By Robert McMillan 

International Business Machine Corp.'s $33 billion bet on the world's biggest Linux company shows how the once-maverick operating-system software has cemented its place at the heart of modern business computing.

Born 27 years ago out of an experiment by Finnish software developer Linus Torvalds, Linux is, technically speaking, the core operating system component that makes a computer work. Companies such as Red Hat Inc., which IBM is buying in its biggest acquisition ever, bundle this software with other free programs for clients to install on their servers and PCs.

Linux today runs on hundreds of thousands of servers that power major technology companies such as Facebook Inc., Amazon.com Inc., and Alphabet Inc.'s Google. Because it is the core of the widely used Android mobile operating system, it also runs on more than 40% of the world's personal computers and smartphones, estimates Statcounter, an analytics website that tracks internet usage.

Even Microsoft Corp., whose Windows operating system competes with Linux and whose former chief executive once called Linux a cancer, has embraced the open-source software in recent years. Linux now runs on Microsoft's cloud computing platform, for example, and in 2014 the company's current chief executive, Satya Nadella, told a crowd in San Francisco that "Microsoft loves Linux."

IBM has its own Linux rival, an operating system called AIX, though it also has worked with Linux for nearly two decades, making it a relatively early adopter. Its deal to pay a 63% premium to purchase Red Hat will link the tech stalwart's fortunes even more closely to the operating system.

Before Linux, technology companies closely guarded the source code of their software and typically sought to maximize licensing revenues. Linux turned all of that on its head. It is free, and the source code is available for anyone to tweak. Linux has thrived in the cloud era, where companies have shifted away from installing their own computers in data centers. Instead they rent computing power from servers running in someone else's facility, which thrive on software that is low-cost and easily modified.

"Linux represents how effective open source is at delivering software better, faster, and cheaper," said Jim Zemlin, executive director of the Linux Foundation, the nonprofit organization that supports Linux and other software projects. The foundation estimates that Linux runs on 60% of consumer devices that are powered by computer technology, including everything from GoPro cameras to smart television sets.

Mr. Torvalds launched Linux in 1991 when he wanted a free clone of the Unix operating system, then popular for high-power workstations and servers, that he could run on his low-cost personal computer powered by Intel Corp. chips. At the time, Unix typically ran on expensive systems built by companies such as IBM and Sun Microsystems that used their own microprocessors.

Mr. Torvalds developed the Linux kernel, just as major changes in the way software was written was taking place. Developers wanted a range of rapidly evolving, free tools -- eventually called open-source software -- that would help them build products and services for the internet age that could be fixed by their users. That rapid, collaborative development contrasted starkly with how software was made by the world's large technology companies.

Within two years, companies such as Red Hat popped up to serve them. They bundled Mr. Torvalds's code into curated packages that contained his Linux kernel and other tools.

Many technology companies were initially slow to get on board, largely over concerns that Linux wasn't a professionally developed product and worries over Linux's software license, which forces those who modify and distribute it to make their changes publicly available for all to use.

Eventually the low cost of Linux running on computers with Intel's chips, along with the quality and flexibility of the open-source model, won. By 2000, IBM was pledging to invest billions into Linux, a move that was seen as a threat to Microsoft and rival Unix companies.

Today, Red Hat is the world's number-two seller of server software, with 15.3% market share, behind Microsoft, according to industry research firm Gartner, Inc. Linux also is used in all of the world's most powerful supercomputers, according to the website of Top500, a project that ranks such systems.

Once an upstart, Red Hat now has value in part because it gives IBM new business partnerships. Red Hat's Linux and other software is widely supported by the major cloud companies, enabling IBM to sell it to customers who want to use a combination of in-house systems and cloud service providers, said Jay Lyman, analyst with 451 Research LLC.

The Red Hat deal was "obviously unthinkable back when I started," Mr. Torvalds said in an email Monday. But, he added, it is "not like IBM is some newcomer to this."

Write to Robert McMillan at Robert.Mcmillan@wsj.com

 

(END) Dow Jones Newswires

October 30, 2018 08:14 ET (12:14 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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