PARK RIDGE, Ill. The law of supply and demand will face a curious test over the next few years, as embedded Linux vendors search for a way to make engineers pay for an operating system that appeals to users largely because it's free.
The upstart OS, which has ridden a tidal wave of developer devotion in recent years, may be at a crossroads, according to industry analysts. As popular as it is among certain devotees, Linux can't flourish in the embedded market unless its suppliers can find ways to make money from it. At issue, they say, is whether Linux's most prominent advantage its royalty-free status will still be compelling if suppliers find other ways to charge for Linux-based products.
"Without a doubt, embedded Linux is of real interest to developers in multiple market sectors," said Paul Zorfass, senior analyst for International Data Corp./FTI (Framingham, Mass.). "Whether that will translate to big business isn't clear yet."
Suppliers of Linux-based software and tools appear to be profoundly confident of their existing business models. The biggest such vendors have publicized a steady stream of design wins and business successes in recent weeks, in hopes of offsetting the negative publicity resulting from recent layoffs.
LynuxWorks Inc. (San Jose, Calif.), which suffered through staff cuts of 15 percent over the past year, reported that it is now "cash-flow positive" after a recent restructuring. It also publicized a design win with the Royal Danish Navy and said that it is working with ARM Ltd. to provide a packaged solution for Linux applications. Similarly, Lineo Inc. (Lindon, Utah), which endured a series of personnel cuts that pared its roster from 320 to 72, has changed its name to Embedix Inc. and has announced design wins with Sharp, Toshiba and Hitachi in recent months.
MontaVista Software Inc. (Sunnyvale, Calif.) announced in the past two weeks that it has incorporated its Linux-based solutions in thin-client terminals with two Japanese vendors Nexterm Inc. and ELT Inc. and that MontaVista Linux is now running in a family of network controllers from NEC Corp. It also announced a partnership with Integrated Device Technology Inc. (Santa Clara, Calif.) to provide Linux support for that company's communications processors in such applications as Ethernet switching, gateways and virtual private networks.
Recent successes aside, however, industry analysts are not yet convinced that such models will yield booming businesses. Most are not sure that a service model under which suppliers collect fees for helping integrate Linux into customers' products will prove a strong foundation for large-scale growth.
"There are some reasonable business models out there," said Jerry Krasner, vice president of Embedded Market Forecasters. "But just because a business model is reasonable doesn't mean it will work."
Parlaying the passion
For many observers, the most confounding part of the Linux conundrum is the almost-evangelical groundswell movement behind it. At Linux functions, devotees flock to keynote speeches, in some cases queuing up in lines that stretch around the block to see featured speakers. In survey after survey, developers say they plan to use Linux in future embedded applications.
A "2002 Embedded Brand Study" published by CMP Media LLC, the publisher of EE Times, for example, revealed that while only 14 percent of embedded developers now use Linux, 36 percent said they plan to use it in the future. Those figures contrast sharply with the numbers for other leading embedded operating systems. For example, fewer developers said they plan to use Wind River Systems Inc.'s VxWorks and pSOS than are using them now. On the surface, such figures might suggest that open-source operating systems will grow in the near future, while proprietary systems will level off.
But users' desires don't necessarily mesh with those of suppliers. While surveys show that engineers are strongly drawn to royalty-free solutions such as Linux, recent business performance indicates that they are less inclined to buy open-source products if those products are as costly as proprietary counterparts.
"The problem with Linux is that it's free," said Bob Morris, vice president of sales and marketing for LynuxWorks. "And while it's true that you can make some money off services, that's really not a continuing revenue stream. So the question is: How do you make money off Linux?"
Embedded Linux vendors are attempting to create revenue streams with a variety of methods. The most obvious of those are services and software tools.
Analysts believe, however, that services won't be a long-term solution for the future of Linux, primarily because they don't allow suppliers the luxury of creating a product once and then reselling it thousands of times. "Services are limited because they tend to be people-intensive," Krasner of Embedded Market Forecasters said. "It's a model, but it's not a billion-dollar model. No company is going to get really big using a services approach."
Search for growth
Up to now, most Linux vendors have pulled in revenue through the sale of software tools and integrated development environments. The tools, which typically cost anywhere from $4,000 to $7,000, enable users to configure Linux and develop their own applications.
But suppliers in growing numbers are looking to other avenues for revenue growth.
Some say they plan to work closely with silicon vendors in an effort to build their products into the silicon. That way, they hope to sell add-on products to the users of that silicon, or simply build the cost of their software into the silicon products.
MontaVista Software, for example, works directly with seven families of embedded silicon and between 70 and 80 board-level products. The company provides ready-to-build Linux platforms that include the Linux kernel, development components and software tools.
"Implicit in our business model are several partnering factors, and it all starts with the ability to support the silicon," said Bill Weinberg, director of strategic marketing for MontaVista. "We want to make sure that when an engineer asks which software is supported by a chip, ours is front and center."
Other suppliers, such as Embedix, say they plan to provide an "add-on IP" stack that would enable users to configure their Linux OS for particular applications. Add-on intellectual property (IP), the company says, would include such elements as USB drivers, graphics libraries, browsers, synchronization software and other application pieces. Embedix executives say they plan to incorporate as many as seven IP pieces in a single stack that the company would provide to customers.
"Practically speaking, nobody will pay a royalty on Linux itself," said Matthew Harris, chief executive officer of Embedix. "But they will pay a royalty on a complete solution that includes non-free software."
Other companies, such as LynuxWorks and FSMLabs (Sorocco, N.M.), plan to link their Linux-based operating systems to products that satisfy the needs of users who want real-time operation. The key is that the real-time systems, unlike Linux, are royalty-bearing products. LynuxWorks, for example, sells its time-tested LynxOS real-time system, which can be used to run Linux-based applications. By tying the LynxOS to its BlueCat 4.0 product in that way, the company can derive revenue from its Linux-based products.
"We think it's a viable business model because we don't rely solely on open source," said Morris of LynuxWorks.
Similarly, FSMLabs employs a dual-kernel approach in which it runs Linux as a task atop a real-time operating system, thus allowing developers to assign real-time capabilities to desired applications.
In the long run, suppliers hope that such efforts will provide them with a healthier business model. "Our idea is to spend less time on pure Linux and more time and energy on the value-added pieces," said Harris of Embedix. "We spent the last two years trying to make money by building Linux board support packages, and over the past six months we got the message loud and clear that our customers want more than that."
Suppliers hope that such approaches will enable them to attract more revenue than pure service models would, therefore allowing them to capitalize on the industry fervor for Linux. "There's a lot of customer demand," Harris said. "If the right model is implemented, we know the customers will be there."
'Far from decided'
Ultimately, analysts believe the key will be whether developers are willing to pay fees comparable to those of a proprietary system from Wind River or QNX Software Systems Ltd. "The question is: Do people really want Linux that badly?" asked Krasner. "Thus far, Linux has failed to capture the imagination of embedded developers to that extent."
Still, analysts believe Linux will continue, even if some of the current suppliers don't.
"This game is far from decided," said Zorfass at IDC/FTI. "The success of these companies is not necessary for the survival of Linux. Linux could still be successful without them."