Bringing Linux to the Masses He took on the music labels with MP3.com. Now, with Lindows, Michael Robertson is challenging Bill Gates. Does he have what it takes to crack Windows?
(FORTUNE Magazine) – For as long as anyone can remember, Michael Robertson has been fighting with someone or something. He sparred with his political science professors in college because they were too liberal; he started MP3.com in 1997 and tussled with his co-founders and investors when they wouldn't do things his way. And he fought with the music industry, which accused his company, a distribution site for digital music, of piracy. When the major labels sued MP3.com, Robertson spent millions battling them, lost--and yet still walked away with $115 million when Vivendi Universal bought what remained of his company.
Now Robertson has a new fight on his hands, this time with an opponent that makes the recording industry look like a 98-pound weakling: Bill Gates. Over the past year Robertson's latest company, Lindows, has crafted software that mimics the look, features, and feel of Windows. The major difference is this: Instead of developing proprietary code, Robertson has taken advantage of the free Linux operating system and its legion of freelance programmers to cobble together his product. Oh, and Lindows and its Office-like offerings are at least half the price of Windows and Office. Microsoft's not taking the challenge lightly. Within weeks of Lindows's formation, Microsoft sued the company for trademark infringement, saying the copycat name is getting a free ride on the $1.2 billion Microsoft has invested in marketing Windows.
Silicon Valley has proved to be Death Valley for those who've challenged Microsoft's core operating systems business. But don't count Robertson out just yet. Even his detractors--and there are plenty--say he's on to something powerful here: the increasing popularity of Linux and the increasing frustration with Microsoft.
Over the past two years Linux has spread like a virus through corporate data centers. Companies once dependent on expensive proprietary systems from Sun, IBM, or Hewlett-Packard have replaced them with dirt-cheap Dell or no-name boxes that are Intel-powered and loaded with Linux (see First). Linux now runs nearly 10% of all servers and is growing at about 23% a year. PC users have yet to latch on--less than 1% of all computers run Linux--but a survey last year by CIO magazine found that almost 30% of chief technologists were considering moving their companies' PCs to Linux. Already almost every major electronics maker, from HP in printers to Epson in scanners, is making sure it has Linux-compatible offerings. And Sun has poured millions of dollars into its Star Office software suite, which gives Linux users programs that work like--and more important, are compatible with--PowerPoint, Word, and Excel.
Microsoft's legendary hardheadedness has helped fuel this small fire. Starting with Office 2000, the company put padlocks on its software, preventing it from being installed on more than one machine. The idea was to stamp out piracy; instead it stamped out what had become commonplace among home and small-business users: using one copy on multiple PCs. That has driven up the cost of Windows and Office sharply. "It's not fair to a small guy like me," says Charles Russell, a 72-year-old insurance investigator in Santa Rosa, Calif., who has recently been experimenting with Lindows. "It cost me $600 to upgrade my three computers to Windows XP."
Robertson isn't the only one hoping to cash in. Software companies like Red Hat, Mandrake, and Suse all offer Linux products that compete with Windows. But Lindows has a few things those companies don't: It has Robertson's bombastic personality to sell it, and it has a better pitch--that it is easier to install and use. Wal-Mart, which began selling Lindows-ready PCs on its website in September, has had such success with the offering that by Christmas it was having trouble meeting demand.
"In every business sector there is always room for a low-cost provider," says Robertson between bites of a turkey sandwich and gulps of cherry Gatorade. "Computer users only have one choice right now, and that's Microsoft."
Spend a couple of hours with Robertson, and you feel as if you've been granted an audience with a cult leader. At 35, his fine blond hair and craggy face make him look as benign as an over-the-hill surfer. Everything else about him is icy. Employees at MP3.com recall a ruthless perfectionist who would burst in on meetings to dress down associates or explode at teammates for bad plays during lunchtime basketball games. "You miss a shot on his team, and he's all over you like you're the worst athlete in the world," says one of his former colleagues. "He's not even that good."
That drive has been to his advantage. Close to a dozen people who have worked for, with, or against Robertson say that he is one of the most uncompromising and competitive businessmen they have ever met. In 1999, at age 31, he turned down $10 million from VC heavyweight Sequoia. The company had wanted 60% of MP3.com in exchange for its money. Robertson's terms were $10 million for 20%--take it or leave it. Sequoia took it. "He's a zealot, and he's fearless," says Lise Buyer, who covered MP3.com as an analyst for CS First Boston. "I'm just not sure I'd want to sit on his board."
The idea for Lindows came in the dying days of MP3.com. Robertson built his company on Linux, an operating system he learned about during his eight-year stint running PC tech support at the San Diego Super Computer Center. He knew the system worked well in the back office. But in talks with his engineers in early 2001 he found himself surprised by how much they liked running it as a desktop operating system.
That wasn't the experience of most users. Those who toyed with Linux for the desktop--and there were plenty of sites offering such homegrown software--quickly gave up. Exchanging documents with Windows users was next to impossible, configuring PCs to run the programs took forever, and attempting to find printers, scanners, or even mice compatible with Linux was often fruitless. Microsoft, for all its faults, was dedicated to writing desktop software. Linux was just a disparate and unorganized society of software geeks coding for other software geeks.
After trying out a handful of Linux titles himself, Robertson concluded that what the group lacked was a strong leader with a profit motive. In the summer of 2001, he earmarked $5 million of his money for the new venture, and at the end of August he quit MP3.com along with three associates. Three days later Lindows was open for business. The company had little but a deliberately antagonistic name. "Software business plans are a waste of time," he says. "The time it takes to write one is always better spent writing and testing the software. Then you have real results rather than marketing projections."
Robertson counted on his own peculiar form of marketing to build his brand. As he and his programmers mapped out the system's look and feel, Robertson started drumming up press by making outrageous claims. He declared that Lindows would run every Windows program. In fact, it ran Office but not much else. In the summer of 2002 he declared a strategic alliance with AOL, but in reality no such alliance existed.
It wasn't until September 2002 that Lindows became a real threat. The company's sales chief, Larry Kettler, had spent the first part of the year looking for a way to get his product onto store shelves but found that few retailers were willing to clog precious shelf space with an untested newcomer, especially one that catered to the tiny Linux retail market. On a whim he called Microtel Computer, a Los Angeles and Taiwanese maker of generic computers that was selling PCs without operating systems on Walmart.com. Kettler wondered if Microtel might be interested in selling those with Lindows too. It was lucky timing. Microtel's U.S. sales chief, Rich Hindman, had been hunting for a vendor after receiving thousands of e-mails for nearly a year from customers requesting Linux machines. For just $500 a month, Lindows would allow Microtel to sell an unlimited number of copies of its software. Microsoft, by contrast, charged $100 per machine, says Hindman. "Lindows did everything they could to make it happen," he says.
Soon the companies were selling a $199 Lindows Microtel PC. It was a bare-bones configuration: no monitor, a no-name chip, no speakers. By autumn the machines were selling well enough--2,000 to 3,000 a month--that a clearly agitated Steve Ballmer, Microsoft's CEO, declared to a Gartner conference that "somebody is losing [money] there." After all, a similar Microtel machine with Windows XP costs $299. Customers didn't care about the economics. They wanted cheap PCs. Demand was so strong that in December, Wal-Mart suspended sales for four weeks to allow Microtel to meet its backlog.
Even with limited distribution, users are seeking out the product. Not that it is bug-free: Lindows doesn't run on many computers, particularly older models. But the price is proving tempting. Scott Testa, CEO of Mindbridge, a 60-person software company in Norristown, Pa., switched all his PCs to Lindows weeks after they were available on Wal-Mart's website. He had been using Dell PCs, but when it came time to buy more, he chose 30 Microtel boxes running Lindows. "They're as good as Dells for half the price," he says.
This all sounds potentially dangerous for Microsoft, but can Lindows become a viable business? After all, Microtel is now paying about 25 cents a copy on average, and in January it will start distributing the machines on Amazon.com and on CompUSA's site, dropping the price per copy even further. That's fine for Robertson. He's hoping Lindows consumers will then pony up $99 a year for unlimited downloading at a Lindows site full of Linux software. Among the offerings are Sun's Star Office, which typically sells for $80, and thousands of other Linux titles. Historically it has been hard for all but the geekiest to find, download, and install Linux programs. Robertson's so-called Click & Run Warehouse divides the Linux world into neat shopping aisles with automatic downloads and installs. Robertson won't say how many have anted up for the service but admits that 30,000 customers "isn't that far off the mark."
It will take more than that to topple Microsoft, of course. But Robertson has at least gotten the Linux community fired up about one of their original visions: making Linux the world's dominant operating system. "I haven't always agreed with him, but he's helped me and my company tremendously," says Jeremy White, founder and CEO of Codeweavers, which makes emulator software that allows users to run Microsoft Office 2000 and a few other programs on Linux platforms. "I had felt Linux on the desktop was not a real possibility. Michael was the person who kicked me in the rear and said, 'It is.'" It's a good thing. In this fight Robertson will need all the help he can get.