The Bloor Perspective: Cute C&W, that elusive Linux desktop and Proxicom's suitors

In their latest assessment of three topical issues, Robin Bloor and his colleagues take a close look at the progress of UK telco Cable & Wireless, floundering Linux firm Eazel, and the tussle over services outfit Proxicom...

Coverage of telecoms in recent weeks has centred on that old stalwart, BT. Hardly surprising given the recent turmoil of appointing a new chairman, spinning off divisions and further attempts to climb out of the debt pit. But doom and gloom does not shadow the world of every telco. Cable & Wireless (C&W) sold wisely at the height of the tech boom. Moving away from the consumer market netted it £6bn, in a war chest ever since. It did make 4,000 staff redundant but that was blamed on the general economic downturn. Perhaps the company should be congratulated for not taking the easy way out of subsidising jobs from their back pocket. The company has also resisted pressure to pass some or all of the money back to shareholders - again an audacious move. Late last year, C&W bought up the UK company ML Integration as part of its strategy to offer business and IP oriented services. Now C&W has dipped into the war chest to the tune of £240m with the acquisition of Digital Island, the ISP and web services vendor serving Microsoft, E*Trade, Sony and Cisco among others. The C&W interest stems from a desire to establish a stronger presence in the US web-hosting arena and provides business customers with access to a wider range of value added services, especially content management and delivery. Even with plenty of spare change, C&W will no doubt look for ways to improve operating efficiencies and so Digital Island staff may not be off the job market just yet. Bland, Bonfield et al must look on enviously. C&W's war chest would only make a minor dent in the BT debt mountain, but its execs showed business acumen to sell off assets at the market's peak and confidence they were doing the right thing at the right time. Everything is pointing to the split up of BT being the parting gesture of CEO Sir Peter Bonfield and one has to wonder where next for a man of such reputation. Perhaps not C&W. Eazel doesn't do it It was going to provide the kind of graphical user interface for Linux that had characterised the Mac. It was going to make Linux as easy to use as other mainstream operating environments. It was going to do so much but it has failed to attract the support that it needed. Does the failure of Eazel indicate a serious problem for the open source community? Eazel started up in early 2000 with the aim of improving on the Gnome and KDE interfaces that existed at that time. Its intention was to extend the Gnome interface so that command entry was no longer a requirement and, as a result, make the Linux environment more palatable as a desktop solution. The first stage of development was to come up with a GUI that would cover the file system and the graphical shell. This was named Nautilus and the first release is still available to those that need it. The good thing about an open source product is that it continues to function and develop even though the host organisation is no longer operating. The developer community can continue to add to the product as it sees fit. Yet there is a real problem with businesses built upon the open source ethic. It demands they offer up the source for their products and make no money from software licences. Instead, they are required to provide services in order to generate income. This created a particular problem for Eazel in that it required a shift in attitude within the market towards the use of Linux as a desktop OS rather than its preferred role on the server. It is clear it was unable to bring about that shift and, consequently, the extra funding required to develop the business became impossible to find. In Eazel's case, there was no funding source that could be convinced there is a viable business model based on its approach. With the current conservatism in the technology market we should not be surprised to see more of the same in the open source arena quite soon. Proxicom, the little tease After a fair amount of confusing activity, Proxicom finds itself not being acquired by Compaq. Instead, Dimension Data expects to complete the merger. The whole series of events raises a few questions - whether Compaq was right to pull out of the deal when the stakes were raised, whether Dimension Data has now paid too much, and also whether Proxicom is just messing with all parties. Everything looked so simple back at the end of April. Compaq was going to come up with $266m in cash to buy out Proxicom shares at $5.75 each. Ten days later, Dimension Data had come in with an increased offer of $7.50 in cash per share. This deal valued Proxicom at around $350m. Under the terms of the original Compaq arrangement, Proxicom's directors accepted the new offer and gave Compaq three days to come up with a new one. But Compaq eventually declined. The deal itself looks to be a good one for Dimension Data. Up until the end of its last financial year, Proxicom looked to be doing well. Revenues were growing rapidly and had reached $207m for the year. The business was operating profitably until a recent downturn, but restructuring appears to have reigned in the losses. It was hardly surprising that Proxicom had become a target for acquisition. However, by most standards, Compaq's offer of $266m would seem to have been something of an attempt to acquire this relatively sound business at a knock-down price. Even Dimension Data's $350m offer only represents two years' revenues which compares very favourably with the daft multipliers offered in other recent acquisitions. The only real surprise for Compaq in all of this must be that Proxicom accepted its offer in the first place. It does make you wonder just what Proxicom's directors have been up to. Three months ago their business was moving along quite comfortably. Then, in the space of three months, it appears to have lost its market, spent a large wad of money on restructuring and then agreed to sell itself to Compaq at a knockdown price. Only the intervention of Dimension Data has raised the value of the deal to a more meaningful level.