Consumer Behavior: Red Hat Linux

Shane Hathaway
November 2001

Red Hat Linux is a major contender in the competitive computer operating systems market. Corporate customers buy it for hundreds of thousands of dollars yet anyone with a connection to the Internet can download it for free. Many people consider it superior to the leading competitor, Microsoft Windows.

Those statements seem contradictory, but they are all real. This paper explores the computer operating systems market and seeks to explain why consumers pay a lot of money for the Red Hat Linux operating system yet it is available for no charge.

The Product

A computer operating system is the base set of functionality required for a computer to run applications. The core functions of modern operating systems include booting, interfacing with hardware, data storage, networking, a graphical environment, crash prevention and recovery, and access control. In addition to the core functions, operating systems usually provide a file manager, World Wide Web browser, e-mail software, and some games.

Many people are not aware there are operating systems besides Microsoft Windows. In fact, in recent court proceedings, Microsoft was formally declared to have a monopoly in the operating systems market. But there are alternatives like Red Hat Linux and they are growing in popularity.

Red Hat Linux grew out of a grassroots effort to create a better operating system and to make it available to everyone. In 1991, a 21-year-old student at the University of Helsinki by the name of Linus Torvalds announced that he had developed a computer operating system. His new operating system, called Linux, improved upon the Unix family of operating systems. He released it for free, with the source code bundled, so that people could use and modify it. Within two years, 100,000 people were using it. Within four years, the software had improved dramatically and 1.5 million people were using Linux in favor of Microsoft Windows and other operating systems.

By 1995, Linux had become an operating system that could be used for most computing tasks, but only people with a lot of technical knowledge and a lot of time could install and run it. Linux was being maintained and improved by a sparse network of volunteers across the globe. Writing software is relatively easy, but making software easy to use is harder. No one was being paid to make Linux easy to use.

Entrepreneurs Bob Young and Marc Ewing saw an opportunity. Even though Linux could be downloaded for free from the Internet, they wanted to distribute it in boxes to retail stores. They wanted to use the revenues to hire people to correct the things that made Linux hard to use. Thus Red Hat was born.

Many people questioned Red Hat's business model. Many in the community of Linux developers feared that Red Hat would cause Linux to fall victim to commercial interests, so Red Hat committed to providing their customized software for no charge on the Internet. To many observers, the idea of selling software that could be downloaded for free seemed absurd.

But their effort has been remarkably successful. By 1998, Red Hat helped bring Linux to 12,000,000 users, or 17 percent of all computer users (according to a report by IDC.) Within two years Red Hat had its IPO. Hardware vendors began preinstalling Linux as the primary operating system instead of Microsoft Windows.

How did this success come about? The key is open source software, or software distributed with the full source code included. According to Red Hat, "open source is the foundation of our business model. It represents a fundamental shift in how software is created. The code that makes up the software is available to anyone. Developers who use the software are free to improve the software. The result: rapid innovation."

Target Market

Open source is more than just a way to create software, it's also a way to market software. Open source puts Red Hat Linux in the hands of millions of potential consumers of value-added packages. Some of the target market for operating systems is less interested in price and more interested in getting support from the vendor. Red Hat markets software support packages to corporate customers.

Widespread adoption is important in the operating systems market. The target market for Red Hat Linux includes everyone who uses a computer. In fact, Linus Torvalds once jokingly said his goal for Linux is "world domination".

Market Segmentation

The best way to segment the operating systems market is along product use variables. Different kinds of consumers use computer operating systems in different ways.

Corporate users. Corporate users need productivity applications like word processors, spreadsheets, e-mail software, and schedulers. They need an operating system that can work around misbehaved applications because downtime is a significant expense. They need their computer to integrate smoothly with the network environment.

Network administrators. Network administrators need a reliable operating system that provides remote administration, timely updates for security-related defects, and software for server tasks like mail processing, databases, and providing content on the World Wide Web. It is also important to be able to customize any part of the software to fit the network environment.

Home users. Home users choose an operating system based on cost, ease of setup and configuration, availability of applications, hardware support, and games. Also, home users often need technical support. This is perhaps the largest market segment for operating systems, yet the hardest to reach, since home users usually are not given a choice as to which operating system is preinstalled when they buy a new computer.

Software developers. Software developers need a rich set of tools for editing and compiling source code, building user interfaces, testing, and managing the software development cycle. Operating system vendors have to especially feed this market segment since without software developers, software will not be written for the operating system and it will not be possible to market to the other segments.

High-end server operators. High-end servers run major Web sites like amazon.com, process bank transactions, compute simulations of weather patterns, and make sure your grandmother gets her next social security check. For these kinds of servers, there is very little margin for error. They must run twenty-four hours a day, every day, even in the event of a hard drive crash, a power failure, or a software defect. The server operator's job may in fact depend on uptime. In this market segment, price is low on the list of requirements.

Competition

Competition against Red Had Linux is fierce. Microsoft Windows is the largest competitor. For most Windows applications and games there is a Linux equivalent and vice-versa. In most cases, Windows and Linux have the same hardware support. Both Windows and Linux have a rich set of tools for software developers.

Linux has competition from the Unix world as well. Unix is a type of operating system that has evolved over 30 years and today it runs the backbone of the Internet. Linux is one of the variants of Unix. Other variants include Solaris from Sun Microsystems, AIX from IBM, FreeBSD, and OpenBSD.

A new competitor with Linux is Apple's Mac OS X, which partly embraces the open source philosophy. The core of the operating system, or kernel, is based on Unix and can be freely downloaded.

Advantages and disadvantages

Imagine buying a car with the hood welded shut. The factory did not want you to look at how the car was put together for fear that you might make your own car based on it. If anything goes wrong, you have to take it back, but the factory considers that only a minor issue compared with the risk that you might steal the design.

That scenario is the situation the commercial software industry is in today. You buy a piece of software full of complexity but neither you nor anyone outside the software company is allowed to correct or even examine the program's source code. That means there are only a few people who can fix bugs, add new features, and make it more reliable and secure.

The primary advantage of Red Hat Linux over its major competitors is that anyone with enough knowledge can fix and customize anything in the software. That advantage benefits every market segment, especially the crucial software developer segment.

Red Hat Linux is very reliable compared with Microsoft Windows, has better support for various network environments, and can be downloaded for free. The reliability of Red Hat Linux is evident when you consider that the most advanced search engine in the world, Google, is based on 5,000 computers running Red Hat Linux. Google is well respected for its accuracy, reliability, and simplicity. It has put nearly all competing search engines out of business. Google was able to do this because of a brilliant idea and a solid technological foundation.

Red Hat Linux runs on several platforms including Intel/IBM, Sparc, and Alpha. Mac OS X runs only on Apple's PowerPC architecture. Red Hat Linux has better support for server tasks than Mac OS X, which is mainly targeted at desktop users, but that could change since most of the server software for Linux also runs on FreeBSD and can be recompiled to run on Mac OS X.

Red Hat Linux competes with Solaris and AIX, but in fact AIX and to some extent Solaris have begun yielding to Linux. IBM now sells some servers with Linux installed rather than their own AIX operating system.

Red Hat Linux has some disadvantages for home users. Since it does not come preinstalled like Windows does, it's harder for people to become familiar with it. There is a lot of software written only for Windows that Linux can not yet run. And the increased security of Red Hat Linux over Windows is sometimes a burden for home users, since it requires you to remember your password.

Getting end-user technical support for Red Hat Linux is somewhat difficult. Red Hat can't afford to provide phone support for home users, but they can provide e-mail support. For high-end uses, Red Hat Linux has a disadvantage since it does not yet support machines with dozens of processors and special hardware.

But these disadvantages are all being dealt with. The WINE project, supported by another open source company, already allows you to run a lot of Windows applications on Linux. IBM is contributing to the development of Linux so it can take advantage of the features available on high-end servers. If the trend continues, the goal of "world domination" doesn't look so far off!

© 2002 Shane Hathaway