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Editor's Note: The Bottom Line of Hardware

Feb 16, 2007, 23:30 (19 Talkback[s])
(Other stories by Brian Proffitt)


Desktop-as-a-Service Designed for Any Cloud ? Nutanix Frame

By Brian Proffitt
Managing Editor

A story, to illustrate.

An open source developer schedules a meeting with a hardware vendor. The purpose of the meeting is to request that the vendor consider releasing the driver support for their products (we'll call them Widgets) to open source.

The executive is no stranger to the concept of open source, and is even sympathetic to it. Still, he has concerns. "Why should we, Widgetmaker, want to do that?" he asks the developer.

Because open source is good and pure and honest, and it will help make your company a lot of money, the developer replies. He further requests that a specific product's drivers be opened: the drivers for WidgetA, an older version of the company's products that is a bit obsolete for newer versions of Windows, but would run lickity-split on Linux, especially with native, open drivers.

For the developer, this makes perfect sense, because WidgetA is an older, legacy product that isn't generating a lot of new sales, especially compared to WidgetA+, a top-of-the-line device that's blazingly fast, even on the new Vista. WidgetA, the developer has reasoned, is much cheaper than WidgetA+, but opening the device up to a growing Linux market would be just the thing to help WidgetMaker's bottom line.

Unfortunately, this suggestion gives the executive pause. Here's why.

What the developer doesn't know is that while both products are different in terms of performance and features, fundamentally they both cost (adjusting for inflation) nearly the same to make. WidgetA costs about $25 to produce, with WidgetA+ costing $30. This is despite the fact that right now on the market, the older WidgetA sells for about $50 and WidgetA+ sells for about $300. Clearly, because of demand, right now WidgetMaker stands to make a whole lot more money with the newer WidgetA+.

After he explains this to the developer, the developer thinks for a moment and replies that selling more WidgetA's will still generate some profit for the hardware vendor, so opening the drivers will generate more sales from happy Linux users, who will clearly demonstrate brand loyalty for all of WidgetMaker's products.

Ah, the executive replies, but there's still a problem with that. The $50 price tag is just our manufacturer's retail price (MSRP). Out on some of the discount Web sites, they're selling it for $30. And because the retailers are taking a small margin of 4-5 percent, WidgetMaker only sees about $3.50 in revenue per WidgetA sold these days. But, the executive adds before the developer can respond, that's not counting the costs in packaging and shipping the device.

So, at the end of the day, the executive concludes, sales of WidgetA actually lose WidgetMaker money. The company is selling this devices as loss-leaders, providing replacement parts for people who just need a new WidgetA or hoping that by selling WidgetAs to new customers with older machines, those customers will remain loyal to WidgetMaker and upgrade later to WidgetA+ and later models.

But brand loyalty is what you will get from the Linux users, the developer explains. They will be so pleased you opened the WidgetA drivers, they will keep coming back to your products.

Will they?, the executive asks. Why would they? They will have WidgetA drivers, which would be open, and will run very nicely on the older machines that Linux thrives on. WidgetA+ would be closed and would be vastly overpowered for the kind of machines Linux users typically run. And, the executive added, how long would it be until you came back and asked us to open WidgetA+?

The meeting eventually ends, without a resolution, with each side frustrated that the other can't see their point.

If you think this is a true story, you're right. Only the names of the companies and products have been changed. Yes, that's plural: companies and products. To my knowledge, a conversation similar to this one has been played out multiple times in recent months across a wide range of hardware vendors.

This story illustrates a huge gap between the needs of hardware vendors and the open source community: a gap that is only growing wider and is potentially far more serious than the gap between Linux and software vendors I wrote of last week.

It comes, quite bluntly, to this: however hardware vendors feel about the excitement surrounding Linux, there is currently not a single compelling business argument for them to shift their products to open source. None. In fact, as the above story pointed out, creating a Linux market for their products could actually lose them money--far worse than just breaking even.

The example I used here showed the problem from a pricing structure standpoint. There are others, not the least of which the costs each vendor has in research and development and licensing. That last is particularly telling: many vendors may not actually own the intellectual property invested in the devices that they produce and sell. They may have licensed it from someone else. So, even if they wanted to open driver code, they may not have the legal right to do so.

This problem is present in almost every case of hardware drivers. While it is true that some vendors have generously opened some drivers, the key word there is generous. Opening drivers has not been a bottom-line decision, but rather one made out of altruism. For that, we should be grateful. But we cannot expect such altruism to exist on a very large scale.

The problem is only getting worse: right now hardware vendors are in cut-throat competition with each other (see, for instance, recent coverage of AMD and Intel price cutting). They cannot afford to give away anything else. In fact, we should all be looking for belt-tightening across all the silicon-based industry.

Paradoxically, the advent of Vista has given many hardware vendors a new source of revenue that will make Linux even less attractive to them. Vista, as we know, is such an inefficient resource hog, that only high-end hardware will work well in it. Thus, many users shifting to Vista will need whole new machines or new devices to make up the performance difference. One has to wonder if that's what Microsoft has in mind every time it delivers a new, bigger version of Windows. Keep loyal to us, they may say to vendors, and we'll get you a steady revenue cycle. Actually, no one wonders about this; it's pretty obvious.)

But that revenue lock-in with Windows also keeps vendors from seriously considering Linux support of any kind, open or closed. I think that the only reason we saw the support we did was because Vista took so long to come to market. Linux caught a windfall because some vendors dabbled in it while waiting for Redmond to release. Now that Vista is here (note, I didn't say "ready"), that windfall may be long gone.

The solution is not going to be the status quo. We cannot keep going the way we are. Asking for vendor support out of the goodness of their hearts is unrealistic and--to be perfectly blunt--demeaning. Why should the open source community have to wait for a handout? Why should we have to compromise with proprietary drivers while we hope the vendor in question will see the light and open their code?

We are smarter than that. The open source community has created thousands of brilliant applications, and one excellent operating system. Technically, we have no peers.

From a business standpoint, however, a new plan has to be made. We have to somehow make Linux and open source financially attractive to hardware vendors. Linux can't be a loss, or a loss-leader, or even a break-even market for them. It needs to be a profit center. And then, by God, we will have to beat them all off with a stick, they'll come running so fast.

What will this new plan be? One suggestion I have heard is to create our own open source hardware companies and bypass the current hardware vendors. Difficult, but not impossible. I would imagine that in such a scenario, if there was money being made, the hardware vendors would want to jump in the Linux sandbox and play.

There have to be other ideas, business solutions that will make Linux and open source technology very attractive to hardware vendors. Now is the time to plan and implement, before vendors are too captured by the sway of potential Vista dollars. We need to change the way we handle hardware issues, and not make Linux completely dependent on the kindness of strangers.

Let's get the vendors to come to Linux with hats in hand.