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VA Linux: RedHat Is Not the Only Game in Town

No one denies Linux has a worldwide presence, representing a substantial portion of the server market. But the big question is: Can companies make money from Linux? In the sober investment environment, this is the question all companies must answer. And the answer must be very convincing.

Of course, Linux software is free. So Linux companies need to be imaginative with their business models. The most popular model is to provide companies with value-added services and technologies.

One of my favorite Linux companies is RedHat , which has been showing strength lately. In fact, it appears that Linux may make money, as the company has indicated it will reach profitability in 2001.

But it could be sooner. Yesterday, RedHat shot-up 4-13/16 to 30-3/16 on news that it will team with Dell on Linux server offerings. It was a gutsy move for Dell, which has been a loyal member of the Microsoft Windows empire.

The deal was a simple matter of economics. In the past year, Linux server sales at Dell have been doubling each quarter. What's more, in the competitive marketplace for computer hardware, Linux is attractive because there are no licensing fees (such as to Microsoft).

But RedHat will not be the only company to benefit. I also think VA Linux should do quite well. Surely, it is already been showing nice results. In the past quarter, revenues were $34.6 million, a 710% increase from the same quarter a year ago and a 71% sequential increase. Losses were $4.5 million.

In the Linux market, building value-added technologies is vitally important. To this end, VA Linux has made several technology acquisitions, such as TruSolutions and NetAttach (adding such things as network attach storage to its Linux servers).

Another key to Linux is developing a community of developers. After all, community is what made Linux great. VA Linux recently purchased Andover.Net, a leading community site that gets more than 70 million targeted page views per month.

The founder and Chairman of RedHat, Robert Young, has made an interesting observation of high-tech. First, there were minicomputers. Then came PCs. Next, there was the Internet. And now there is the open-source movement.

At the heart of the Linux movement is sharing -- benefiting from the collective brainpower of the world's technical talent. In this environment, no company can stand alone.