Could Red Hat mean curtains for Windows?

After five years in development, the time is right for the company's Linux desktop software to take on Microsoft, its boss tells Stephen Pritchard

If Matthew Szulik is to be believed, the first thing we will see when we start up our computers in the morning will no longer be Micro- soft's familiar green, red, blue and yellow logo. Instead it will be a battered red fedora.

If Matthew Szulik is to be believed, the first thing we will see when we start up our computers in the morning will no longer be Micro- soft's familiar green, red, blue and yellow logo. Instead it will be a battered red fedora.

The software company run by Szulik, Red Hat, launched its desktop version of the Linux operating system in London last week. Linux is the best-known product of the "open source" software movement, which aims to provide a lower-cost alternative to commercial computer programs and operating systems.

Executives at Microsoft have described Linux as the greatest threat to their company, and it has quickly gained market share from Microsoft's Windows in the server market. But the desktop market - where Microsoft provides the operating system for more than 90 per cent of computers - could be an even greater battleground.

Red Hat's announcement is not the first manoeuvre in that war, but it could be the one that counts.

No single person owns Linux. The software was developed by the Finnish programmer Linus Torvalds, who distributed it freely on the web. Computer owners can download Linux over the internet free of charge, or order a commercial "distribution", with manuals, CDs and extras, from a company such as Red Hat, Debian or SuSe, now part of Novell.

SuSe was the first company to offer a commercial-scale desktop distribution of Linux, but it is Red Hat's launch that is more likely to be causing Bill Gates sleepless nights. Over the past couple of years, Red Hat has concentrated on building an industrial-strength version of Linux that large companies would be happy to run on their servers. It has also persuaded industry giants including IBM and Dell to offer Red Hat Linux with their servers. Now, Szulik says, the company will do the same on the desktop.

In a direct challenge to Microsoft, Szulik is calling his company's system the "secure desktop"; security is generally seen by the IT market as one of Microsoft's main weaknesses. Red Hat plays up the notion that its Linux is not simply low cost, but it will be cheap: Red Hat will provide its software on a subscription basis for $5 per month, per person. Companies will need to sign up for at least 10 copies.

"You will pay for Red Hat the way you pay to use your cellphone," says Szulik. "Businesses are ready for this - they already have a lot of software that is not being used." Charging per user, per month lets companies adjust their IT spending to their fluctuating needs, he maintains.

Red Hat's European launch customer, the German insurance company LVM, will install Red Hat Linux on 8,400 desktop computers. Public sector organisations are keen to save money by moving to Linux, and Szulik believes there is a market among businesses running older versions of Microsoft's Windows desktop operating system.

With Microsoft's next operating system, Longhorn, still some way off, he senses an opportunity. A desire to enter the desktop market ahead of the next Windows version will have certainly persuaded Red Hat to play its hand now. But Szulik suggests the timing is driven as much by technical issues as by the competition.

Red Hat has been helped by the arrival of the latest version of the Mozilla open source web browser, along with the development of OpenOffice as an alternative to Microsoft Office. And the economy is playing its part. Szulik believes that businesses are at the start of an IT replacement cycle. When companies are thinking about updating computers, they are more likely to look around for alternative software.

Szulik says that Red Hat has been waiting, patiently, for the right moment to challenge Microsoft in its heartland. The desktop Red Hat has been under development for five and a half years.

Interest in a desktop version of the software has grown steadily, especially through internet downloads such as Red Hat's Fedora, a free desktop Linux that the company will continue to make available.

Sageza, a firm of technology analysts, says the market share of desktop Linux is around 3 per cent, although some industry commentators put it as high as 5 per cent. "Demand is coming from the public sector, looking for an alternative to Microsoft, and from expert users who know what they want from a PC," says Georg Bernskoetter, European business unit manager for desktop computers at HP.

But although experts have driven the early adoption of Linux, the operating system appeals to IT managers because it allows them to build a stripped-down computer for staff, without all the embellishments provided by Microsoft.

Employees in administrative jobs in large organisations, whether banks or local authorities, may only ever use central business applications. Many of these are highly customised or built in house; most can be used through a web browser. Linux is a cheap way to do this: Szulik estimates that the cost to a company of running a Windows PC is $5,000 (£2,800) to $7,000. Linux, he suggests, will be much cheaper.

One possible obstacle could be the continuing legal action in the US brought by Unix publisher SCO against Linux companies, particularly IBM. But Szulik is dismissive: "No evidence of infringements has been produced." He says the company's IP Assurance scheme has reassured customers about the legal status of Red Hat Linux.

The legal battles over Linux have certainly not hurt profits: net income at Red Hat for the financial year ending in February was $14m on a turnover of $126.1m. Neither have they dampened Wall Street's enthusiasm for Red Hat: the company is valued at $4.5bn (though this is nothing compared with its $25bn peak in the dot-com boom).

Linux itself may not be original: it dates back to the 1970s. But Red Hat's business model, combining free software with subscriptions for added services and support, is. And there is the hope that greater competition on the PC desktop will spur greater innovation. Szulik may be taking on the world's most profitable software company, but he clearly relishes the fight ahead.