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China and Linux: Microsoft, Beware!

Matthew J. Szulik is the chairman and CEO of Red Hat (RHAT), the North Carolina-based company that is a leading provider of Linux services. Szulik was recently in Beijing to announce the opening of Red Hat's China office. The Chinese government, eager to spur the development of a local software industry, has shown keen interest in the open-source software industry. On the sidelines of a BusinessWeek conference in Beijing, Szulik spoke with Bruce Einhorn, BusinessWeek Asia economics editor, about China joining the Linux revolution.

Q: How important is the support of the Chinese government to Linux here?

A: It's a great leveling effect....a clear [statement] of the government of not wanting to build a critical dependence on one supplier. Linux has broad appeal for government, education, and for private industry. This is one of the few governments to talk openly about advocating open-source [software]. Two nights ago I was at Tsinghua University for a talk and it was packed, with 300 people, to hear about open-source software and its relationship with China. What's fascinating about this is that when broadband becomes cost-effective and affordable in China, it will really get interesting. That's what frightens Microsoft (MSFT).

Q: Why should Microsoft be frightened by Chinese getting broadband?

A: Right now, most high-speed access in China is [confined to the workplace]. But people [who work on Linux] do it as a hobby. A lot of the growth of open source happens as a social and technical pastime. When low-cost access to broadband Internet [becomes widespread], this will explode and create interesting innovation. Europe and Russia already have thriving communities. What happens when those brilliant software developers can start communicating with their peers in Shanghai or Guangzhou?

Q: What's the state of the software industry in China now?

A: The software industry is in its infancy here. It's less than $150 million in commercial size. But the government will create demand in banking, in telecom, [and] in infrastructure that will spark new and exciting needs.

Q: And what's the state of Linux in China now?

Szulik: Our industry is [in an] embryonic [stage]. The Linux industry is less than $15 million in size. We will announce the opening of Red Hat China [on Thursday]. We will spend time at Tsinghua University, with the government, looking for areas to invest and build relationships. And there's the push we're getting from American suppliers like Oracle (ORCL), Dell (DELL), and IBM (IBM). They would like support from Red Hat right. By next year, we will have 50 to 75 people on the ground here.

Q: How do you compete with existing Linux specialists in China such as Red Flag Linux?

A: Many of the people the marketplace views as competitors are actually collaborators. The expectation is that we will collaborate with Red Flag and build the market together. We're in discussions now with other developers such as Cocreate. It happens everyday now, on areas like middleware, infrastructure management, [and the] desktop.

Q: Barely anyone uses Linux for desktops now in China. How can you change that?

Szulik: We think that the desktop is critically important here. The government has said that it would like a truly free market and alternatives [to Windows]. And there are greenfield opportunities in the marketplace. It's not a market that has to be transitioned from Windows to Linux.

Q: China is notorious for its software piracy, with estimates of 90% or more of the software being pirated. How do you deal with that problem?

A: We don't have that problem because Linux is free. Rather than trying to fight [the problem] with patents and other techniques, we've tried to join it. There's a collaborative model where ideas are shared. When you look at the opportunity here, it's truly a once-in-a-lifetime opportunity for firms that act responsibly.

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