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Will Users Buy a License from SCO to Run Linux?

SCO Group has gone from making waves in the Linux community to becoming an out-and-out threat, armed with copyrights that it could conceivably turn on enterprise Linux users. But will it?

"In the near and intermediate term, I don't think you're going to see SCO take that approach," Yankee Group Senior Analyst Laura Didio told internetnews.com. "At the end of the day, they want to turn them into a revenue stream."

SCO, a founding member of the UnitedLinux group and until recently a Linux distributor, upset the Linux party in March when it turned its legal guns on IBM with a $1 billion lawsuit alleging breach of contract and the sharing of trade secrets.

On March 6, the company sent a letter to IBM Chairman and CEO Sam Palmisano, warning him that IBM had allegedly breached its contract with SCO by contributing portions of its Unix-based AIX code to the open source movement, and by introducing concepts from Project Monterey, a joint effort by SCO and IBM to develop a 64-bit Unix-based operating system for Intel-based processing platforms, into Linux. IBM scrapped Project Monterey in May 2001.

SCO claims the AIX code IBM contributed is a derivative work of SCO's Unix System V and UnixWare intellectual property, making Linux an "unauthorized derivative" of Unix, according to SCO. The firm has also claimed that the code, and possibly code from other Unix vendors which have contracts with SCO, was foundational in allowing Linux to make the leap to Symmetrical Multi-Processing (SMP) capabilities, which are essential to making Linux an enterprise-grade operating system.

At first, SCO seemed content to wage its contract war with IBM, although it did send a letter to some 1,350 companies that use Linux, warning them, "similar to analogous efforts underway in the music industry, we are prepared to take all actions necessary to stop the ongoing violation of our intellectual property or other rights." In other words, SCO alleges that running Linux is essentially the same as running pirated software.

On Monday, SCO declared that it had received U.S. copyright registrations for its Unix System V and UnixWare source code, a precursor to pursuing legal action over copyrights.

SCO President and CEO Darl McBride confirmed that Monday. "SCO now has broad legal rights against end-users," he said. But he also noted, "We intend to use these rights carefully and judiciously."

To that end, SCO on Monday also unveiled a new licensing scheme it is developing, under which it will offer UnixWare licenses tailored to support run-time, binary use of Linux for all commercial users of Linux based on the 2.4.x and later versions of the Linux kernel. SCO said any commercial Linux customers that purchase the license will be held harmless against past copyright violations and for any future use of Linux in a run-only, binary format. Pricing has not yet been set, though McBride did say that discounts would be made available for volume licensing.

"The intent is to attack the Linux users," George Weiss, vice president and research director with Gartner Research, told internetnews.com. "It's now a two front movement and the anticipation is that they can negotiate individual license contracts with the end user."

Didio added, "Linux right now has a lot of momentum behind it. SCO doesn't want to be in the position of spoiling the party for all of these Linux vendors. They want to keep the focus squarely on IBM."

Will Users Pay SCO?
So will customers with enterprise Linux deployments, many of them the largest companies around the world, be willing to pony up for a license to run Linux from SCO?

"If the case is valid and users have to pay an additional license fee, they just had a tax put on their usage of Linux and that impacts the total cost of ownership argument," Weiss said. "And that increase came with no additional value."

Even so, Weiss suspected that at least some firms would pay SCO to rid themselves of the hassle, though others may just drop Linux altogether.

"Most of the companies that I talked to that got the letter are quite concerned," Weiss said. "They haven't really come to a conclusion or a strategy. I can imagine that many will set up an internal committee to assess the impact of the latest announcement to determine whether they need to contact and negotiate with SCO. I think that the process will probably go on for the next few months. Commercial enterprises and governments do not want to have any encumbrance or even suggestion of an encumbrance on any code that they run."

Didio said that she had been told by SCO that about 45 or 50 of the companies that received a letter, about 3.5 percent, have since contacted SCO and held discussions. "I think if they come out with a reasonable cost structure, and are willing to be flexible on payment schedules and pricing, they have a good chance," Didio said. "Out of 1,500, if they even sell 50 licenses, that's a considerable amount of money."

But Giga Information Group Analyst Stacey Quandt found it hard to believe that anyone would buy SCO's license.

"SCO's tactics of brinkmanship against IBM have not been successful to date, so it's latest tactic is to go after end-user customers, which is unprecedented," Quandt told internetnews.com. "What SCO is alleging is IP infringement and trade secrets and yet they want to have customers pay them for a license based on allegations, not on facts. Customers should keep that in mind in considering their actions, although it's unlikely that anyone would want to pay SCO for a license based on allegations."

She added, "Overall businesses do not make purchase decisions based on allegations. It is likely that many customers will wait for a court to decide the outcome."

The Risk to Linux
Still, that waiting on its own may hurt Linux. Weiss noted that about 60 to 70 percent of all Linux usage today is in more simple, infrastructure implementations like Web servers and print and file servers.

"They may not necessarily be affected," Weiss said. "But those planning to deploy [Linux kernel] 2.4 and beyond for production database applications need to be concerned he said."

And those enterprise deployments are one of the places where Linux has been exciting the most interest in large enterprises.

"The end effect would be that those enterprises are going to have to reassess their plans and strategies for Linux if they were intent on moving quickly to higher performance production systems," Weiss said. "I would anticipate that that decision process, the concerns, the uncertainty, would lead to a slowdown in deployment of Linux in those sorts of applications. Particularly with the 2.6 kernel emerging in the next few months, this lawsuit is very untimely for the Linux market. There are two possibilities: users either ignore and resist the claims that SCO is making and continue to deploy but with a cloud of uncertainty hanging over those deployments -- which I think many commercial enterprises and governments will be loathe to do -- or they negotiate with SCO, assess how valid SCO's claim is, and have to pay a license fee."

If the latter happens, Weiss said, he suggested Linux would lose the market for higher end deployments, being relegated to infrastructure and Web deployments, with applications that require scalability staying in the Unix domain or opening the door for Windows.

"That would tend to cap the Linux market to installations that are not vertical performance sensitive," Weiss said. "That would be a blow to the Linux community and to the roadmap of OSDL and to the ambitions of IBM and others that are envisioning a wider role for Linux in the enterprise."

Eyes Remain on IBM
Meanwhile, as the copyright issue swirls around IBM and SCO, both Didio and Weiss question IBM's strategy. SCO recently terminated IBM's license for the AIX operating system, but IBM says its AIX license is perpetual and irrevocable, and continues selling AIX.

"IBM has merely been saying to its customers, 'we'll support you,'" Didio said. "They have been downplaying the importance and the legitimacy that this case is going to go anywhere. I don't think this is a reasonable course for IBM to take in dealing with customers."

She added, "I would expect them to defend their position vigorously. However, what I don't think is reasonable at this point is for IBM to just tell customers 'we'll support you' without describing the nature of that support. They need to really say what their position is. Is there a liability cap on indemnification?"

If IBM doesn't spell out its support, Didio said, it runs the risk of losing the faith of its customers.

Gartner's Weiss said "IBM is going to have to do some very clever marketing maneuvering. They have been relatively quiet. They haven't appeared very creative in offering solutions or alternatives to the users."

However, he also said that IBM will not indemnify its customers because it's not easy to properly indemnify open source software.

Weiss explained that if IBM's customers chose to deploy 100 servers each in 1,000 corporate environments, that would equate to 100,000 systems IBM would have to guarantee. "It could grow easily to hundreds of thousands of systems," he said.

While the companies mull their moves, Didio said the most stringent observers are likely to be Hewlett-Packard , Sun Microsystems , Oracle , and Microsoft , as each watches for a chink in IBM's armor that will allow it to muscle in on IBM's territory. But with the exception of Microsoft, these players also have large stake in the welfare of Linux.

Didio noted that the past few years have seen IBM rise to become the dominant power in Web services, Linux and global services.

"This is a little chink in the armor," she said. "Microsoft and Sun have already been exploiting this lawsuit."

HP has created a sizeable Linux business for itself, but Didio said it has also been aligning itself with Microsoft in the Web services arena, and boasts the only global services business which is capable of taking on IBM on a global level.

"HP, Oracle and Intel have been very silent," Didio said. "It comes back to the enemy of my enemy is my friend."