The Case of Linux: Global Challenger to Microsoft’s Hegemony? David Ballantyne Monash University, Australia
[email protected] Abstract Microsoft’s global dominance in its markets is so pervasive that competitors are forced into niche markets. Downstream suppliers and customers, so it is popularly argued, have little choice but to keep building on the Microsoft platform. This is because the benefits of moving to alternative platforms must be weighed against exit costs. In other words, such a move would disrupt existing partner bonds, resource ties and activity links. There is a global ‘challenger’ to Microsoft, one that may yet prove to be a threat to Microsoft’s hegemony. That challenger is Linux. This paper offers a case vignette on Linux that demonstrates its unique application of ‘free’ software. Also, inter-firm relationships can amplify economies of scale and Linux achieves this in a unique way by treating its customers as suppliers. The idea of supply chain is then discussed as well as various kinds of network organisation. The conclusion is reached that Linux and Microsoft have different organisational capabilities and potentialities in the new economy. Also, in this dynamic, global learning environment there are grounds for anticipating unconventional challenges to Microsoft’s hegemony. Introduction Microsoft’s global dominance in its markets is so pervasive that competitors are forced into niche markets. ‘Downstream’ suppliers and customers, it is argued in the IT media, have little choice but to keep building on the Microsoft platform, and what choices that do exist must be weighed against exit costs, in other words, the unamortised cost of their investment is the status quo. This paper will argue that there is a global challenger to Microsoft, one that may yet prove a real threat to Microsoft’s hegemony. That challenger is Linux. The structure of this paper is as follows. First, a case vignette on Linux is provided, demonstrating its unique application of open source software (OSS). Second, it is argued that inter-firm relationships can amplify economies of scale and that Linux achieves this in a unique way by treating its customers as suppliers. Third, the idea of supply chain management is discussed in relation to various kinds of network organisation. Here it is clear that Linux and Microsoft have quite different organisational capabilities. Finally, some conclusions are offered whereby Linux is seen as a knowledge-based network organisation, and a global high tech challenger in the making. The method of inquiry is both exploratory and theoretical. Secondary source information about the activities of Linux was obtained by web-search and through the reading of recent newspapers and trade magazines. Theoretical perspectives that shine light on the global business context and the workings of Linux’s and Microsoft’s strategies and structures were obtained by reference to academic journals.
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Linux: The Global Challenger Linux.com is a twelve year old maverick. It provides computer operating systems distributed free of charge on the Internet. Linux Torvalds, a Finnish University student, is the founder and managing director of the company that bares his name. The prototype system began as an updated version of the UNIX operating system. These systems are called open source systems (OSS). This means that they can be changed or copied without charges or license fees so as long as users share any improvements they make with the user community. Linux changes and improvements are submitted to a committee, headed by Torvalds (Philipson 2001). This business model would seem naive, except that it is beginning to destabilise the IT market for medium and large computer applications (but not PCs). In 2001, Linux’s market share of new operating system shipments for PCs was only 1.5%, but 27% in the Corporate business server market where it has its own Apache web server technology (Wilson 2001). One key catalyst in the rapid globalisation of Linux to the status of a challenger to Microsoft is the vision of the founder, Linus Torvalds, working to break the Microsoft market stranglehold. His passion, dedication, and the will to do it is played out in a global market context in which firms are captive to Microsoft. Free access to the Linux software on the Internet means the basic price is something of a misnomer. The total cost of set up is always higher. Linux’s price appeal in the past has been understood mainly by corporate IT managers, and professional Unix users who have the ‘right’ technical knowledge (Wilson 2001). This is changing as Linux vendors step in to provide fee based installation and maintenance services. What these partner companies are offering is full service support. What Linux systems offer is an exit from Microsoft dominance. What is driving the growth of Linux’s community of common interest is the creation of new programmable knowledge, shared by Linux users, and diffused through the network. Linux itself does not have a profit-making objective. It’s objective is to destroy Microsoft’s dominance and reshape the market in so doing. What Linux has done, intentionally, or unintentionally, is to build a network organisation of customers and suppliers. As the Linux community expands, through IBM’s strong endorsement (Weiss and Butler 2000), HP (Cowley (2002), and others, the industry may be reshaped, and Microsoft along with it. Relationship Development Relationship development in global markets does not imply that firms should seek high-intensity, strategic partnerships with all customers and suppliers. Equally it cannot be assumed that all customers and suppliers would want or require that sort of arrangement. There are many kinds of relationships and choices can and should be made (Wilkinson and Young 1994). However, by allowing its customers to become its suppliers, Linux has submerged the conventional distinction between the two groups. And done so quite consciously, as part of its strategic partnering approach. Close business relationships are not new, but the purposeful development of relationships to achieve strategic goals is a recent development (Wilson and Jantrania
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1994). In my view, there are two ways of understanding the ‘purposeful development of relationships’ in a business-to-business context. The first is the prospect of gaining or protecting exchanges of value in such conditions where the benefits gained exceed the sacrifice made (or the opportunity cost). The second is the prospect of achieving economic returns that would otherwise not be available by making relationship specific investments. Gummesson (1999) argues that all marketing is interactions within networks of relationships. This is certainly a large frame of reference in which to see how Linux is positioned, globally; recognising that such a positioning must be supported by exchanges of value. In other words, creating and sustaining a broader set of marketing relationships is dependent on successful value exchanges, and yet one supports the other (Ballantyne 1994). In the case of Linux, the value exchange works this way – if its network customers achieve their desired value through market success, then Linux is achieving its own valued aims of destabilising Microsoft. The key problem becomes one of innovation and sharing research and development resources in a global climate where what is of value (the product) will be matched against the competitive offerings. Yet the specialised knowledge generating capabilities of most organisations tend to be context specific. These capabilities are created and sustained within their own supply chain networks, defined by problems tackled in the past (Christensen 1997, p. 209). Is the Microsoft culture of knowledge creation sustainable if global growth requires more and more organisational rules and controls to keep order and to manage scale? Answering this question requires a look at organisational structures to see how Microsoft and Linux compare. The Emergence of Networks What is not well understood is that volatile market conditions tend to stimulate the emergence of new patterns of business relationships. One such form is the network organisation. This ‘network organisation’ is not like the earlier linear supply chain ‘pipeline’ with its presumed one-to-one sequential integration. Instead, firms choose to connect in more innovative ways, in what has been described as value constellations of complex related interests (Normann and Ramirez 1993). Interactions within network organisations tend to take three structural forms, according to Hakansson and Johanson (1992). Relationships tend to develop along these three strands, intertwined, one with the other. These relationship strands are activity ties, resource links, and actor bonds. In effect, interdependencies develop between firms as a consequence of resource movements and how people interact to perform activities. Thus whom we choose to collaborate or compete with, or perhaps do both, and also who chooses us to collaborate or compete with, is a new entrepreneurial challenge. Those companies that are able to find ways to create networks of supply relationships are likely to create superior value in new ways, for themselves, their customers and their network partners. We need now to discuss various types of network organisation, and how these might impact on organisational capabilities and knowledge generation at Linux and Microsoft. All network organisations tend to flatten out hierarchies and to extend responsibility (empowerment) to customer contact points with a view to better customisation of product and ‘quick response’ service. Quinn et al (1996) have
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developed a categorisation of four interesting network types. These are: ‘Infinitely flat’, ‘Inverted’, ‘Spider’s web’, and ‘Starburst’. In infinitely flat organisations, knowledge flows in the form of operating rules move largely one way, from the centre to the nodes of customer contact. A fast-food franchise is a clear example. In the inverted form of network organisation, where most of the critical knowledge is at the customer contact nodes, there is little need for knowledge exchanges between nodes. This form works well when customer contact is the most important activity, where contact people have the necessary knowledge, and when line management provide resources support for front line efforts. The spider’s web form is the most decentred form of organisation, where knowledge and task goals are highly dispersed among the nodes. However, the value creation tasks require that all nodes interact with other nodes, at least some of the time, or seek support from others outside the net to fulfil a certain task. Also, individual nodes may operate independently as well as inter-dependently. This is a highly creative system but the challenge becomes one of maintaining a climate of knowledge sharing. The metaphor of complex adaptive systems (CAS) useful here, with networks managing creatively ‘at the edge of chaos’. The Internet is an ideal example of such a ‘self organising’ system. The starburst form of network organisation is characterised by expert knowledge and entrepreneurial capabilities at the centre, and also at the nodes. The centre may control intellectual property for example, which is then used by the nodes. This form of organisation is highly creative, like the spider’s web, but tends to ‘spin off’ separate clusters with specialist capabilities from time to time. These clusters are accountable to the centre for some specifics but not others. The metaphor of an organic system applies. Linux is a case in point, with its autonomous vendors and developers. In 2001, for example, IBM opened a Linux development laboratory in Canberra, Australia, staffed by 12 developers, joining more than 250 other Linux developers around the world working at 22 other dedicated IBM-Linux sites (Philipson (2001). These network organisation types suggest that there are different approaches for high tech companies to consider, operating in a volatile business world where speed and expert capability is at a premium. If we conceive of Linux as a starburst network, which seems a good fit, then the Microsoft organisation can be seen as a multinational (MNC) pyramid that supports internal starburst networks for research and development. There is an obvious degree of tension inherent in the Microsoft model; on the one hand very open and creative, and on the other, covertly controlling. As Microsoft has gown larger and more dominant, the need for organisational control presses hard against its creative culture. Paradoxically, one solution for Microsoft may be to break free from its formal hegemony, to split its parts from the whole, and form a loose, open confederation of related parts. So far it seems unwilling to consider this. One other option is to enter new markets, where there is a likely convergence of technologies that could destabilise the activities of current players in those industries.
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Conclusions This paper has argued that Linux is a knowledge creating network organisation, and an embryonic global high tech challenger in the making. Yet Linux exhibits both the strengths and the weakness of any organisation with a unique business model (or a particular belief system) for transforming information to knowledge. Linux have chosen a collaborative approach, one that relies on their network of customers/suppliers for continuing exchanges of knowledge and value. In this kind of dynamic learning process there is scope for foresight, creativity and also misconception. While the Linux ‘price is right’, will Linux’s partners eventually ‘steal’ its value away in Linux-based proprietary offers? And would Linux care if they did? So long as Linux’s holds to its prime objective, to destabilise Microsoft’s hegemony in the markets in which it operates, then paradoxically it needs and wants its partners to exploit the cost and knowledge advantage embodied in the Linux product, and to do so continuously. If we ignore Linux’s strategy for revolutionary success then we may also misread the potential of Linux’s network to keep on amplifying knowledge gains over time. Furthermore, when Microsoft is understood as an innovative multinational company (MNC) and Linux as a knowledge generating ‘starburst’ network, it becomes clear that the strength of the MNC organisational form (stability) is pitted against the strength of the starburst network (agility). As Linux builds up markets for disruptive technologies, a term used by Christensen (1997, p.210), its advantage is that it is engaged in something that does not make any sense for Microsoft to do. Hegemonic control (market power) seems likely to sustain Microsoft for some time. Yet its knowledge products are constantly being tested in use, and some found wanting. Against this, barriers to exit (cost of retraining, sunk costs in current software) prevent any rapid large-scale exit of customers. Yet the changing global landscape in high tech industries clearly favours an agile network organisation, one where activity links, resource ties and actor bonds can underpin business interactions. When these three relational structures (Hakansson and Johanson 1992) are related to Linux, and expressed in context specific terms, the essential underpinning of the Linux challenge is revealed as: • • •
Open source adaptations to industry requirements and norms (activity links) The crowding of resources into global market niches that might become the mainstream (resource ties) Partnering arrangements for the development and use of intellectual property (actor bonds).
The knowledge strategy and relationship structure required to survive in an unforeseeable high tech future may favour Linux and its community of partners. If we note only the bravado of Linux’s strategic intent then we might not see the potential of Linux’s growing community of high profile partners to keep on amplifying knowledge gains over time within the network. The strategy is unconventional, but its human network structure and open source technical agility may see it succeed in carving off a section of Microsoft’s hegemony.
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