How can desktop and laptop hardware vendors become profitable again? Linspire suggests grabbing some of the desktop software business.
After years gunning up and down the runway, it looks like Linux on the laptop finally may take off. I sensed some lift under the wings just in the first few months of this year. We reviewed HP's first Linux laptop in January 2005, and we're told more are on the way. Novell, which last year made a public commitment to running their entire company on Linux, made that commitment visible at LinuxWorld Expo in February 2005. A large percentage of the computers in the Novell booth were IBM ThinkPads in the same T40 family as my own (an EmperorLinux Toucan). By the time I left, the Novell folks had upgraded my SuSE 9.1 to the company's own SUSE 9.2-based Novell Desktop. I'm still shaking down a few minor glitches, but overall it works remarkably well. As a constant traveler who connects to the Net by ad hoc Wi-Fi, I'm in love (no pun intended) with Robert Love's netapplet, which comes standard with the Novell Linux Desktop. See the description and screenshot in this issue's Up Front Section.
At Apachecon last fall, I detected a drop in the percentage of Apple OS X Powerbooks, clearly the preferred box the year prior, and a rise in the percentage of Linux laptops. The consensus, among those I talked to about it, was that Linux was getting better for laptops. Power control with the 2.6 kernel got some of the credit, as did a growing assortment of available device drivers. And, so did a maturing portfolio of applications that offer straight-up alternatives to familiar goods on OS X and Microsoft Windows—or, better yet, application bridges to Linux. OpenOffice.org is an obvious example, but there are others, such as Nvu, the Web-authoring tool I'm using right now.
But the drag persists on the hardware side, where we're still repurposing Windows laptops for Linux. It's not going to be easy to break free of that. The reasons are economic, not technical.
Ever since “PC Compatible” became “Designed for Windows”, development of desktops and laptops at all the big hardware OEMs has started with Microsoft, not anybody else. Certainly not Linux. Every laptop “designed for Windows XP” bears Microsoft branding as bold as the maker's own. This is branding of the same literal sort that ranchers practice when they burn their symbols on the hides of cattle. (In fact, cattle ranching is where the “branding” concept came from.)
Branding agreements are just the obvious side of the Windows Laptop Story. The invisible side is much more interesting. For example, I'd been told before—always on a not-for-attribution basis—that Microsoft has a long-standing policy of using “marketing dollars” to keep hardware OEMs profitable. Of course, it's been easy for Microsoft to do that, because their margins have always been huge. But it's not something anybody on either side of the arrangement would be eager to talk about.
One CEO who's not in one of those arrangements is Michael Robertson, founder and CEO of Linspire. I talked with Michael this February at the Desktop Summit, which Linspire hosts, in San Diego. “There are all sorts of economic ties involved here that aren't readily transparent”, he said. “They have the OEMs strung out on marketing dollars and kickbacks and stuff like that. Marketing dollars make their business barely viable. We had a top-ten desktop guy come to us and say, 'We really want to do Linux, but we're concerned that if we do this—whether it's allowed or not—it'll upset Microsoft and we'll lose these revenues.'”
But the PC hardware business is becoming more unprofitable by the day. “Look at IBM-Lenovo”, Robertson said. IBM agreed to sell its PC business to Lenovo, the People's Republic of China's largest PC builder, at the end of last year. “IBM has lost $33 on every PC they've sold”, Robertson said. “We're to a breaking point where some of the OEMs out there are saying, 'Enough is enough. I have to get at least $50 better economics.' What can they do? Manufacture in China? Use cheaper parts? They already do that. They need cheaper software. Same with HP. If the PC business was doing well, Carly would still have a job. What they need now is a piece of the software business.”
It isn't easy for any company, even a desperate one, to leave money on the table. But that's exactly what Linspire is asking the hardware OEMs to do. “They have to really believe that the Linux opportunity is sufficiently large to trump that guaranteed check they get from Microsoft”, Robertson said.
So far, none of the OEMs has budged. At least not in a way anybody's ready to talk about. Meanwhile, Linspire plugs away. “It's a case of moving up the ecosystem”, Robertson said. “We work with VIA, the motherboard company. They're happy to work with us. That domino fell. Then the AMD domino. They're happy to work with us too.”
I talked with folks at the AMD and VIA booths at the Desktop Summit, and it was clear that both companies savored the freedom and opportunity that come with opting not to run their goods through the Microsoft mill. Their attitude was much the same as I saw from the makers of Linux-based home media centers at CES one month earlier (see “The No-Party System”, in the April 2005 issue of Linux Journal).
I asked Michael Robertson about NVIDIA and ATI, the big graphics subsystem companies. He smiled and said, “Other dominoes will fall too. The last will be the major record labels. The clue phone has to be ringing so loud they have no choice but to answer it.”
Robertson has a lot of experience in the record business. He founded MP3.com and got rich by selling it to a record company that went on to kill it. Now he's back in the business again, with a companion to Linspire called MP3tunes. But where Linspire goes straight after Microsoft's business, MP3tunes goes straight after Apple's.
Like Apple's iTunes, MP3tunes is a store where you can sample and buy music. Unlike iTunes, MP3tunes sells music without any digital rights management (DRM). Where Apple sells music encoded at 128kb AAC, MP3tunes sells music encoded at 198kb MP3. Where Apple sells songs at $.99 each and $9.99 per album, MP3tunes' prices are $.88 and $8.88. And where Apple's store lives in an application that runs only on Windows and OS X, MP3tunes lives in a wide-open Web site, in addition to Linspire's Lsongs (which runs on Linux and works like Apple's iTunes). Michael Robertson: “Does the world need another music store? Yes. Because most of them are rental shops. They control what you can do with it, what you can copy it to. I think if you pay money for music, you should be able to use it any way you want, on any device....I like the model where, if you pay for the music, it's yours. Forever.”
MP3tunes also distributes music from CD Baby, a company that leaves all rights with the artist and takes only a 9% distribution fee. Customers also get an MP3tunes “music locker” that remembers everything bought from the service. This allows the customer to download the same songs again, as many times as they like, to any device.
Naturally, Robertson sees Apple as no less controlling toward the music business than Microsoft is toward the operating system business:
It's not iTunes. It's theirTunes. Apple's controlling whether you can play it on this portable device, whether you can copy it to a Linux computer—which you can't, by the way. I did send an e-mail to Steve Jobs, saying “Hey Steve, how about supporting AAC and iTunes on Linux?” To give him credit, he did reply back to me...a one-word answer. It was “Nope.” That's it. Not even a hi or a bye. Just “Nope.”
MP3tunes is fighting Apple on the playback side as well. Where iTunes is designed to run only on iPods and the PCs to which they attach, MP3tunes supports playing any music on any device.
At the show, they demonstrated that advantage with a new product called MP3beamer. It's a Linux-based music storage system that distributes music over Wi-Fi. You can buy the software on-line for $69.95 ($10 more in a box). Or, you can buy hardware with the software preinstalled. The demo hardware at the show was a compact $399 box from sub300.com—and a Linksys Wi-Fi boom box. The Linksys comes with a display that shows the tunes being played (along with other information) and a remote control that operates the base unit through the boom box. The Linksys also has audio-out plugs you can run into a home stereo.
I also was curious at the show to see how Linspire's newest distro version worked on the VIA-based eCom notebook computer they had loaned me two years ago. Kendall Dawson, a “community liaison” specialist with Linspire, helped me out by bringing a CD drive to the show, attaching it to the notebook (it doesn't have an internal drive) and loading the Linspire 5.0 beta distro. Everything went smoothly, and the rejuvenated notebook immediately met my minimum laptop requirements: 1) it saw and connected to the Net through the Wi-Fi card in its PCMCIA slot; 2) it hibernated when the lid closed and returned to its full waking state when the lid opened; 3) it let me obtain and install the small pile of software I wanted to run—and did it far more easily than any Linux distro I've ever used.
There were still a few small problems. It didn't recognize my digital camera's memory card when I plugged a reader in to a USB port. Same with the Flash memory stick that also serves as the laptop-side interface for a remote controller I use to operate slide shows. Then again, it's not easy to get my ThinkPad T40 running SuSE (9.1) to do the same things.
The Linspire laptop also immediately ran CNR (Click 'N Run), a software warehouse and installation system for more than 2,000 packages, most of which are free (as in beer). I logged in, it remembered me, and I have been downloading stuff ever since. The system is the first I've seen that actually does a simpler and easier job of installing software than Windows or even OS X. Because Linspire is built on Debian, it manages packages with apt-get. Earlier versions had standalone apt-get functionality, but because users run as root in Linspire, this caused problems. So apt-get functionality is commented out in 5.0. Expert users, of course, can fix that.
What encouraged me most at the show, however, wasn't on the floor. It was at a tour of Linspire's offices. At one end of a long open space cluttered with desks and geek debris was a counter populated by about 15 laptops and notebooks, each with performance charts taped to their lids. All the units were going through QA testing and burn-in on Linspire 5.0. I felt like I was watching Invasion of the Body Snatchers, except in this case, the invaders were the good guys.
They're making headway. The $199 Linux box that Fry's Electronics advertises almost every week comes with Linspire as the default OS. Linspire is also on a $498 laptop sold at WalMart.com. Recently I also received a confidential report about Linspire running on desktops in a large company. When I asked Michael Robertson about that, he said, “We're in a lot more companies than you'd think.” But he declined to name names to spare those companies unwanted visits from Microsoft sales people.
Two years ago, at the first Summit, my only problem with Linspire was its narrow focus on end users, almost to the exclusion of the established Linux community. Since then, they've become much more friendly to the community, though I think they still could do more. For example, I'd like to see them showing up at other Linux and open-source events and working more with publications and Web sites that serve the Linux community.
The idea here is for Linspire to get adoption by the hard-core experts who read Linux Journal. It's to provide those experts with a version of Linux they can give to their non-expert parents and friends. If you want Linux adoption, there's no better leverage than you'll get from a Linux expert.