It's not often a software operating system comes along that can challenge the status quo, gain widespread popularity and create enormous revenue potential. So, it's not surprising that some struggling software companies view Linux as its ride out of the dark tunnel of flat growth and into the bright light of prosperity.
Right now, executives at SCO
The software maker certainly needs saving. SCO says its fiscal third quarter would fall far short of estimates. It will lose between 50 cents and 55 cents per share, not the 13 cent loss analysts had expected. The company blamed lingering year-2000 concerns and anemic demand for its flagship Unix server software, called UnixWare. Naturally, the stock was hammered, losing about 26% of its value to close at $4 on July 11. The news comes a few months after the company restructured its product divisions, laid off 70 employees and took a $5.9 million restructuring charge.
So, the company is hitching its wagon to--what else?--Linux. SCO has been selling support services for Caldera
But that's coming. Sources say it's working out an arrangement with France's MandrakeSoft
to distribute its Linux-Mandrake operating system. SCO will use Linux-Mandrake as the base OS and add some features like clustering, which is a complex way to improve the performance and expansion of servers. MandrakeSoft also has offices in Altadena, Calif.
SCO Chief Executive Doug Michels wouldn't comment specifically on a deal with MandrakeSoft, but he says the company will become a Linux distributor.
"Open source is one of the major changes in the industry, [and] we have to play a major role as it evolves. We will provide Linux products," he says.
Linux help can't come fast enough. With sales of UnixWare on the wane, SCO has been working for several years with IBM
The problem is that Monterey was conceived well before Linux was a household word and before IBM, the primary financial backer and developer of Monterey, invested billions in a corporate-wide Linux effort which, by the way, overlaps with its Monterey initiative.
Michels acknowledges that the target audience for Monterey has changed. Instead of being a catchall Unix, Monterey will be moved upstream to a high-end, large corporate sites that now might be using Sun Microsystems'
But here's another problem: Monterey's success is largely dependent on the adoption of Intel's
first 64-bit chip platform upon which it will run, called Itanium. That is expected to hit the market around October. But it's a catch 22, because Itanium adoption will be very slow--a year at least.
"The longer it takes to deliver Monterey, the more in question it becomes,"
says Stacey Quandt of Giga Information Group in Santa Clara, Calif. "SCO has to have a fallback strategy and that's Linux."
But the fallback strategy has pitfalls. First, SCO is very late to the Linux game, and adoption of a SCO Linux, if it happens at all, will likely be slow.
"If they had done this earlier, it could have been much more compelling,"
says Quandt.
Michels counters that SCO sat out the Linux craze because it was figuring out how to actually make money by distributing the free OS, and how to make it more reliable, expandable and compatible with Unix. This, Michels says, will give SCO an edge.
Quandt and James Governor of Illuminata Research believe that SCO is counting more on services and support, rather than sales of Linux software, for revenue streams. That presents another problem: SCO already sells support services for Caldera and TurboLinux, which distribute competing versions of Linux. They are not likely to want SCO to continue making money from servicing their software if they're competing directly with them in Linux.
The bottom line is that Linux provides good opportunities for Linux pure plays, or large companies with deep pockets that can afford to give away intellectual property while expanding supporting platforms to Linux. But it's tough for companies like Corel Software
"It used to be that just by saying Linux, companies had a boost in their share price," says Governor. "That's no longer the case."
Unless SCO can find ways to boost sales of its Unix software while it hammers out its Linux strategy and awaits the arrival of Monterey, things look like they'll get worse before they get better.
"They can't afford to [wait for] a revenue stream that's three years off. They need to be making money now," says Governor.