The online retailer spent US$54 million on technology and content expenses in its third quarter, ended September 30, compared with US$71 million in the year-ago quarter, according to a filing with the Securities and Exchange Commission. The reduction was primarily because of Amazon's "migration to a Linux-based technology platform that utilises a less-costly technology infrastructure, as well as general price reductions for data and telecommunication services due to market overcapacity," according to the statement.
Amazon said in June that it was revamping its computer systems and switching to "commodity" computers running Linux. Executives said at the time that they expected technology costs as a portion of net sales would decrease by 20 percent this year.
Linux, a 10-year-old clone of the Unix operating system and a competitor to Windows, burst onto the scene in the late 1990s and now is an established force in the computing industry even though many companies pushing it are faltering. A recent study found that Linux is more popular than some versions of Unix, but Linux in businesses is used more often on lower-end servers than on the powerful machines at the heart of large companies.
Linux, which is developed by numerous volunteer programmers and companies, has some major pricing advantages.
"We've recently...found that Linux--if you look at the overall cost of ownership including the hardware, software, staffing, and purchasing and retirement costs--ends up being significantly less expensive than Unix over a three-year period for things like Web serving," said IDC analyst Dan Kusnetzky.
Half the price tag
For 1,000 users tapping into a Linux server, the total cost is about a fifth to a half that of a Unix system, Kusnetzky said. The cost of administering a Linux system is about the same percentage of the overall cost for a Unix or Windows server, he added.
Cutting expenses is certainly important for Amazon right now. The company trimmed its losses by 30 percent in the third quarter, posting a net loss of US$170 million. Amazon has pledged that it will be profitable on a pro forma basis by the fourth quarter, and with revenue inching up only US$1 million from the year-ago quarter to US$639 million, every little bit helps.
According to Internet research firm Netcraft, Amazon's Web pages are dished out by Linux servers running Red Hat's Stronghold Web server, a derivative of the open-source Apache project.
Amazon executives could not immediately be reached for comment.
Linux can cut costs in several ways. When a company first obtains the operating system, the software can be downloaded for free, or a single copy purchased from a company such as Red Hat or SuSE can be installed on as many computers as a company wants. Secondly, it comes bundled with other software for sending Web pages to people's browsers or running company e-mail.
Thirdly, in many cases companies don't have to pay extra licensing fees for the computers that connect to Linux servers. And finally, Linux is often used on inexpensive Intel computers, sometimes generic "white box" machines and sometimes older computers seeing a second life.
Linux has enjoyed strong penetration into the server market, accounting for 24 percent of server operating-system shipments in 1999 and 27 percent in 2000, Kusnetzky said. That's second to Windows, which went from 38 percent in 1999 to 42 percent in 2000.
On the desktop
Some companies are even putting Linux on the desktop to save money. Though Linux has a low penetration there--Linux accounted for only 1.5 percent of operating systems shipped for desktop use in 2000, compared with 92 percent for Windows, Kusnetzky said--some forces are aligning to increase its possibilities.
Among those forces: the coming version 6 of Sun Microsystems' StarOffice package of office software, which many believe will be a more capable product than the bulky current version and thus a more credible alternative to Microsoft's Office; burdensome Microsoft licensing fees during a time of economic austerity; and the overall price tag of Windows and Office.
"People are looking at Linux as a replacement for Windows," said Robert Frances Group analyst Chad Robinson. "Not that people are switching en masse, but many corporations are exploring that area," chiefly for special-purpose desktops such as bank teller computers.
"The potential for cost savings there is huge," Robinson said.
Microsoft representatives could not be reached for comment.
In late September, independent consultant Rob Valliere published the results of a business study that convinced his small-business client to adopt Linux for a 24-person company. The bottom line: Switching the majority of computers to Linux would provide nearly the same functionality as an upgrade to Windows 2000 and save the company more than US$10,000.
The study concluded that Linux applications could provide solid alternatives to nearly every Windows application, with the possible exception of the scheduling and e-mail integration of Microsoft Outlook.
In the study, Valliere found that licensing fees for 24 copies of Windows 2000 and Office 2000 along with a Windows 2000 server and necessary memory upgrades would cost about US$15,000. Installing Linux on the server and 20 of the computers--with the remaining four upgraded to Windows 2000--would cost slightly more than US$5,000, including consulting and installation fees.
Cracking the whip
Another financial incentive to use Linux on the desktop is that Linux's open-source licensing makes it simpler for a company to make sure its computers are in compliance with license restrictions, as opposed to Microsoft's per-seat licensing plans that can result in costly and legally daunting audits.
"Staying in compliance with licenses is something a lot of companies are scared of right now. It's more difficult, and the ramifications of being out of compliance are becoming more and more onerous," Robinson said. "As of the last year or so, Microsoft has been going after companies where they've gotten tip-offs or had other suspicions."
With Windows XP and Office XP, Microsoft now has a better tool to enforce license compliance: product activation technology that locks versions of Windows and Office to a particular computer.
Woa, that is quite a bit of money saved.