Linux: The pain after the gain

Lack of sparkle in Linux shares could lead to consolidation and lack of funds for new entrants
Written by Martin Veitch on

Linux firms are finding that even basing their products and services on open source cannot protect against the realities of corporate life. The problems they are discovering could make IT buying decisions tougher for those firms considering Linux strategies. They could also drive consolidation to the leading Linux firms.

Last month, Linuxcare, a company that offers enterprise services based around Linux, lost two senior executives. The departures followed a March announcement that the firm had delayed its plans for an initial public offering. The firm is currently seeking to recruit a chief executive and chief information officer, and has no definite date in mind for its flotation. Reports suggest Linuxcare's problems refer to whether the core software program it uses as a support console should itself be open source.

Also, although much of the attention on recent volatile stock market valuations has surrounded dot-com firms, Linux companies have also had an uncomfortable ride with well-known names such as Caldera Systems, Red Hat and Andover.Net losing chunks of their paper worth. In the most spectacular example, stock of hardware developer VA Linux has recently been trading in the twenties after rising from $30 to $320 on its first day of trading last December.

That situation may mean a smaller number of vendors emerging.

"We have $330m in cash but I think consolidation in the sector is inevitable," said Colin Tenwick, vice president of European operations at Linux distributor Red Hat. "Most customers hardly mention the stock, they look at the real benefits and ask whether the company has the right resources to execute on their plans. Linux companies will focus on niches, such as Mandrake in retail."

The low stock prices are not stopping the whirl of mergers and acquisitions as Linux firms snap up minnows, and the largest Linux concerns can point to some high-profile financial support when queried about their financial stability. Netscape, Compaq, IBM, Oracle, SAP and Intel have investments in Red Hat, for example.

TurboLinux, a seller of Linux and server software, recently received investments of an undisclosed amount from Oracle and Pacific Century CyberWorks, adding to the $57m (£36m) TurboLinux received from Dell, Compaq and companies in Asia, its largest market.

Most customers will not rush to move away form open source, especially in strongholds such as academia.

"We have Linux skills and experience with today's suppliers," said the network manager of one of the UK's largest universities. "You don't dump that without thinking carefully."

In most open source projects, other people review a programmer's work and with a certain amount of glee. The code is banged on and tested in ways its author never intended. Charles Babcock explains why this isn't necessarily a bad thing. Read the news comment at AnchorDesk UK.

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