Updated from 10:53 a.m. EST

The overall Linux market is far larger than previous estimates show, a new study says.

In an analysis released late Tuesday, market research firm IDC estimated that the Linux market -- including servers, PCs and packaged software -- is expected to register a 26% compound annual growth rate (CAGR) over five years, reaching a whopping $35.7 billion by 2008.

Previous market-size estimates excluded packaged software on Linux as well as redeployments of hardware to the open-source operating system. The analysis was commissioned by Open Source Development Labs, a nonprofit dedicated to accelerating the growth of Linux.

"Linux is no longer a fringe player," IDC said in its report. "Linux is now mainstream."

In the past, IDC has focused its estimates only on new shipments of servers running Linux, a far smaller number than that released in Tuesday's study. Earlier this month, IDC estimated that new-server customer revenue for Linux worldwide will reach $9.1 billion in 2008, driven by a CAGR of 22.8% vs. a broader market CAGR of 3.8% for the worldwide server market.

But on Tuesday IDC acknowledged that Linux is not being used on new hardware only. Instead, customers often redeploy existing servers to run Linux. When accounting for such use -- as well as the use of Linux as a secondary operating system -- IDC's forecasts for servers running Linux balloon 41% in 2003, 37% in 2004 and will remain 26% larger in 2008.

"Obviously, the big opportunity -- the growth -- is in servers and that's where Linux is having a tremendous amount of success," said Stuart Cohen, CEO of OSDL.

IDC and OSDL did not release comparable figures for other server operating systems such as


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Windows and Unix.

However, despite the rapid growth of Linux, IDC did calculate earlier this month that the market share of new server shipments on Linux still would trail that of Microsoft Windows by 2008. IDC has forecast Linux would command 15% of the market in 2008 based on server customer revenue and 25.7% of the market based on server shipments, whereas Microsoft's Windows would lead with 38% of the market based on server revenue and 63% based on server shipments.

Including redeployments, Linux's share of new server shipments will exceed 28% by 2008 -- still less than Microsoft's market share, according to IDC.

While industry observers agree Linux is achieving remarkable growth in the server market, there's more disagreement over the open-source software's prospects on the desktop, given Microsoft's more than 90% market share there.

But Cohen and others assert that Linux on the desktop is being underreported for a number of reasons, including fear of repercussions from Microsoft. Users are waiting to speak out about Linux deployments on PCs until there's full compatibility with Microsoft, Cohen added. Still, Cohen asserts that Linux on the desktop commands a higher market share than does

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In terms of new PC shipments, Linux and Apple's operating system are in a dead heat, according to Al Gillen, IDC's research director, system software. But in terms of the installed base of computers, Apple --which has been around longer than Linux -- has a larger market share, Gillen said.

IDC estimated that the nearly 6 million shipments and redeployments of Linux PCs in 2004 will grow 30% annually to 17 million units in 2008, reaching $10 billion in total annual sales. The bulk of those shipments and redeployments are expected in the regions of Europe, the Middle East, Africa and Asia-Pacific.

Linux is not being as widely used as a free desktop operating system as popularly perceived, Gillen added. For every free version of Linux on the desktop in use, there are about three paid versions of Linux in use, he said.

Cohen took an even more optimistic view of Linux as a client operating system, saying he believes that Linux can grow to represent as much as 20% of the worldwide desktop market within the next five years. Microsoft, however, isn't just sitting still watching Linux take share. The world's largest software maker recently started offering a stripped-down, cheaper version of its operating system called Windows XP Starter Edition in developing countries, including Russia, India and Malaysia.

And Microsoft executives have hinted that the company could use its hefty patent portfolio to take on Linux. Dan Ravicher, founder and executive director of the Public Patent Foundation and senior counsel to the Free Software Foundation, found that Microsoft holds 27 patents that have not yet been court-validated but could be used to support patent claims against Linux. (His review of potential Linux patent infringement was done for Open Source Risk Management, a firm that sells patent insurance.)

But Cohen downplayed the legal threat by Microsoft. He noted that Microsoft's going to court over Linux could ultimately alienate the company's customers who typically use both Linux and Microsoft platforms.

"You can't shut down your own customers from running applications and at the same time ask for new orders to grow your business," Cohen said. "Quite frankly, we don't see patents being the big issue."

One area that has caused a chicken-and-the-egg problem for Linux is the applications market. Companies have held off using Linux because there haven't been enough applications written to run on the operating system; applications developers have held off writing applications on Linux because there aren't enough Linux users.

But IDC found that packaged software has become the fastest-growing segment in the broader Linux marketplace studied for OSDL. Calling packaged software a key opportunity for Linux, IDC projected that packaged software for Linux would expand 44% annually to more than $14 billion in 2008. The market includes database, application-server software, applications and management tools.

While that growth is certainly impressive, IDC calculated that the packaged software market on Linux still will comprise a small part -- just less than 6% -- of the overall packaged software market on all operating systems, estimated to reach $250 billion by 2008.