got its foothold in the days when VAX/VMS was king, maturing within the small and mid-sized business market while preparing to take on the enterprise. And so it shall be, I believe, with Linux.
The Linux world has not come to grips with the task of assembling a market-savvy and aggressive field of Linux-friendly VARs and system integrators. Speaking as someone who's been involved with Unix and Linux VARs for more than a decade, I believe that there are plenty of opportunities for VARs and major service vendors to fill this gap.
VARs take many forms. Some are tiny operations that outsource computer smarts for the very smallest of end users. Some specialize in a specific vertical market, bringing together hardware, systems software, industry-specific applications, and support into a tidy little package. Others offer a variety of management and service offerings.
These companies could benefit greatly from Linux: open source software could reduce their costs and decrease their reliability headaches. Since the systems software and core applications are only one part of their business, these VARs could reduce costs while maintaining revenues from service and support.
Of course, VARs need some Linux smarts in order to realize these results. They need access to higher level support when they come across issues beyond their knowledge and experience. But the current offerings of most Linux-based support vendors go horribly wrong in that they target the end user, directly competing with the VARs who are more in tune with those end users.
Caldera has made the best stab at a good VAR channel, with nominal fees and services. It stands to gain from the acquisition of SCO, which has good experience at keeping VARs happy and loyal. But Caldera's program of information and product discounts isn't enough of what VARs need.
Red Hat has two programs -- one looks like a way to peddle its certification program, and the other costs $25,000 per year in return for 20 hours of support. Offerings from other vendors aren't any better, if they exist at all.
There's a great opportunity here for the Linux company that comes up with a superior way to support VARs. The channel needs high-quality tech support specifically tuned to VAR requirements. VARs also need -- and would be willing to pay for -- marketing support with teeth, such as co-op advertising and genuine bi-directional communications with high-level management. Done right, such a VAR subscription service could be more profitable to a major vendor than a retail channel or fighting with every other Linux company for the Fortune 500. The company that does well in the VAR circle stands to be in the best position as the enterprise warms to open source.