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Why do you object to the current Linux Gold Rush? After all it helps to produce more open source software...

"I'm very idealistic.
I want to make the world a better place
 for me to live in."

From old Peanuts cartoon

I do not actually object. But the sad truth is that a lot of rank-and file developers might lose money as the shares price go down below the level they bought them.  The Linux companies stock valuations fluctuations just remind me that the US technology stock market can be considered as a new type of casino.  And playing Linux card is a very dangerous play. I'll be the first to admit that proprietary companies (with Microsoft and Oracle as the leaders) have abused their end of the spectrum. But Linux companies instead of solving that problem actually created a second problem.  It's rather difficult to actually generate a substantial revenue off of open source software in this new commercial space to justify valuation at which they were sold at IPO. Moreover if you overshoot and hire people faster than you can increase revenue, you can't  survive in a long run.  Recently Corel announced plans to lay off 20% of its workforce. Linuxcare has postponed its IPO and is looking for additional financing to stay afloat. TurboLinux, once a bright star in the Linux heavens, has declared bankruptcy.

With a multimillion losses each quarter (for example RHAT net loss for the first quarter of fiscal 2001 is $14.9 million) IPO capital will not last forever and probably only Red Hat and Caldera have enough money to survive for at least a decade of losses on that scale (Caldera got much less money via IPO than RH, but in addition to IPO money Caldera  has several hundred million of Microsoft money due to the successful DrDos lawsuit). In his Linux Journal column Open Source is Dead: I Read it on the Net Jason Compton wrote:

...Dreamers who think open source will lead directly to a global gift economy by 2003 or some nonsense like that aside, the challenge for "commercial" open source has been and will continue to be finding a sustainable support and services revenue stream to make the books balance at the end of the year. If you take a little peek over at LinuxCare and their recent financial and management troubles, you will see that this sort of business plan takes careful planning, execution, and luck."

...Because the truth is that open source doesn't cure cancer, doesn't lead to a global gift economy, and doesn't produce perfect software on the first, second, or even fifty-seventh try. Hell, I could put together a laundry list right now of glaring flaws and shortcomings in Linux that I blame squarely on open source development and developers. But that's another column.

I tried to warn that like in case of science, any serious OSS development involves certain risks and requires not only talent but a certain courage to be away from the marketplace in order not to permit marketplace to enslave you. Commercialization of open source is a mixed blessing and it does attract to the movement wrong people. With gold rush the type of people that movement require for survival (devoted academic researchers. aspiring students in computer science departments  and voluntary programmers from the industry all over the globe, who slowly and persistently implement their new vision,  or polish important for community programs, or provide an alternative to an existing but expensive tool)  find themselves on the sidelines.  They cannot compete with fulltimers in OSS startups and feel pressure either to move into them or adopt a second roles or quit. 

There is another important danger that commercial development of represent -- the danger of  featurism. Now that many of the Linux distributions have gone public, their first job is to make money for their stockholders and they have money to make open source products as complex or even more complex that other competing commercial products. The simplest way to differentiate themselves is to have software that can featurewise compete with the best closed source products including Microsoft products (in a really Zen way turning in a process into open source bloatware). The next logical step is to develop products that take advantage of a particular distribution (and there are already several packages developed specifically for Red Hat, that are supported only on Red Hat although they might run on other distributions too). If every distribution can run it, how can they keep/attract users and generate the profit?

In the same way the independence of Linux press, especially commercialized part of it, is questionable. In order to survive they need to get advertisement dollars whatever it cost and that means that they are essentially a highly biased "party press":

Corporate press and self-censorship. (Score:4, Interesting)
by dominion ([email protected]) on Wednesday June 07, @02:18PM EDT (#44)
(User Info) http://www.tao.ca/~dominion

    When I was in Washington D.C. for the A16 actions against the IMF/World Bank, some activists from England and I had a conversation with a journalist from some corporate newspaper (I forget which). The argument was over self-censorship, the fact that most journalists know where their bread is buttered and are never censored because they know to never write an article which merits censorship.

    Now, the journalist insisted that he had full freedom of the press, and could write an article on anything he wanted without getting fired (He did admit that it's very possible that the editors wouldn't print it).

    I told him to challenge the assumption that he had complete freedom under the totalitarian structure of his workplace. I asked him to dig up a story on the parent company or a majority stockholder of his newspaper. Something really incriminating, which is easy since so many large corporations are involved in criminal activity.

    If he got the article printed, then I would concede the argument to him, but if it got censored, or if he felt repurcussions for challenging the authority of his workplace, then I win.

    His response? Something to the effect of "Well, I don't need to test my boundaries, because I already know that I have no boundaries."

    Thus, we have self-censorship.

Michael Chisari
[email protected]
-- www.infoshop.org -- www.spunk.org -- www.radio4all.org

What bother me is the fact that this self-censorship dramatically increases with consolidation of Linux companies that produced  strange bedfellows like Slashdot and VA Linux. As another Slashdot reader put it  #156:

All of us would be well-served by keeping at least a healthy suspicion of VA. The sad part about the whole Linux movement is, that when you get down to it, VA and companies like them don't care about you. They don't have to care. They're going to do everything within their power to screw their way into the black and keep the board of directors happy, just like any other publicly held business.

After VA Linux acquisition the editorial independence of Slashdot is highly suspect. Why would a company such as VA spend $900 million for a company that lost $3 million last year? Call me a pessimist, but as far as I've seen, the one of the reasons why a company can spend such a huge amount of money is when it expects to profit from the implicit advertising and strong marketing of VA brand provided by Slashdot. Actually this is very consistent with VA prev. acquisition of the Linux.com domain in 1999. In this case VA has tried to leverage close relationship with the Linux community as the key point of differentiation from similar hardware vendors and that strategy played handsomely during IPO.  Without strong marketing of VA brand as the "leading open source company" VA Linux could find itself in trouble when much larger players, like Compaq (with 25% share of total Linux servers shipments) and IBM (with 10% share) preinstall Linux on their servers and have much better research and are more diversified that VA. As one Slashdot correspondent described this model:

Selling this open source model by appealing to logic appears to be on shaky ground. How about a slick marketing campaign instead, with lots of slo-mo, leather, and hypnotic music.

As the Standard noted in its commentary about the deal:

Whatever the exact price, few bothered with the deal's substance. The Reuters story didn't even mention Slashdot until the last paragraph, and the NYT/TSC article didn't mention the news site at all. Perhaps concentrated media ownership has simply become too common to remark upon, but Salon.com's Andrew Leonard and Wired News' Joanna Glasner noted that Slashdot is now owned by one of the companies it frequently covers. "[A] linkup between a major systems distributor and a content hub looks like a dangerous combination" to some in the open source community, wrote Glasner, although VA Linux said it wouldn't try to control content on Andover sites.

Salon's Leonard recalled a conversation in which Slashdot founder Rob Malda explained why he didn't want to be acquired by VA Linux. "One of his main concerns in choosing who Slashdot would be acquired by was that it not be a Linux company," wrote Leonard. "The potential for compromising Slashdot's editorial integrity would be too great." Leonard concluded that no matter how scrupulously Slashdot maintains its editorial independence, the appearance of compromise is inevitable, and that "the world of free software is all the poorer for it." As is the world of tech journalism.

Actually there is a pressure for Linux software vendors to become  hardware vendors. In the Linux market, where it's axiomatic that software can be downloaded for free, small vendors are finding that they must package software as a hardware appliance to have a viable commercial product. For example, that's the strategy at Workfire.com, whose Web-accelerating cache algorithms are packaged in hardware, with Linux as an embedded operating system. That means that Linux-related products might concentrate in a appliance and server niches where profits from hardware might compensate for the cost of development of open source. Some predict that the number of players in Linux software area will decrease significantly in a couple of years from now. That means that job security of those who are employed by Linux software companies are not that assured.

The second part of the problem is that Make Money Fast Open Source IPOs brought to the movement quite another type of people -- people that can distort the reality without any problem if that serves their needs. In some other aspects situation starts looking like commercially oriented sect that can distort information for the sake of enlarging the movement; this tendency actually increased with the commercialization of Linux media like Slashdot.org. The Me use Linux too IPO open sore Linus open ebiz ASP solutions satire aptly described crazy atmosphere of the second half of 1999 -- the time of Red Hat and VA Linux IPOs: 

The final destruction of what used to be a charming little OS scene arrived today, Monday, December 13, 1999.

Linuxtoday is spewing forth "me-use-linux-too-IPO-open-sore-Linus-open-ebiz-ASP-solutions" press releases from every backwater, buzzless Joe Q. Corp with a hotmail account...

OS figureheads are being courted for interviews with a veracity that is usually reserved only for pathological child molesters and internet CEOs...

Forty thousand "Embedded Internet eSolution Firewall Privacy Biz Remote" solutions are being deeply discounted to the five people who care enough to add one more yeahd00ditssecure.pl script to their boxes...

2-bit players are buying half-bit companies without a dime to their names just to get at the word Linux in their press releases...

This trend toward a large and bureaucratic "Linux Incorporated"  players is visible in the latest acquisitions (see the table below). Rich "first wave IPO" players in this industry have been busy cherry-picking less lucky Linux startups over the past ten months. At least fifty private Linux companies have been acquired by Red Hat, VA Linux, Internet.com and others during this time.

Buyer Acquired Companies
Atipa Linux Solutions Enhanced Software Technologies
Applix Cosource.com
Cobalt Networks Chili!Soft
Progressive Systems
Corel Newlix (30%)
LinuxForce (30%)
Dell ConvergeNet Technologies
EBIZ Enterprises (theLinuxStore.com) LinuxMall.com
Internet.com LinuxToday.com
LinuxCentral.com
SharkyExtreme.com
LinuxApps.com
PHPBuilder.com
LinuxProgramming.com
Linuxnewbie.org
JustLinux.com
LinuxStart.com
Lineo FirePlug Computers
Moreton Bay Ventures
Zentropix
INUP
USE
LinuxCare The Puffin Group
Motorola Metrowerks
Red Hat Hell's Kitchen Systems
Cygnus Solutions
WireSpeed Communications
Bluecurve
C2Net
Sun StarOffice
Tucows.com Linux Weekly News
TurboLinux Lynx Real-Time Systems (minority investment)
VA Linux Linux Hardware Solutions
Andover.net (Slashdot.org, Freshmeat.org)
TruSolutions
NetAttach
ZDNET (to be acquired by CNET) LinuxDevices.com

 

The latest creation the Gnome Foundation by Sun, IBM, HP and Compaq is manifestation of the same trend. Early 2001 layoffs exemplified the problem. After VA Linux annonced that it will cut 25% of its workforce Eric Raymond published a letter explaining this from his position of a director and open source multimillionaire Linux Today - Eric S. Raymond When Times Get Hard [Notes on VA Linux and the Tech Downturn]. Reaction to this explanation was pretty interesting including a question "In a time of massive VA Linux layoffs, is it appropriate for VA to continue paying ESR as a speaker, when support and coders are let go?":

 
This company is losing a million dollars a week, discloses that it will sometime have to write off nearly $20 million in revenue as uncollectable, insists that `the economy' is responsible for its expenses continuing to outpace its income (as has always been the case), refuses to sell any products with AMD Athlon or Duron CPUs and says that, even with laying off every fourth employee it still won't be able to make a profit until late next year. What's with these guys? As I suggested in another forum, the board should resign and each member should return his gift shares to the company in a last ditch effort to save it from oblivion. Y'all tune in tonight to listen to one of the board members talk about guns, food and how Microsoft's business model is broken. Hey, when reality bites there's always sanctimonious self-aggrandizement.

 

anon - Subject: Right...Eric....sure ( Feb 21, 2001, 12:44:27 )
it is entirely "normal" for a stock to go from 320 to 5.

More FUD directly from the source. This time it is open source FUD.
Names don't matter - Subject: As big a fool as ever. ( Feb 21, 2001, 13:58:14 )
Hard times for Open Source "companies" and other people trying to make money off of the work of the authors of free software (with little direct acknowledgement and certianly no royalty checks except for what few big names they decide to hire in an attempt to make themselves look good) does not mean hard times for free software authors, Eric. Get real. We've been here for decades, and we'll be here long after your annoying whining self is gone. We never needed corporate backing, and we havn't become addicted to it in the tiny flash of time its been around. Maybe if you can take that corporate backing with you when you go, we can all go back to writing software which is technically excellent instead of so many free software authors being taken away and paid to write stuff that just looks pretty so that some wannabe CEOs can appease their monkey fetish in public.
D.B. Odom - Subject: VA Linux's doomed ( Feb 21, 2001, 14:57:04 )
VA Linux is doomed for the simple reason that their products offer nothing over the competition. When my customers want a LINUX server, they go with an established hardware manufacturer like IBM, HP, Dell, etc. Brand recognition is the key to a long term business strategy. Tell me again why I should buy from...what's their name.....VA?

The CEO Larry Augustin blames "an economic downturn". Do CEO's use some sort of common book or pamphlet listing out excuses to use when reporting company performance? Come on Larry.....be realistic and, more importantly, honest. VA's problems have absolutely nothing to do with the economy, and everything to do with your business strategy of selling hardware in an open source environment. Did you check with the other hardware manufacturers to talk profitability? Tell me again why we need another manufacturer of hardware. You add value how? I guess if you cut enough expenses, which demonstrates that your executives aren't very bright with regards to initial staffing requirements, you can possibly make more money than you burn. I doubt that you'll last that long.

VA's board has confused the greed of the intial IPO investors as a sign that they have a valid business model in place. Now that the VC cash has run out and they are stuck with actually generating enough revenue to cover expenses, reality is setting in. It's unfortunate that the employees are made to suffer the consequences of piss-poor management decisions and overpaid executives that look good in suits, but are clueless.

Look for VA to find a partner, be acquired, or shutdown in 6-8 months.
Bryan Brunton - Subject: No AMD No buy VA ( Feb 21, 2001, 16:10:21 )

AMD has transformed the high end PC Market© In previous years a high end to low end Intel pricing spread was 110 to 1200 dollars© The current spread is much lower ¥not including the pathetic P IV¤©

This occurred due to the AMD Athlon© AMD has taken serious parts of the 1GZ and above CPU market© Motherboard makers would aren't supporting the Athlon have found themselves to be seriously hurting©

What is VA Linux position during the major market shift? No AMD©

Good luck VA© Your short sighted support of Intel Only is leading to your own ruin© If I was a VA stock holder, I would be seriously upset©

I would hate to see resources like Source Forge disappear simply due to Augustin's stubborn loyalty to Intel©
D.B. Odom - Subject: Re: Re: VA Linux's doomed ( Feb 21, 2001, 17:26:33 )
I agree completely with your statements that VA has better techs, customer support and the best and brightest. Unfortunately that does not make for a profitable company. It's not that Dell or IBM make better hardware than VA, its the economics of customer brand recognition and loyalty. VA is struggling to sell probably the best LINUX hardware/software equipment in the world. Why? They are trying to fill a niche that isn't needed in the industry. I don't need specific hardware for open source software. Linux, the definitive open source solution runs anywhere - it delivers on the promise of an open systems environment where the hardware just doesn't matter.

The big companies like Dell or IBM, etc. can't compare with VA from the standpoint of service or support, but unfortunately they don't have to. Their customer's buy from them because they feel safe buying from them. It doesn't matter that VA is better.

I don't wish extinction on VA, but their sales and stock price say it all.
Jerry S. - Subject: Re: Re: VA Linux's doomed ( Feb 21, 2001, 17:42:13 )
These are all good reasons to deal with a company. But who knows this about VA? Not me, I know they exists, I have been to the web site and all. As far as I can tell other than selling preinstalled linux systems, VA has not done anything to stand out from the crowd of prospective buyers. This turn of events isn't going to help them, that is for sure. Now prospective buyers will have to question if the vendor will be there a year from now. VA needs to come out with a strong statement of short term and long term goals and how meeting those goals will ensure their future. AND Above all make me think of you for something that I don't think of other people for. Stand out. If it is customer service that makes them better than the rest....sell that, so when I think of service, I think VA.

> Reason to buy VA:
>
> 1) Look who works for them. Some of the best and the brightest in Linux and Open Source. Maybe their management deficiencies need to be addressed but I'm a lot more comfortable with the support and knowledge of the tech staff.
>
> 2) Excellent customer service. When I call the tech line - Gues what? I get a real human being that picks up the phone and is also a technician. How'd about that?
>
> 3) Good customer support. Email's you back to make sure you got the part you ordered.
>
> I agree Dell has pretty good service but as the other poster stated their number 1 priority is M$. M$ directs their business. I don't want to buy my Linux servers and workstations from a company that is just riding the wave and didn't give me a choice 2 years ago.

 


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