Canonical Business Model

''CANONICAL’S model makes turning a profit difficult.

Many open-source companies give away a free version of their software that has some limitations, while selling a full-fledged version along with complementary services for keeping the software up to date. Canonical gives away everything, including its top product, then hopes that companies will still turn to it for services like managing large groups of servers and desktops instead of handling everything themselves with in-house experts.

Canonical also receives revenue from companies like Dell that ship computers with Ubuntu and work with it on software engineering projects like adding Linux-based features to laptops. All told, Canonical’s annual revenue is creeping toward $30 million, Mr. Shuttleworth said.

That figure won’t worry Microsoft.

But Mr. Shuttleworth contends that $30 million a year is self-sustaining revenue, just what he needs to finance regular Ubuntu updates. And a free operating system that pays for itself, he says, could change how people view and use the software they touch everyday.

“Are we creating world peace or fundamentally changing the world? No,” he said. “But we could shift what people expect and the amount of innovation per dollar they expect.”

Microsoft had an estimated 10,000 people working on Vista, its newest desktop operating system, for five years. The result of this multibillion-dollar investment has been a product late to market and widely panned.

Canonical, meanwhile, releases a fresh version of Ubuntu every six months, adding features that capitalize on the latest advances from developers and component makers like Intel. The company’s model centers on outpacing Microsoft on both price and features aimed at new markets.

“It feels pretty clear to me that the open process produces better stuff,” Mr. Shuttleworth said. Such talk from a man willing to finance software for the masses — and by the masses — inspires those who see open source as more of a cause than a business model.

In his spare time, Agostino Russo, for example, who works for a hedge fund at Moore Europe Capital Management in London, created a program called Wubi that allows Ubuntu to be installed on computers running Windows.

“I always thought that open source is a very important socioeconomic movement,” Mr. Russo said.

Ultimately, however, parts of Mr. Shuttleworth’s venture continue to look quixotic. Linux remains rough around the edges, and Canonical’s business model seems more like charity than the next great business story. And even if the open Ubuntu proves a raging success, the operating system will largely be used to reach proprietary online services from Microsoft, Yahoo, Google and others.

“Mark is very genuine and fundamentally believes in open source,” said Matt Asay, a commentator on open-source technology and an executive at the software maker Alfresco. “But I think he’s going to have a crisis of faith at some point.”

Mr. Asay wonders if Canonical can sustain its “give everything away” model and “always open” ideology.

Canonical shows no signs of slowing down or changing course anytime soon.''