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THE ECONOMY

November 19, 2003
From Business Week

Why Linux Is Wealthier Than Microsoft
by Russell Roberts

Sometimes I suspect Bill Gates doesn't sleep so well at night. Not out of any guilt over his billions or the alleged mediocrity of his product. No, I wonder whether he might actually worry about the competition. Not Apple (though that iPod MP3 player is a killer toy, and I'm cheerfully typing these words on an Apple (AAPL) PowerBook G4). No, I'll bet Linux and its creator, Linus Torvalds, cross Gates's mind when he's looking up at the ceiling late at night.

On the surface, Linus vs. Bill seems to be the ultimate David vs. Goliath contest. It appears to pit the man who cheerfully gives away his code against the guy who ruthlessly seeks every last penny for it. You'd expect Gates would squash Torvalds. Yet they have more in common than you might think. And the final score in their high-stakes rivalry could end up surprisingly close.

MONEY VS. ALTRUISM. For starters, the two face a similar challenge. Even their big brains are puny compared to the wisdom and knowledge spread throughout their organizations. In Gates's case, it's a huge, publicly held company. In Torvalds' case, it's a loosely connected but increasingly powerful network of software developers. Both men must find ways to motivate people to work together so knowledge can spread and have maximum impact on improving software quality.

Microsoft (MSFT) uses money to motivate. And no doubt about it, that's a powerful incentive. But others exist. The community of Linux users and developers is held together by pride and the thrill of working toward a common goal of a universal, free (or at least relatively inexpensive), elegant, bug-free or bug-resistant alternative to Windows, the world's dominant computer operating system.

Can the volunteers who work on improving Linux outperform employees dreaming of stock options? That's not to say Microsoft employees are motivated only by money. They, too, take pride in their work. Disdaining monetary incentives entirely would seem to cripple Linux and reduce it to a charitable organization. But charities work wonders. They can build a religious community or raise a barn or build a habitat for a neighbor.

Look at the progress Gates's personal foundation is making against malaria. Honda (HMC), I'm sure, would trounce the United Way's attempts to design and build a car. But I wouldn't necessarily expect Honda to do a good job at running a school for the blind. With some causes, passion and pride can outperform money.

GEEK FERVOR. Designing software may be such a cause. A lot of people are passionate about creating an alternative to Windows. In some cases, the desire to see Windows' dominant position threatened is its own passion. As a 21-year-old living at home, Torvalds created Linux in 1991 in Finland. He offered it for free to the world and made the source code available to anyone who wanted to alter it—as long as the tinkerer was willing to make the new additions available to the public as well. The result is a product embraced with religious fervor by the geek community and even penetrating the mainstream, running servers and other hardware.

Yet the rivalry is defined by more than motivation and incentives. Does Torvalds or Gates have more resources at his disposal? Gates, right? But that answer assumes that money is the most important asset. Even if money trumps idealism as a motivator, Torvalds has a bigger team—the millions who use Linux and continue to tinker with it. Potentially, he has more brainpower on his team.

Torvalds has another advantage. His organization is less organized than Microsoft. It's really a disorganization. At Microsoft, Gates is the head honcho. Torvalds is just Linux' gatekeeper. He's not really in control—he's called the project leader, the guru. That may appear to be a disadvantage. But remember the problem that every organization's leader faces: The team's smartest member, even if he or she is nominally in control, is vastly more ignorant than the entire network of people who compose the organization.

CREATIVE CHAOS. Being disorganized can actually leverage that knowledge more effectively than a command-and-control hierarchy. Innovation must rely on creativity generated by the mass of folks underneath. In a dynamic system, trial and error is a powerful force for change. A bottom-up system with a gatekeeper can be more innovative than the hierarchical system over which Gates reigns. It can generate a lot more trials, and a good gatekeeper can throw out the errors.

You would think being the head honcho allows Gates to plan. But Torvalds rightfully revels in not planning. He's counting on the marketplace's judgment of Linux and the wisdom of his disorganized organization as a better strategy. He may be right. And while Torvalds and Linux have recently faced legal issues about whether Linux might have some proprietary code embedded in it, that distraction is dwarfed by the time and energy Gates has devoted to battling the U.S. Justice Dept. That antitrust case clearly diverted resources away from innovation and making sure his organization was operating at top efficiency.

While Torvalds is a threat to Gates, Gates seems to be little or no threat to Torvalds. To hear Torvalds talk about it, he's having fun as Linux' guardian. His challenge is merely that of being an effective shepherd to a vast flock of very creative, un-sheeplike sheep. Regardless of the marketplace's final judgment, Torvalds probably sleeps a lot more soundly than Gates.

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