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Softpanorama Bulletin
Vol 14, No.01 (January, 2002)

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Linus Midas Touch and Linux IPO Casino

1999 Linux Gold Rush the Great Electric Kool-Aid Linux Hype Fest

 

" ...It's simply a critical note of the get-rich-quick-scheme that the market has become. In no way does this note reflect on the quality of the Linux OS, Bob Young's character, the open source community's willingness to contribute to the wealth of a select group of investment bankers, venture capitalists, and multi-billionaires, or the sex-appeal of TuX tHe PiNguIn.".

Disclaimer from the Slashdot post

Money, very big money. Great and not that great but now very rich  programmers (see also Linux Stocks Crush, and the Sunset of Linux Hype) Gold rush. Gold rush victims. Sound that it has nothing to do with open source? Read on. Here is the message from Linuxtoday forum about "absurdly rich" Eric Raymond" and VA Linux IPO:

Mark Brogan - Subject: I happy for you, but my whole future now resides in VA LINUXre I (Dec 12, 1999, 23:22:08 ) I must be insane, because I placed a market order for LNUX. I now must liquidate all my retirement account to settled the trade...

500 shares X $277 = 138,500

Here is yet another interesting quote:

It scares me when people start saying they're rich when on paper it could be gone as quick as it came. Consider the fact that these overnight millionaires are really nothing but owners of a separate entity--the corporation. Now that corporation has to produce! There are many people that put money into it to make these people so called "rich". If it doesn't produce quickly (profits) the same people will become disenchanted and sell they're stock at discount to nothing. This could be extremely harmful for Linux. Unlike M$, which worked its way from obscurity to power marketing--Linux has done it the hard way. I worry whether this will corrupt those in the Linux community who have worked hard only to live a short reign of power before the whole market falls in! Consider that people are paying 3-4-5 hundred dollars per share with not even a clue of where $1 profit is going to come from. I suggest looking back to the great depression to see that an awful lot of people were hurt while only a few got rich. It's musical chairs--when the music stops who will be left standing--most of those silly enough to fall for the bazaar and the ridiculous. What will this do to Linux? It will give it a bad name. Instead, of IPO's working their way up in slow steady manner based on performance--we have the situation where I could take a spreadsheet and estimate whatever someone wants to hear and sell it as an IPO. Even Red Hat--what have they done anymore than anyone else? IPO's should be separated from any logically minded market and kept from the general public for at least a two year period. At this point, they would only be represented by their closely held owners. We could then see what they're going to do with their money and not someone elses. For those that have gone out on a limb to support this kind of marketing glitz, good luck! But like anyting else, if the home town team doesn't win the fans quit coming!
More power to companies like Corel who have already been there and done that. The rest are nothing but winners of a lottery but with a catch. How long can they promote blue sky? Hackers now over the control of new corporation are no longer strictly dealing with their first love. Only marketing will be able to promote their product and time will tell! I hope the general public has not been taken for ride. 8^(

All of this OSS wealth is going to be an interesting social experiment. Current valuations on Linux-related companies can be found at LWN Stock Page. I generally agree with Corel CEO Michael Cowpland who remarked that Red Hat should be valuated lower then Corel, but not in a sense that Corel is undervalued, but that RHAT is overvalued. Still RHAT probably will be able to preserve some positive difference with pre-IPO price($18) and despite losing market share to Mandrake and Corel on the desktop it still can benefit from name recognition and high-end server deals. I am not that sure about VA Linux($30 but for some it was $320). Compaq and IBM might eat VA Linux market share for lunch. This is not a good thing. Not for the investors, the market, or Linux.  As one Slashdot reader put it : " They don't actually do anything other than sell Linux boxes, right? Or is there something else they do that I'm missing? Looks to me like Linux is becoming far too much of a buzzword for its own good. Perhaps the reason it did so well is because VA Linux is the only Linux IPO recently to actually have the word "Linux" in the company name..."

Investment in Linux became a great sport and I'm sure will remain that way until the first serious bear market comes along, and then things will change in a hurry. I would like to repeat here an advice from one Slashdot posting "affection does not necessarily translate into a good investment.":

by dgb2n (bassett@NO.t-onlineSPAM.de) on Thursday January 20, @07:35AM EST (#30)
(User Info)

Once again, I feel obliged to post a warning about these Linux IPO stocks. As much as we may like a company like LinuxCare that contributes to the "Linux Community", that affection does not necessarily translate into a good investment.

Don't confuse buying their stock with furthering their cause. Once the shares of LinuxCare are sold to the large brokerage houses through the IPO process, the amount of money that LinuxCare receives is fixed. Sure, if the shareprice rises, it means profits for the original shareholders but the company doesn't have more money to pour back into into Linux development (except if they use their company stock as capital to make additional investments. i.e. AOL buying Netscape).

Look at some of the figures for this company. Their revenue for the first 9 months of 1999 was only $304K. They are now $7 Million in debt. Even if revenue grows 10X next year, their revenue will still be only $3MIL. Take a close look at the market capitalization before you buy. With revenues so low, you can't really justify the huge market caps of a Red Hat (17 Billion dollars on 16 Million in sales).

Look at a well established software company like Compuware that is heavy into providing services. Its market cap is $9BIL on just under $2BIL in sales. Compuware is growing at 35% per year. Sure, there will be growth in Linux. Huge growth. But consider how much you might be paying for so little revenue let alone actually showing a profit.

This isn't a technical question or a moral one.
Linux activism can only go so far.

Dave


General

"Looks like a lot of you folks that bought high may never see your $$$."

Linux Today - CNET News.com Cowpland steps down from top spot at troubled Corel

Gartner analyst Chris Le Tocq blames Cowpland for Corel's many missteps in the marketplace. "All in all, it's been Cowpland's company, and maybe it's time for him to move on," he said. Le Tocq added the company is a good acquisition candidate for a business that wants to take Corel's software and rent it over the Web. "The company that acquires Corel could use the expertise within Corel and use it to build Web-based services," he said."

"At least one analyst said Cowpland's biggest mistake was his decision to invest all the company's efforts on the emerging desktop Linux market. "Corel essentially bought the farm with moving applications to Linux, and the Linux desktop marketplace has not appeared," Le Tocq said. "And who knows if it will ever get on stage. The Linux desktop market is a non-starter in the United States."

Slashdot RemarQ.com Shutting Down

 "You mean I can no longer expect to enjoy a grossly overinflated market cap for my unprofitable, $200-million-in-debt Internet start-up? That's not fair!" -- Onion

Linux Today - Linux Magazine Investing For All the Wrong Reasons

It's fun to think about the fact that the stock market, if for ever so fleeting a moment, believes that businesses fundamentally based on Linux and open source are worth billions of dollars. Maybe you met a Red Hat employee at a conference or LUG meeting who you're certain is a paper millionaire. You like to keep informal tabs on his wealth so you can congratulate or needle him, depending on how things are going. Or maybe you just get a kick out of knowing the up-to-the-minute market cap on RHAT or LNUX or CALD or COBT.

For the most extreme example, of course, check LNUX, or VA Linux if you don't read ticker talk. VA sold shares to IPO participants for $30 each. The very first third-party trade (shares changing hands from an IPO participant to someone else) was for $299 a share. Who feels dumber than that guy? The poor slob whose order shortly thereafter priced out at $320 apiece. Times have changed: LNUX even briefly traded below its IPO price in recent months. I sincerely hope that the people who made those ridiculously overpriced purchases were thinking with their brains and not their hearts, but unfortunately I suspect that an awful lot of Linux hearts have been losing money the past few months.

"But unless you plan to acquire enough stock to plop yourself on the board of directors, don't waste your time investing in stock to support technology. Remember, on any given day a massive financial institution could buy up millions upon millions of dollars worth of a stock to put in a mutual fund or pension plan. And yes, such major trades cause short-term spikes or dips. But the long-term meaning of stock value is set by just that-the long-term. Trying to jigger a stock price is a losing proposition unless you're backed by Gordon Gekko. If you don't believe me, consider a sad tale from not so long ago."

vnunet.com (Internet) How stable is that dotcom

Recent calculations by Fletcher Advisory for PricewaterhouseCoopers found that seven out of 28 internet companies floated on London's stock exchanges would run out of money within six months, unless they received more backing from investors. The researcher divided the amount of cash on the company's most recently published balance sheet by its losses - operating costs minus gross profits. The time until burn-out averaged 15 months.

Anthony Miller, an analyst with Richard Holway, said the idea that dotcom firms are risky should not be news. "We've been saying this for the last couple of years," he said. "We did not see how you can spend more than you're earning but stay in business. It's almost like pyramid selling - a circle of talking the company up, the share price going up, and people taking profits. And then share traders take fright, as has happened recently."

And, of course, conventional firms are less likely to go bust - they are businesses which exist to make profits, not just bubbly share prices. "The companies with the best chance of survival are the bricks and mortar companies moving into the dotcom world," said Miller.

... ... ...


You can spot the warning signs of risky ventures. "A company would ring alarm bells if it hasn't looked at its target market. If we can list five competitors off the top of our heads, we ask what can they do that is different," he said.

"Often there's a degree of confidentiality surrounding venture capitalists," he added, but this should only apply to the identity of the funder. Even if they can't say who the venture capitalist is, they should have a date.

... ... ...

It also makes sense to avoid business-to-consumer startups. Miller said business-to-business sites are more secure, but there are even better options elsewhere. "The companies that we are backing are the ones that provide services for the dotcoms - building the websites and handling the transactions," he said. "These are the ones that probably have more to gain. If all these dotcoms are determined to spend themselves out of existence, perhaps you should be one of the ones accepting the cash, rather than handing it over."

AFR Information - Linux down as Microsoft holds up

...Now, the optimism has cooled as Linux companies lose money and Microsoft holds onto market share, even as the US Government considers a two-way split of the world's largest software maker.

"Linux has lost its allure with investors," said Mr Walter Winnitzki, an analyst at Chase H&Q. "It needs to regain that allure with good solid earnings."

Investors initially saw Linux as a major development in software...

...Microsoft's battle with the Justice Department initially encouraged Linux investors. The Government has proposed dividing the software powerhouse into a company that makes the dominant Windows operating system and another that makes applications including spreadsheets and word processors.

Any split would divide Microsoft's management team, duplicate costs and hinder the new companies' ability to develop and sell applications, analysts have said. Its shares have fallen 47 per cent this year.

Microsoft has held fast to its market share, though, and investors started backing away from Linux stocks at the start of this year. Windows captured 87 per cent of the market for personal computer operating systems in 1999, compared with 86 per cent in 1998, according to researcher IDC.

Linux doubled its slice of the market to almost 4 per cent last year, but most of its new users were not former Windows customers.

Mr Dan Kusnetzky, IDC's vice-president of systems software research, said many Linux consumers were "computer hobbyists" who were not interested in running the desktop personal computer applications that are Microsoft's stronghold. "We're not seeing Microsoft lose market share to Linux," he said.

Investors grew concerned about how Linux companies would make money on software that is available free. "It was more hype than reality," said Mr Christopher Bruner, of National City Investment Management Corp. "Making money is difficult," he said.

[May 28, 2000] Linux Magazine Web Exclusive Straight Outta Compton Investing For All the Wrong Reasons

Stock-price watching is fast replacing baseball as the American national pastime, but years before cab drivers and fry cooks were discussing the Nasdaq, computer geeks had their eyes locked in on the stock of their favorite companies. This is how it happens: Every so often, some geek becomes an amateur investment advisor and tells his fellow geeks that the best way to support their favorite company, in good times or bad, is to buy stock in Company X. This is why any decent Macintosh site will tell you how AAPL did today.

The desire to effect technology companies through investment runs deep. Hacker News Network's Dr. Z, for example, recommends that you buy up the stock of your least-favorite Big Business, just to have the satisfaction of heckling the corporate officers at their annual stockholder's meeting. (If this sort of expensive fun appeals to you, that's your prerogative.)

Alternative OS fans are no different. On the eve of the Red Hat IPO, one Slashdotter announced his intention to place an IPO-day order for RHAT, "because I am a believer in Linux and Red Hat." Another Slashdot poster related how he bought Be, Inc. stock (yes, it's not a Linux company, indulge me) on the strength of "I had tried out BeOS a while back and really really liked it, so I plunked down the majority of my money into it."

Delusions of Grandeur

Yes, it's true, on some levels stock price does matter to a company's well-being. Generally speaking, a company with a hot stock has more financial options and greater flexibility than a company with its ticker in the toilet. And yes, the fate of a company or group of companies can have a personal and professional impact on its customers and adherents.

But unless you plan to acquire enough stock to plop yourself on the board of directors, don't waste your time investing in stock to support technology. Remember, on any given day a massive financial institution could buy up millions upon millions of dollars worth of a stock to put in a mutual fund or pension plan. And yes, such major trades cause short-term spikes or dips. But the long-term meaning of stock value is set by just that-the long-term. Trying to jigger a stock price is a losing proposition unless you're backed by Gordon Gekko. If you don?t believe me, consider a sad tale from not so long ago.

The bottom line is that companies need revenue, not stock trades. If you want to make a difference, go buy something.

Back in the early '90s, Amiga users frittered and fretted over Commodore's stock price, which had been declining for some time. The company had mounting debts and couldn't execute on new products -- and when it did, they were overpriced and underpowered. So someone got the terrific idea to coordinate a bunch of Amiga users to buy Commodore stock on a particular day, to try to blow a little wind into the sails of the company.

The stock did close higher following this grass-roots buy-in, and the people involved claimed victory. Not that it mattered. In April 1994, Commodore went bankrupt and the rank-and-file common shareholders (including our would-be heroes) were completely out of luck. Their holdings were worthless.

Of course, if Commodore had somehow pulled off a spectacular turnaround, the makeshift investment club would have looked like a stroke of genius because the stock they had bought for peanuts would have been worth gobs of money. That wouldn't have made their effort a success, just a well-timed investment. The ultimate fate of the company was completely unrelated to the grand gesture of well-meaning but misguided fans.

But I know why you do it. I know why, even if you don't own any Linux stock, you pull up the quotes every day to see how things are doing.

Invest With Your Head, Not Your Heart

It's fun to think about the fact that the stock market, if for ever so fleeting a moment, believes that businesses fundamentally based on Linux and open source are worth billions of dollars. Maybe you met a Red Hat employee at a conference or LUG meeting who you're certain is a paper millionaire. You like to keep informal tabs on his wealth so you can congratulate or needle him, depending on how things are going. Or maybe you just get a kick out of knowing the up-to-the-minute market cap on RHAT or LNUX or CALD or COBT.

For the most extreme example, of course, check LNUX, or VA Linux if you don't read ticker talk. VA sold shares to IPO participants for $30 each. The very first third-party trade (shares changing hands from an IPO participant to someone else) was for $299 a share. Who feels dumber than that guy? The poor slob whose order shortly thereafter priced out at $320 apiece. Times have changed: LNUX even briefly traded below its IPO price in recent months. I sincerely hope that the people who made those ridiculously overpriced purchases were thinking with their brains and not their hearts, but unfortunately I suspect that an awful lot of Linux hearts have been losing money the past few months.

So please. Do yourself a favor. Don't buy stock in a Linux firm for the sake of the company, the operating system, the company's merger target, the open source movement, or the community. Buy it for yourself, or don't buy it at all. The bottom line is that companies need revenue, not stock trades. If you want to make a difference, go buy something.

[May 18, 2000] Linuxtoday.com.au - Article - What Now Corel

It's time to ask some serious questions about the future of Corel. In February the line put out by Corel's in-house propaganda department was that the proposed merger with Inprise (the developer formerly known as Borland) would create 'a Linux powerhouse'.

Now the deal is scrapped does that mean Corel is finished?

Only weeks ago Corel was saying the completion of the deal was 'critical to the company's continued operation'. In an April 19th statement Corel announced that the corporation was only months away from running out of cash unless the merger.

Forget the corporate spin about 'synergy', the real reason Corel wanted Inprise was to get its hands on the US$200 million stuffed under Inprise's mattress. Any technology considerations were only secondary.

Although the two companies say they terminated the deal by 'mutual agreement' it's not hard to see why the merger failed. It all comes down to cold, hard dollars. At the time the deal was originally proposed, Corel was set to pay the equivalent of US$1 billion in stock for Inprise. By the beginning of May the plummet in Corel's share price meant the effective buy price was below $400 million - that's considerably less than a broken up Inprise would fetch on the market.

Not surprisingly Inprise's share price rose on the news. Here we have a company with a solid product range and a long, somewhat rocky history that finally seems to be getting back on its feet.

The last thing Inprise needs at this stage is to hitch itself to a three-time loser. Corel is the original one-hit wonder. After years of trying, the company still hasn't come up with anything better than its original Corel Draw program. And that's no longer a market leader.

This is an outfit that has, over the years, released one horrendous flop after another. Hellfire, Corel's dumbmeisters even managed to turn the brilliant Wordperfect into an also-ran - though admittedly Novell did a lot of the preparation for them.

You know the saddest thing about this is that Corel should be on a roll now that the US government has tamed the Microsoft beast. But frankly, it is because Corel and some of the other PC applications companies like it are so stupendously badly managed that Microsoft built a monopoly in the first place.

Oh and one more thing. Forget about that so-called Linux Powerhouse nonsense. It's just hot air. Between them Inprise and Corel derive less than 5% of their revenues from Linux related products.

High Technology - Ottawa Citizen Online

Red Hat boss looks through rose-colored glasses (interview with Robert Young).

Q: How has the Linux stock boom changed the industry? (In February, Mr. Young and his wife sold Red Hat stock worth $30 million.)

A: This isn't the business I knew when we used to run it out of our homes. We didn't come to a trade show to spend money; we came to sell boxes over the counter in order to get the money to pay hotel bills at the local Holiday Inn, if we were lucky.

Q: Red Hat and other Linux company stocks have plunged almost 80 per cent since December. What do you tell people who bought Red Hat at high prices?

A: Keep in mind that, in the short term, stock prices are being driven by day traders. I believe there is an efficient stock market which holds true in the long term, but not in the short term.

The message I give to our shareholders is that our goal is to build a great technology company ... and we figured it would take us 20 years. The IPO was simply a tactical step on that road. So whenever someone asks me about the share price, I basically say check back with me in five years. I'll take responsibility for the stock price in five years; I can't take responsibility for daily fluctuations.

Q: There are a lot of Linux companies now. What are the differences?

A: There are two big myths about the business, and the first is there is a single Linux operating system. Linux is a 16-megabyte kernel of the 600-megabyte operating systems that companies like Corel and Red Hat make. Linux might be the engine of your car, but if you plunk an engine in your driveway, you're not going to drive your kids to school.

Our job is making people understand this revolution is about open-source software and it is not about Linux at all. Linux is simply the poster boy for this movement. The other myth is that Linux is being written by 18-year-olds in their basements when actually most of it is being written by professional engineering teams.

Q: What is your formula?

A: We have been consistent all along that our competition is not other open-source vendors. Our goal has never been to be a big fish in a small pond. So my job as chairman is not worrying about the size of the Red Hat fish at all but exclusively is focused on the size of the pond.

You talk to me, to Mike Cowpland (of Corel), to Larry Augustin (of VA Linux) and you will get slightly different views of the future. But only one of us is right. In fact, maybe none of us is right and the future may be something else again. The guys who succeed are the guys who are going to figure this out faster.

Q: Several Linux companies including Corel are betting on products for the desktop computer market.

A: We think the value in future computing is on the server side. The desktop is 1980s technology. It is sort of a brain-dead operating system based on the premise that all computers had to be inexpensive and provide low performance. The value is on the server side because it will drive everything from the Palm Pilot to the wireless Internet.

[Apr. 20, 2000] How VA Linux, once a soaring IPO, crashed back to Earth (4-19-2000) by Scott Herhold

if  you need a poster child for the volatility of the market this year, you might choose VA Linux Systems Inc. (LNUX), the Sunnyvale company that produces workstations and servers embedded with the open-source code first developed by Linus Torvalds.

VA Linux Systems' great success might have been its greatest curse. Four months ago, it was labeled the most successful IPO in history, soaring 700 percent above its offering price of $30. Its first-day close was $239.25.

The stock has slipped relentlessly since, finishing at $38 Wednesday after dipping below its IPO price Friday. A child prodigy has become an ordinary teenager. A Mozart suddenly is churning out Muzak.

What happened? Well, it's useful to begin by pointing out what didn't happen: There were no debilitating changes at VA Linux Systems. The company reported encouraging revenue numbers in its last quarter, $20 million, a huge increase over the $3 million in the quarter a year before. And it made the kind of acquisitions that analysts stand to applaud.

For that matter, VA Linux Systems, which also offers services and consulting, can boast of great lineage. Its CEO, Larry Augustin, was once a partner with Jerry Yang and David Filo in organizing a Web site list that became Yahoo (YHOO). And he's assembled a first-class team, including vice president of engineering Gregg Zehr, an Apple veteran, and chief technology officer Leonard Zubkoff, a former member of the inner circle at Oracle Corp.

None of those credentials could stop it from becoming the most prominent victim of the flavor-of-the month mentality that now rules the market. Like three other Linux companies that recently went public, Red Hat Inc. (RHAT) of Durham, N.C.; Caldera Systems Inc. (CALD) of Orem, Utah; and Andover.net (ANDN) of Acton, Mass., it has fallen faster than gravity would dictate.

``The reason they were valued so highly was, in part, speculation,'' says Andy Rappaport, a general partner with August Capital, a venture firm in Menlo Park. ``I think the investment thesis was that if Microsoft is worth $500 billion, then Linux should be worth 10 percent of that.''

Now I'm tempted to pour scorn on investors who thought VA Linux Systems was a good buy at $240, or that Red Hat made sense at a split-adjusted $143. After all, last quarter, VA Linux lost $11.5 million. And lest anyone forget, the Linux companies face a wounded but still fearsome competitor in Microsoft.

But my scorn is tempered by the nagging feeling that something less appetizing is at work. In an era when an IPO has become an essential marketing event, a whole cadre of forces -- investment bankers, VCs, entrepreneurs and yes, the press -- is fanning that speculation. Those forces find an eager audience in a public that is turning away from mutual funds in droves to invest by themselves online.

Consider this whole drama from the standpoint of the established players. What looks like something supremely irrational -- how can VA Linux Systems be worth $10 billion in December and $1.6 billion in April? -- suddenly begins to assume a vulgar rationality.

Remember, the fund managers and institutional buyers who participated in the IPO got the stock at $30. And they were able to ``flip'' it for a big profit on the first day. Because supply was kept low -- only 4.4 million shares were allowed to float initially -- the demand insured a steep opening price. The stock cost $299 per share the first time the public could buy it. And many did, simply on the belief that it would go higher.

For that matter, at least some of the institutional players and investment bankers were in a position to sell the stock short, which means they could make money as the shares declined in value. With more information about who was buying and who intended to flip, they could make better judgments than the average investor. The identity of short-sellers isn't public, but the latest reports show that 1.6 million shares of LNUX are being held in a short position.

Given the market's short attention span and sales from the flippers, it was almost inevitable that the money-losing Linux companies would come back to earth. The essential thesis that the Linux companies were worth a percentage of Microsoft was flawed. And even superb marketeers like Red Hat's chairman, Robert Young, faded into the noise.

``They (the Linux companies) may end up being a viable alternative to MS-DOS,'' says author Michael Perkins, who co-wrote the ``Internet Bubble,'' a book that forecast the deflation of many Internet stocks. ``But it was another one of those momentum vehicles that people jumped on.''

Naturally, the decline in stock price has an impact on employee morale. And it may make acquisitions, like VA Linux's announced plan to acquire Andover.net, a bit thornier. But fundamentally, most of the VA Linux people aren't hurting. CEO Augustin is worth $250 million on paper instead of $2 billion. OK, maybe he can't afford a pro basketball team. But he's hardly in a bread line.

For that matter, VA Linux has taken a smart approach toward keeping morale on an even keel. ``The things we focus on internally are really on helping our employees understand what the company's about, educating them and focusing on our execution as a company,'' VA Linux's CFO, Todd Schull, told me. ``Those are the things we can control.''

Even the company's investors, which in this case include Sequoia Capital (9 million shares) and Intel Corp. (3.2 million shares), can't be called damaged. Remember, they bought their shares cheap (in Sequoia's case, for 46 cents apiece initially). By my math, Sequoia has still made nearly a 100-fold return on its initial investment.

As for the press, well, we've had a very good story to cover. Few things are better than a David and Goliath tale, particularly when much of Silicon Valley roots for David to slay Goliath. So David isn't quite as fearsome as advertised. So he left his slingshot at home. All the better. The story might have a sequel.

In fact, the only people who don't benefit from this cozy arrangement were the investors who bought VA Linux during its first four months on the market. And as I say, it's hard ordinarily to feel that sorry for people who swallow the hype. I just wish there wasn't such a cottage industry producing it.

 

[Apr 18, 2000] Forbes: Wall Street Sours on Linux


"Easy come, easy go. That's the story of Linux stocks, which were Wall Street darlings last year but have been absolute poison ever since."

[Apr. 16, 2000] End of Linux gold Rush ?

Linux seller Caldera Systems, which debuted at $14 a share in its IPO less than a month ago, closed regular trading today at $9.56, down 11 percent. Andover.Net, the collection of Linux and programming Web sites that launched in December at $18 a share, closed at $10.13, down nearly a third. And VA Linux Systems, the Linux computer maker whose $30 IPO price soared a record 697 percent to close at $239.25 on its opening day, today sank to $28.94, a drop of 19 percent.

 Quote Snapshot
RHAT 24.12 -3.88
CALD 9.56 -1.19
ANDN 10.12 -4.88
LNUX 28.94 -6.88
CBT 25.56 -1.62
 
The market hammered all technology stocks this week, but it's not unusual for prices to settle after an IPO spike. The Linux stock slide has been going on for months. Still, the continuing decline will likely force investors to revisit the ongoing debate surrounding Linux: How does one make money from software that can be obtained for free? Other Linux companies aren't faring well.

Red Hat, the purveyor of Linux software and services, closed at $24.13, down 13 percent for the day. Although today's price bests Red Hat's split-adjusted $7 IPO price, the stock was trading near $80 last month.

Even Cobalt Networks, which builds special-purpose Linux servers that are a prominent part of the booming "server appliance" trend, has seen better days. After a December IPO--in which its share price was set at $22 and then rose to $128.13 on opening day--it plunged 23 percent to $41.50 today.

Linux Magazine January 2000 TAKE THE MONEY AND RUN (RELIABLY) Venture Capital Prospecting in Open Source's Wild Frontier

Paul Vixie, CEO of Vixie Enterprises, says his company has had better experiences with individual investors than with venture capitalists. "The VCs all want to hear a big story," he said. "They want to hear about paradigm shifts and about how you're going to be the next Netscape or Microsoft. Then they want to replace your management team and want an exclusive on subsequent funding rounds. And they want to bring in their cronies as managers and co-investors -- all without ever understanding a single word you've told them except 'we're going to be bigger than Netscape.'"

Vixie says venture capitalists have their place only after a company is large enough to manage the relationship with them. "Every single VC I've ever talked to wants to be more than just money, but only one so far actually has anything to offer except money."

Slashdot Articles Linuxcare Business Shuffle (UPDATED)

Re:linux companies going all the way ... down?? (Score:1, Insightful)
by Anonymous Coward on Friday April 07, @03:47PM EST (#83)
As well they should, 20 billion market value for a company that brought in something like 10 million in revenues was nuts. A capitalization of 2000 x revenue, if I'm not mistaken. Compare this to MSFT'S P/E ratio (rhat ofcourse doesn't have earnings) of 54.

Anyway, seems like someone made some money, check out the insider trading data

Bob Young sold aprox. $60,000,000 worth of shares. This is just funny, what bunch of suckers would buy at that price?

Oh, well, as they say, these days the IPO *is* the product.

Anonymous Cow

ps. this is not a flame bait, it's simply critical of the get-rich-quick-scheme that the market has become. In no way does this note reflect on the quality of the Linux OS, Bob Young's character, the open source community's willingness to contribute to the wealth of a select group of investment bankers, venture capitalists, and multi-billioners, or the sex-appeal of TuX tHe PiNguIn.

the insulting part about RHAT's insider trading (Score:1)
by Mayor Quimby on Friday April 07, @04:39PM EST (#110)
(User Info)
A few months back, RHAT announced that they were going to have a secondary public offering of 4M shares. If I recall correctly, that is how Slashdot reported it. Upon digging deeper, I noticed that the company was selling 2 2/3 M shares, and the insiders were selling 1 1/3 M. They assumed that investors were to stupid to notice. . .
A growing awareness of getting screwed.. (Score:3, Insightful)
by Bowie J. Poag (poag@u.arizona.edu) on Friday April 07, @03:10PM EST (#64)
(User Info) http://copyleft.net/cgi-bin/copyleft/t037.pl

There's one good thing about all this..Theres a growing awareness among the real Linux community that we are in the middle of a pool of sharks--People who care less about the people involved than they do about turning a goddamn profit. Now you're seeing what happens to these people. They begin to fail, because their intentions are anything but pure and innocent.

We didn't need them before to be happy and successful, and we sure as hell don't need them now. Companies like Red Hat, VA, and LinuxCare have only made the game more interesting..The total sum of what they've done for us is negative, not positive. Whatever they have "provided" for us, was not made by them. It was was made by us. For free, without hidden motivations.

We don't need them.

Bowie J. Poag
Project Founder, PROPAGANDA For Linux (http://www.metalab.unc.edu/propaganda)
This is only the beginning.... (Score:3, Insightful)
by Electric Eye on Friday April 07, @03:42PM EST (#80)
(User Info)
Not neccessarily for Linux-based companies, for for a butt-load of tech companies shooting for IPOs. Take a look at what's happening, people. Everyone's lost sight of what *business* is all about. What the hell are companies like pets.com, E-Machines, LinuxCare, ad nauseum going public for? What so different about a business simply because it's got a ".com" name to it? Apparently, we're finding out it's "not a whole lot." The IPO now seems to be what everyone gives a shit about and it's payback time, baby. You thought a lot of companies were getting hit now in the stock market, keep your eyes open.

LinuxCare is yet another joke of an example. Shady accounting practices (duh). No real business plan (duh). And really shows no potential of being a formidable business.....EVER. Same goes for the companies mentioned above. You can drop in almost any name, btw. Look what happened to Eprise (EPRS) and E-Machines. They went public 2 weeks ago, and their charts look like divebombs. WHERE'S THE MONEY?? WHERE ARE THE REAL REVENUES? WHERE IS THE REAL GROWTH GOING TO COME FROM?

Every one of you should get your hands on a copy of FORTUNE Magazine from 3 weeks ago. It goes very deep into the schemes dot.com companies are pulling just to get funding, boost their IPO...only to base it all on ficticious/not-very-solid business. It's really sad, but greed is going to let out a lot of the hot air out of the dot.com bubble. And this garbage with LinuxCare is your typical reason. Good riddance.

Sorry for the rant....
Revenue Recognition (Score:1)
by HenryFlower (spam.me@imstupid.com) on Friday April 07, @03:47PM EST (#82)
(User Info)
Whether or not this was the specific issue with LinuxCare (if, indeed, there is an issue) revenue recognition is the beast the gores many a company: I think it is what undid the stock value of MicroStrategies. The issue is that what seems quite natural in many cases is not legal.

It is often the case that you get a contract for services, and get money in hand for that contract. The tendency is to recognize that money as revenue. Unfortunately, you can't recognize the revenue until you actually perform and bill the work. It gets even more complicated when get money up front for software which you haven't yet delivered. Part of that money up front should be assumed development services, which you can recognize while you perform the development, part is product revenue which you can recognize when you ship. (Note: IANAL or Accountant)

 

YHOO by Dionysus (Score:1) Friday April 07, @02:35PM EST

How to make a .com make money (Score:5, Insightful)
by cjsnell (chris@island.nu) on Friday April 07, @02:41PM EST (#55)
(User Info) http://island.nu
Bikeworld.com/weathertools.com/gpstools.com did over $4M in sales last year ($1M in December alone) and we've never had an unprofitable year.

How do we do it? The formula is quite simple:

1) Don't piss away money. We don't have fancy-shmancy offices with pinball machines and conference rooms full of $900 Herman Miller chairs. Nope, we build most of our own office furniture.

We don't waste tons of cash on super-duper high availability server solutions. We don't have fibre-channel disk arrays and loads of CPU power? Why not? Because we don't need them. You don't need a highly dynamic, CPU intensive e-commerce application to sell a lot of product. We use static HTML for the most part, which helps us save on equipment costs.

We don't hire five people to do one person's job. You see this all-too-often at internet startups. When you hire tons of people, they tend to get *less* work done. They spend most of their day in meetings arguing about trivial things.

2) Pick a business model that actually has a chance of selling something.

If your business model relies on advertising for revenue, give up now.

That blowthedotoutyourass.com thing had it right on the dot (no pun intended). "ButIdontwantmytoothpastedelivered.com". The only things that people will buy on the Web are things that are not readily available in their local market. Amazon does so well because comprehensive book and music stores are still somewhat of a rarity. We do well because most local bicycle shops have very small inventories and ridiculously high prices.

3) Never forget that you make money one sale at a time. Every sale and every customer counts. Unless you deliver customer service that is ABOVE AND BEYOND the ordinary, your customers will shop elsewhere.

4) Be weary of outside investment. It's a lot easier to piss away someone else's money than your own.

[Feb 20, 2000] The New York Observer by Christopher Byron

The Latest Rip-offs From Dot-Com Land Include Juno, Etoys

The great thing about Wall Street in a bull market is the sheer inventiveness of the place. No matter how troubled a company is—or how bleak its future looks to be—you can always count on the investment banks of Wall Street to keep dreaming up new ways to put a fresh dusting of rouge on the face of the corpse, hawk more of its stock in the market and pocket the fees. This week: a roundup of ripoffs from dot-com land—two from New York (Juno Online Services Inc. and Ivillage Inc.) and three from out of town (Etoys Inc., VA Linux Systems Inc. and Andover.net Inc.).

Like innumerable other Internet companies, these five are all new to the market as publicly traded companies. Yet, thanks to the helpful guidance of their investment bankers, they’re learning to play the Wall Street money game. In the world of the new paradigm, it’s a game that boils down to three simple steps: Raise as much money as you can, spend it as fast as you can, then repeat steps one and two as many times as you can get away with it.

Incredibly, this sort of financial promiscuity is now regarded among dot-com investors as evidence of managerial prowess, even though the companies keep burning through their equity capital, and corporate insiders cash out of their shares soon after a public market for them exists...

...One of the most cynical deals recently involves the merger of two software companies trying to cash in on the Linux operating system craze: Andover.net Inc. of Acton, Mass., and VA Linux Systems Inc. of Sunnyvale, Calif.—which went public within 24 hours of each other back in early December. Less than eight weeks later, on Feb. 3, the two companies announced a stock-for-stock merger in which the California company has agreed to acquire the Massachusetts crowd for about 6 million shares of VA Linux and $60 million in cash.

The cynicism in the transaction is not simply that the deal took place so shockingly soon after the two companies wrapped up their I.P.O.’s, but that the transaction included what amounted to a legalized bribe on the part of the VA Linux bunch to get the Andover.net crowd to accept the offer.

The deal means that the $60 million in cash from VA Linux will go directly to Andover.net’s shareholders, at $3.81 per share, in effect handing over the same amount of money Andover.net raised in the I.P.O. only weeks earlier. Prior to the I.P.O., the company’s insiders had only paid a grand total of $15.7 million in cash into the company. Now they are being handed back $60 million as compensation. What a deal.

As for investors in VA Linux, they are getting hosed. The company’s stock was priced in the I.P.O. at $30 per share, but opened for trading at $299 and instantly shot to $320, then collapsed like many of the others and eight weeks later is now selling for $110. Faced with 39.7 million total shares outstanding already—of which only 4.4 million are held by the general public—investors in the stock can now look forward to the imminent registration of 4 million more shares by the company, which will doubtless come pouring into the market soon thereafter, thanks to the Andover.net deal.

In other words, the only really valuable asset Andover.net ever had—its cash from the I.P.O.—was creamed off by the company’s insiders almost the very instant they got their hands on it, leaving VA Linux’s shareholders to face a 100 percent increase in the float of their own stock for the privilege of winding up with the worthless trash that the Andover.net bunch dumped at the very first opportunity...

...Bottom line for these companies and the countless others like them? Nothing is ever really free in life—even the money that the companies of dot-com land have been harvesting from Wall Street by simply printing up stock and selling it to the public. In time, too much of anything will lower its price, and that goes doubly so for companies that are burning their own equity simply to keep warm.

[Feb 8, 2000] Et Tu, Slashdot

Last week VA Linux announced that it was acquiring Andover.net, the publicly traded company that owns, among others properties, Slashdot. The reaction from many in the geek community was, in my mind, bewildering. Some wished the new company luck, while others commented on the savvy of the merger. Jon Katz, Slashdot's self-appointed crusader against corporate misdeeds, has been silent on the matter.

Any unbiased appraisal of this merger, however, will yield one difficult but inescapable truth: The camaraderie and high spirits engendered by Linus and his band of programmers will soon be replaced by the same rancor and factiousness that permeates the rest of the capitalist world. And Slashdot, which is so highly revered by its readers and those who know its mission, will soon lose its trust, reputation, and standing.

It was all fine and good, especially since there was no need for Slashdot's original goal to change; it could continue to serve the community as best it could. As a content site, the better its information, the happier its readers. And happy readers mean return visits, which in turn lead to advertising revenue.

But this simple equation (good content = good money) no longer applies, because Slashdot has ceased to be a part of an over-valued content company and now belongs to the content arm of a ridiculously over-valued software company. At the time of this writing, VA Linux had a market capitalization of about US$5 billion. To justify that valuation, VA will have to compete effectively against some formidable competition: Dell, Compaq, HP, and others are trying to get a piece of the growing Linux market. More important, companies with open-source credentials, including Red Hat, are in direct competition with VA.

What will VA do to keep its stock price high and its CEO, board of directors, and stock holders happy? It'll market, innovate, and compete as hard as it can. And in the end, VA's success may very well be come at the expense (or eventual demise) of companies like Red Hat.

Remember that Red Hat did its best to reward Linux programmers with bargain stock prior to its IPO. But the spirit behind that move, the same spirit that draws the Slashdot faithful, must now be ignored. After all, there's a fortune at stake. If the managers at VA fail to compete effectively against all rivals, stock holders will rightly demand they be fired and replaced by people deemed capable.

Eventually, factions led by stock holders will defend the products and actions of their favored companies. And this, I believe, will inevitably lead to a divide in the development community.

Given this survival-of-the-fittest environment, is there any way Slashdot can help but show extra favor to VA and its products? Yes, the site is largely dedicated to discussion, but remember that someone (someone with potentially lucrative stock options) chooses the topics for discussion. So what will wind up on the Slashdot frontdoor: the flawed feature from VA or the slightly better version from Red Hat? Even if the VA implementation is superior, will the readers be able to continue to trust the motives driving the site's editors?

For content sites (like the one you're reading right now), credibility is everything. Webmonkey is owned by Lycos, and our overlords have desires. They wish for you, our readers, to search the Web using HotBot, set up your Web site using Tripod, and buy trinkets using LycoShop. Thankfully, these services do not conflict with our core mission: providing information for Web developers.

If we were owned by, say, Microsoft, our readership might suspect cronyism in the conclusions drawn in an article like Server-Side Scripting Shootout or the latest coverage of Mozilla. Moreover, I doubt Redmond executives would be thrilled with the situation that now exists on Webmonkey, where there are two PHP articles for every one that covers ASP.

As hard-core capitalism drives the future of an increasing number of community-based sites and companies, this is a sad time for the Linux faithful. If they're lucky, they at least own some stock in the company that will come out on top.

Slashdot discussion: Negative Webmonkey Editorial on Andover-VA Merger

Follow the money (Score:1)
by RobotWisdom on Wednesday February 09, @08:38AM EST (#99)
(User Info) http://www.robotwisdom.com
"I wonder if Rob and Co will now disclose their stock holdings in the companies they report on (like most respectable journalists)."

To me this seems like the critical question-- if a negative story about VA will cost Rob&c money, then we have to expect they'll spin it in the other direction.

These lines: "I almost quit when I heard about the merger... Since then I have been personally reassured by Larry Augustin..." also give me pause, because *persuasion* is what makes capitalism run, and there's no way to draw a line between a little 'safe' persuasion and a whole lot of utter-crap persuasion.
Possible Meaning of this (Score:4, Insightful)
by Dicky (slash@vmlinuz.org) on Wednesday February 09, @06:51AM EST (#24)
(User Info) http://www.vmlinuz.org
<ADVOCATE STYLE=DEVIL>
So, this is a negative post about VA & Andover. And it's posted with a very obvious piece of editorialising which tells a very obvious story. VA get to add positive comment to their stories before they get posted. Do Redhat get the right to reply to stories in the headline? Do Penguin get that right? I doubt it.

Alternatively, this is a slightly more subtle attempt to avoid discussion on this subject. By making the headline a mini-feature in itself, a large portion of the discussion will be about Roblimo's comments, rather than about the original story. They're trying to manipulate us!.
</ADVOCATE>

My actual opinion on this? I think the quality of Slashdot has declined somewhat since I first started reading it, which was quite a long time before anyone had heard of Andover. I miss things like the war against using www.slashdot.org instead of slashdot.org aka TDwww(TMS). On the other hand, I have also changed a lot in the time since I started reading here, so it is just as possible that the 'problem' is with me, not Slashdot.
I'm glad to see the guys who put this thing together get their just rewards. I think that the code is finally open, VA are a well-known and well-respected company in the community, and there is certainly no more need to worry now than there was about Andover, and they don't seem to have (directly at least) caused any problems.

This is my normal sig - it just happens to fit this posting well:
Paranoia isn't an infectious condition, it's a way of life

but you see that is the problem (Score:4, Insightful)
by Hobbex (i_read_replies_to_my_posts) on Wednesday February 09, @07:02AM EST (#41)
(User Info)
I'm posting this story, even though we've been over this ground before, primarily so that we don't get accused of bias by not posting it.

You can't force yourself to be impartial, and in the end, if the /. article writers are always worrying about not seeming biased, it will be just as bad as if you blatently were. You can't post every article that is negative about VA, but whenever you don't, I can promise people will jump on you for it.

Having a communal site like Slashdot owned by strong corporate interests is simply a bad idea, and I just don't think it can work out in the long run. There is an element of trust in the fact that community is willing to let a couple of people decide over what topics will be discussed here, and that trust is human, not corporate. I think the reason there is so much antagonism against Jon Katz here is that many of us feel he is abusing that trust, using Slashdot as a pulpit for his own preachings rather than choosing stories for us.

Having Slashdot owned by Andover was one thing, because Andover was a web company based on the idea of selling banner ads, and therefore had the very clear of objective of getting as many readers to return here as often as possible. With VA it is a lot more fuzzy. VA obviously do not have banner adds as their main source of income, so they have other agendas for wanting to own (even if you keep claiming they have no control over) the backbones of the community.

The relationship between the Slashdot community and VA Linux is somewhere between mutualistic and parasitic, and I share many peoples concern that it is leaning toward the latter. I guess it should come as a bucket of cold water to those who keep claiming that the influences of corporations and money will not harm the open source community, that they started by grabbing our favorite node for discussion right from our grasp...

-
We cannot reason ourselves out of our basic irrationality. All we can do is learn the art of being irrational in a reasonable way.
- Huxley
Moderation... (Score:1)
by javilon (javier.santosxNoSpam@Intel.com) on Wednesday February 09, @08:33AM EST (#96)
(User Info)
Disclaimer: I don't think this will happen but...

There are a number of clever and subtle ways to bias the discussion and some of them include the way you choose the people that will get the moderation points, without touching the editorial part of the news.

Lets say that the administrator is interested in putting out more articles about "enterprise computing" (something VA could possibly be interested in doing, if they where unethical) as opposed to "civil rights disscusion":

All you have to do is to change the algorithm that chooses moderators and make it give more points to people that did post on enterprise computing threads.

This will mean that the next round of moderators will "probably" give more points to people talking about enterprise computing (generally that is what they would be interested in and good at because otherwise they wouldn't post to the enterprise threads) who in turn will come back to talk more often because the good posts get moderated up!.

You do the opposite for the "Civil rights" type of guy, so he doesn't get a chance of doing moderation, and is less likely to be moderated up (or down, but this would only show to him that there is no interest on this threads).

After some time of running this system you would have a site where there is a lot more talking about enterprise computing and the community would just think that _they_as_a_community_ stopped being interested in civil rights or whatever.

It would be very dificult for anyone to be able to tell that the way moderators are chosen is twicked because the results are just probabilisticly leaning towards some spin, and this spin is coming from commentators, not from editorialists.

VERY paranoic but there you go... Pirilon
Pirilуn
Ode to Greed (Score:0)
by Anonymous Coward on Wednesday February 09, @09:48AM EST (#137)
There once was a man from Andover
Who asked Slashdot to bendover
He bribed them it seems
And fulfilled all their dreams
But slashdot as we knew it is over
Malda is fat open source cat and that's the proble (Score:0)
by Anonymous Coward on Wednesday February 09, @10:47AM EST (#168)
Open source and big bucks are pretty problematic mixture. I remember Bezroukov's paper about this and he suggested that open source is an academic community and like science should strive for independence and should not mix with big bucks. A good test would be to see how GNU will be treated on Slashdot.
Two Cents (Score:1)
by Fezzik (fezzik.DONTSPAMME@rocketmail.com) on Wednesday February 09, @09:23AM EST (#125)
(User Info) http://www.cs.jhu.edu/~fezzik
Two cents: 1) Obviously the article itself is rather hypocritical. As the author himself comes close to mentioning, the same is true of just about every content site. Witness that amazing article in Time magazine a while back where the author attempts to figure out who exactly he works for. 2) Regarding a "personal assurance" from the President of VA Linux: I think this misses the point. As the author mentions, it isn't about people any more, it's about stockholders. Nobody who works for VA Linux is in *any way in charge*. This is important to remember. As a public company, Slashdot and VA Linux are responsible to their shareholders - and that responsibility entails making money. The personal opinions or mores of anyone working for either company no longer matter, in a very real sense. That is why content sites often go the way of the commercial junk heap.
The players tried to take the field. The marching band refused to yield...
Merger??? Wasn't it an acquisition????? (Score:0)
by Anonymous Coward on Wednesday February 09, @09:28AM EST (#131)
Something that brings a slight smile to my face is the persistant use of the word "merger" by the Slashdot/Andover people, and the use of the word "acquisition" by everyone else (including VA Linux).

It almost sounds like Slashdot is trying to put a spin on it like they are partnering with VA or something, to kind of keep it looking "impartial". VA *owns* Slashdot. There is no merger.

Slashdot will continue to be a better-than-average news source.

The "community" is going to have to look elsewhere for "community-ness" because "community" and big-business don't mix, whatever Slashdot or Andover or VA has to say.

Look at various movements that started as a "community" and where they are now. Aren't the roots of the PC in a "community". Look at the PC industry now...

 

[Feb 7, 2000] Story The VC Explosion Don't Get Hit by the Shrapnel

...A PricewaterhouseCoopers Money Tree survey put venture capital funding at $9 billion for Q3 of '99. The bulk went to high tech. Click for more. Most analysts put the total VC raised in the first three quarters of 1999 at $21 billion (compared to $14 billion for all of '98). It seems everyone is jumping on the VC bandwagon. For instance:

Sounds great, all that money looking for a place to land. But watch out. There's too much money and too few good ideas. Here's what you need to know to avoid the pitfalls:

IF YOU ARE A VENTURE CAPITALIST
My good friend Rafe Needleman from Red Herring says you need to watch out for VUI -- venturing under the influence. Click for more. Symptoms include:

IF YOU ARE SEEKING VENTURE CAPITAL
The experts at Red Herring also have tips if you're looking for VC. Click for more.

FYI, you'll find more tips like these in Lawrence Aragon's regular column. Click for more.

Now hit the TalkBack button below and give me your venture capital thoughts. I'll post responses beneath this article. Or go to my Berst Alerts forum where a discussion is underway.

My advice: Unless you're an investment professional, take your $75 to Vegas. The odds are about the same.

PS: The AnchorDesk gang is hosting a discussion over at SmartPlanet this week. It'd be great to have you join us. Click for more.

 

 

[Feb 6, 2000] Companies - Live by Linux, die by Linux by David Einstein

Question: How can a stock trading at more than three times its asking price just two months after going public be a dog? Answer: When it belongs to VA Linux Systems.

The upstart computer maker set a record on Dec. 9, 1999, when its newly minted stock came out at $30 per share and closed at $239--a first-day gain of roughly 700%. Since then, however, the shares have slid downhill faster than Alberto Tomba in the giant slalom, falling to as low as $107.88 on Tuesday. On Wednesday, the stock surged $29 to $136.88 as the entire Linux sector rallied.

Ironically, what has brought VA Linux (nasdaq: LNUX) down to Earth (or as close to Earth as you get in today's tech market) appears to be the same thing that turbocharged its stock in the first place: the explosive popularity of Linux. A free operating system (OS) that's easy to use and reliable, Linux is being championed as a rival to giant Microsoft (nasdaq: MSFT) in the corporate world.

...VA Linux went public at a time when the market's obsession with Linux had reached a fever pitch, fueled by last summer's monster initial public offering by Red Hat Software (nasdaq: RHAT).

But investors weren't the only ones infatuated by Linux. Other computer makers were also starting to get free-OS religion. From Hewlett-Packard (nyse: HWP) to Compaq Computer (nyse: CPQ), they began to trot out systems optimized for Linux, and soon ever major PC maker had a Linux offering.

The extent of Linux-mania was apparent this week at the LinuxWorld trade show in New York, where the supercharged atmosphere was reminiscent of Windows shows in the early '90s. IBM (nyse: IBM) trumpeted thin-client Linux servers meant to run Internet applications. Dell Computer (nasdaq: DELL) unveiled new Linux-based notebook PCs. And Compaq and SGI (nyse: SGI) talked about Linux products and services that they hope will give them a foothold in the Linux market--and invigorate their stocks.

All the interest in Linux has been great for VA Linux financially, putting it in position to post more than $50 million in revenue in its first full year as a public company. But the flood of new competition has weighed heavily on the minds of investors and dragged down the company's stock. How, they ask, can VA Linux go up against industry giants providing the same basic technology, especially when companies like IBM can offer software they've converted to work on Linux?

"The question is what does VA Linux have that distinguishes them," says analyst Dan Kusnetzky at International Data Corp. "They have been competing on the strength that they do only Linux, and that gives them better focus and a better understanding of it. But it's really hard to say that VA Linux could even come close to the wealth of software that IBM can offer."

...However, with IBM, Compaq, SGI and others promoting their own services it's hard to see where the advantage lies for VA Linux. Moreover, the strategy of tying its flag to open source could prevent it from carving out a reputation as a mainstream company and tag it as a fringe player.

"VA Linux happened to go public at a time when investors felt they had to get on board because if they didn't they'd miss the Linux opportunity," says analyst Rob Enderle at Giga Information Group. "But since then, the company hasn't been all that visible. And part of keeping the stock price up is keeping yourself in the minds of investors and looking like one of the major competitors."...

 

[Feb 5, 2000] LinuxWorld Expo Recap

After VA's big IPO last year, their stock has been dropping from a high of 320 right after the IPO in December to a low of 105-1/2 last month. A market capitalization in the billions (between $5 and $15 billion, depending on when you looked at it) just doesn't make long-term sense for a company that had $30 million in sales last year. The trick is to take some of that extra money, and go buy someone (or something) that helps make you look bigger.

Andover can offer the first step for VA. Their purchase of slashdot.org and other web sites offers them a lot of web traffic and has made them well-known among Linux geeks. While there is little financial data available about them yet, in the fourth quarter of calendar year 1999 they had about $2 million in revenues and $15 million in losses. While this doesn't sound like a good buy, it makes sense because the Andover web sites will offer the traffic VA needs.

 

[Feb 3, 2000] Salon Technology The shape of open source to come

It's about money; so editorial independence is of secondary importance for all players including Slashdot founders.

For me, as was no doubt the case with many of Slashdot's fans, the news, coming right in the thick of the LinuxWorld convention taking place in New York, was a bit of a shock. Wasn't VA Linux one of the companies we depend on Slashdot to cover? I immediately flashed back to the last time I had seen Slashdot founder Rob Malda, at last August's LinuxWorld in San Jose.

Back then, sitting on a bean-bag chair on the exhibition room floor, Malda looked like the proverbial cat who ate the canary. It wasn't just that Slashdot had been purchased a little over a month earlier by Andover.net, netting Malda a tasty bucket of cash and stock options.

[Feb 3, 2000] CNET.com - News - Enterprise Computing - Andover.Net deal makes some wealthy, others disappointed

CmdTaco became rich; some investors not quite so...

"This is unprecedented," said Richard Peterson, an IPO analyst with Thomson Financial Securities Data. "That deal went public a couple months ago and already they're tossing in the towel.

"Usually an IPO is a long-term process where you build shareholder value. But they didn't give it enough time to put the foundation down on shareholder value."

Although Andover.Net's transformation from IPO to acquisition was quick, it's not the first time such a fast ascension has happened in the high-tech realm. Mede America, which hit the public markets last February, announced in April that Healtheon would purchase it.

The acquisition has created two classes of Andover.Net investors. Some will be bitter because they bought the stock near its high and are facing a loss (unless VA Linux shares rise dramatically). Others will reap a sweet reward because they bought the shares during the past few weeks in the $30 range--or because they got in with the company on the ground floor.

Under the terms of the deal, which is valued around $1 billion, each share of Andover.Net's common stock will be exchanged for $3.81 in cash and 0.397 a share of VA stock. Based on yesterday's closing price for VA Linux, that values Andover.Net's shares at $58.17; Andover.Net's shares jumped nearly 30 percent today to about $46.

Before the acquisition announcement, Andover.Net shares had lost roughly two-thirds of their value since their IPO last December.

The shares were sold to institutional investors and company insiders for $18. In their first day of public trading, they jumped to $63.38 and subsequently reached $90.

But since then, the stock has fallen steadily, closing yesterday at $36.

Bruce Twickler, Andover.Net's 53-year-old founder and chief executive, will see his 12.6 percent stake valued at $131 million. Based on his ownership stake and the $60 million in cash that VA Linux is paying, Twickler will receive $6.7 million in cash and the remainder in VA Linux shares.

...Although Green and Twickler are netting big returns, some individual shareholders who bought shares near their high feel they have been left holding the bag.

"Geeze! This...couldn't even get bought out for what it traded at the first week of the IPO," said one message posted on the Raging Bull Web site. "Looks like a lot of you folks that bought high may never see your $$$."

[Feb 3, 2000] ZDII Inter@ctive Investor  -- Slashdot changes hands again and became part of VA Linux. Andover.net owners will get $60 millions in cash. Creative control of Slashdot will remain where it always has been ;-)

Here's how officials detailed the deal on a conference call: Based on VA Linux's closing price of 137 Wednesday, Andover.net shareholders would get $3.81 in cash a share and .397 of VA Linux stock. The deal values Andover.net just above $54 a share. Andover.net shareholders will own 13 percent of VA Linux. Andover.net closed at 36 Wednesday. The final price will be determined when the deal closes in VA Linux's third quarter. The second quarter ended Jan. 31 for VA Linux.

Andover.net, which went public Dec. 8 just a day before VA Linux's record IPO, peaked at 90.

...On a conference call, CEO Larry Augustin said the deal creates "the Yahoo! for open source developers" with 70 million page views a month and additional revenue streams.

In a recent interview with ZDII, Augustin said VA Linux was providing the Linux community with new tools such as Source Forge, a database of open source tools. VA Linux already owns the Linux.com domain.

Augustin also said VA Linux, which primarily relies on hardware for its revenue, plans to expand its services portfolio to boost profit margins.

"This acquisition moves VA Linux forward on the path to being the biggest name in Linux and Open Source," said Augustin, in a statement.

Among the benefits highlighted by VA Linux, the company said it will accelerate services offering and consolidate its Web offerings into one portal. Andover.net and VA Linux operate the Linux.com, Sourceforge.net, and Themes.org, Slashdot.org and Freshmeat.net sites and account for almost two-thirds of Linux traffic.

Officials said the Andover.net acquisition would be accretive to earnings and revenue.

For the first quarter ending Oct. 29, sales were $14.8 million, seven times greater than sales in the same quarter of 1999. VA Linux lost $10 million in the first quarter.

[Jan 20, 2000] Slashdot:  LinuxCare goes the IPO way

Linux commercial space became even more crowded.
Do NOT invest in this company (Score:5, Insightful)
by Jon Peterson (jon@ssssssnowdrift.org (remove extra esses)) on Thursday January 20, @05:42AM EST (#17)
(User Info) http://www.snowdrift.org

This is a flame. It's also sarcastic in parts.

This company is really little better than LinuxOne. It is attempting to get rich off the backs of OS programmers everywhere, and trade on the popularity of the Linux name.

In reality, all this company does is sell support and consultancy. Like about, oh 2000 other companies. Except they focus on Linux, which as we all know is a radically new OS with hardly any similarity to any other OS, so re-training people to be Linux consultants will be REALLY hard, and other companies will find it SOO hard to catch up. Also, Linux is frequently used in massive fault tolerant systems where you really need expert help from the kind of people who understand the code at the lowest level. By contrast, Linux is hardly ever used for simple http and filesharing jobs where, frankly, you can get all the help you need in house or from contractors.

This company makes a loss TWENTY TIMES its REVENUE. That's like spending twenty pounds to make one pound. Bargain. I know, I'll ask LinuxCare to send me a cheque for 1000 quid, and I'll send one back for 100 quid, a deal apparently twice as good as the deals they are making now.*

72% of this company's revenue comes from three clients. That means that those clients hold an axe above the company's head. They are practically a division of their three main clients.

"If we fail to adequately promote and maintain our brand name or are unable to
continue using "Linux" as part of our brand name, our business may be adversely
affected.
"Ha ha ha well isn't that topical. Sorry, couldn't resist. Let's defend this company's use of 'Linux' because they are a really nice company that we all like.

". Mr. Linus Torvalds owns the trademark to "Linux" and has approved our use of the word Linux in our company
name as well as in the title of our websites.
"

Oh, that's all right then. So long as they have the Royal Warrant....

*My argument here argument is complete sophistry but it's fun so I put it in anyway.

In case you hadn't noticed, I REALLY AM NOT IMPRESSED by all these IPOs. And yes I'll bitch about it on Slashdot until they change the name from 'News for Nerds, Stuff that Matters' to 'Boring Industry Headlines and Capitalist Gossip and Speculation and Back Patting and Hype + some Interviews with My New Rich Friends and Reviews of Films and Books by my New Famous Friends.'

----- In jokes for outcasts

Be Careful (Score:4, Insightful)

by dgb2n (bassett@NO.t-onlineSPAM.de) on Thursday January 20, @07:35AM EST (#30)
(User Info)

Once again, I feel obliged to post a warning about these Linux IPO stocks. As much as we may like a company like LinuxCare that contributes to the "Linux Community", that affection does not necessarily translate into a good investment.

Don't confuse buying their stock with furthering their cause. Once the shares of LinuxCare are sold to the large brokerage houses through the IPO process, the amount of money that LinuxCare receives is fixed. Sure, if the shareprice rises, it means profits for the original shareholders but the company doesn't have more money to pour back into into Linux development (except if they use their company stock as capital to make additional investments. i.e. AOL buying Netscape).

Look at some of the figures for this company. Their revenue for the first 9 months of 1999 was only $304K. They are now $7 Million in debt. Even if revenue grows 10X next year, their revenue will still be only $3MIL. Take a close look at the market capitalization before you buy. With revenues so low, you can't really justify the huge market caps of a Red Hat (17 Billion dollars on 16 Million in sales).

Look at a well established software company like Compuware that is heavy into providing services. Its market cap is $9BIL on just under $2BIL in sales. Compuware is growing at 35% per year. Sure, there will be growth in Linux. Huge growth. But consider how much you might be paying for so little revenue let alone actually showing a profit.

This isn't a technical question or a moral one.
Linux activism can only go so far.

Dave

How consultants make money. (Score:2)
by Hobbex (hobbex@fragzone.se) on Thursday January 20, @08:32AM EST (#40)
(User Info)
Here is a simple equation:
    revenue = employed consultants * hours * fee
In the Wallstreet bull market, many companies that are grotesquely over valued (and yes, that does include two Linux companies) often have their market caps defended by the fact that they could see "network effects" or "explosive growth". For Linuxcare to end up being valued as highly as Redhat and VA are today however, there would have to be the expectation that soon they would have more Linux consultants onboard then their are Linux users today (ok, not quite, but still). Consultant companies see neither network effects or value increases of their holdings and products, all they can do to make more money is hire more employees. I think that is worth considering when investing in this company.

-
We cannot reason ourselves out of our basic irrationality. All we can do is learn the art of being irrational in a reasonable way.
- Huxley
GPL can be proprietary! (Score:1)
by nevets (srostedt AT stny DOT rr DOT com) on Thursday January 20, @09:02AM EST (#42)
(User Info) http://home.stny.rr.com/rostedt
Frequent mention is made in the filing of Linuxcare's plans to deliver its services via the Internet. They seem to want to automate as much as possible, thus reducing their personnel needs. They count heavily on their information systems development to bring this about. To the extent that they are successful in this regard, they may encounter some criticism from the Linux community - support databases and associated systems are a competitive advantage only if they are kept proprietary.

I'm sorry, but I'm sick of people asking for things for free (as in beer). Those that want the slashdot code, have really no right to it, unless you bought the software or was given it. As RMS has stated, the GPL applies only to distributed software. Now if Linux Care does not distribute the software for these databases and associated systems then they don't have to give it away or give the source away. Same goes for /. If you were not given the software then you don't need the source. It is /. being nice that they give it away.

Yes you can make money with GPL. But you don't have to give everything away! You only give the rights and the source of those products that you distribute. And it has been made clear that companies are an entity that can protect its software that is used internally, and externally as an interface and not a product (Like slashdots web page generation utilities that are internal and used externally).

So if you complain that LinuxCare doesn't give away its internal software, then tough. They don't have to.

Steven Rostedt
-- "The MaTux has you." with Bob McLaren's Neo Tux!
[ Reply to This | Parent ]
Save your $$$ (Score:0)
by Anonymous Coward on Thursday January 20, @12:16PM EST (#48)

Once upon a time, my daddy told me that I'd never make any money selling my time. He should know - he's a lawyer. The moral of that story is, LinuxCare will never make as much as money selling time as a firm that sells hardware, software or in the case of many other .com companies, hype.

10 to Watch Bob Young

If 1999 was the year of Red Hat's honeymoon, then watch for flying pots and pans in 2000.

That's why Red Hat needs to put its version of Linux in as many boxes as possible, then tout its Web site as an ad-driven service center. With revenue from PCs and servers scant so far, the company has its eye on non-PC devices.

"Our big-picture model is not to convince 400 million PC users to unplug Windows or Mac OS and install Red Hat Linux," says Young. "It's to help build appliances for the other 6 billion people who don't want to own a PC."

Easier said than done. This year, Red Hat can't count on the luxury of playing grassroots underdog to Microsoft (MSFT) . And expect established Unix server stalwarts, led by Sun (SUNW) Microsystems, to fight back as well, even as they align with Linux.

There's also dissent from within. Some voices in the Linux community wonder whether Red Hat's growing presence threatens Linux's health.

... ... ...

Factor in the investor hordes who've gobbled up anything Linux-related. If 2000 revenues don't climb well beyond the two previous quarters – $4.4 million and $5.4 million, with a most recent loss of $3.6 million – traders could get spooked. The company expects significant losses at least through February 2001, according to its latest financial filings.

Young says of Microsoft: "The reason it lives up to the hype is that it delivers on the promises." Now Red Hat must follow suit.

Redherring.com - Is Corel building a Linux house of cards - 01-15-00

Investors are impressed with Corel's (Nasdaq: CORL) continued push into the Linux market through startup investments. A cursory glance gives some the feeling that Corel is building a strong Linux business.

But the truth is that the four Linux companies Corel has invested in are long shots. Taken together, the investments offer little hope of nudging Corel toward profitability.

Corel has been hurting financially for some time. It lost money in all but three of its last ten quarters. Its fortunes appeared to be turning when it posted profits in its past two quarters, but it preannounced that it will lose about $9 million, or 14 cents per share, on sales of $61 million in its fourth quarter ended November 30.

Corel and its investors appear to be banking on the company's Linux strategy. This week Corel said it will acquire up to a 30 percent stake in Newlix, a server-software startup whose products use the Linux OS. It did not disclose the amount of the investment.

While Corel's money may give the eight-person Newlix some validation, the startup will be hard-pressed to build a big business. Instead, the fledgling company will battle a crowded market of competitors with finished products and stronger backers.

SMALL SERVERS, BIG MARKET
Newlix, derived from "New Linux," makes office-server software for small businesses. The company's software is designed to run on servers using Intel's (Nasdaq: INTC) x86 chip architecture and will be licensed to hardware makers and application service providers (ASPs). The software, Newlix Omega, provides e-mail, Web access, firewall protection, and other services to networked computers in a small office.

The good news: Newlix will find there's plenty of opportunity in this market. Pu Xiang, an analyst with Gartner Group Dataquest, says the all-in-one server market for small businesses hit $56 million last year and looks to climb to $1.1 billion by 2003. "This is really a nascent market and the market is just getting educated. Many small businesses aren't aware that such products exist," Ms. Xiang says. She adds that all-in-one server appliances offer small businesses easy access to networked services at a much lower price than buying general-purpose servers and hiring the technical staff needed to maintain them.

The bad news: Newlix faces a hoard of larger competitors with a healthy head start. All of them, too, offer a complete hardware and software solution in one box. Its competition includes Cobalt Networks (Nasdaq: COBT), Encanto, and Freegate.

Additionally, IBM (NYSE: IBM), thanks to its acquisition of Whistle Communications last year, is offering subscription services, including Web hosting, Net access, and e-mail, for businesses with five to 100 PCs. Its solution is based on Whistle's InterJet thin server.

NEWLIX FOCUS
John Hansen, Newlix's CEO, is convinced his company is doing the right thing by focusing on software. "I was at Intel for 14 years, and they trained me well," he says, in reference to Intel's focus on choosing one thing and doing it right. Mr. Hansen explains his experience has been that focused companies grow faster than those that do too many things at once. That's why Dell Computer (Nasdaq: DELL), which makes PC hardware, is growing faster than Apple Computer (Nasdaq: AAPL), which produces hardware, software, and applications, he says.

Focused or not, it helps to have business partners. Thus far, Newlix's only strategic ally is IPC Direct, a wholly owned subsidiary of Taiwan's PC Chips. Newlix will be paid royalties based on the number of units IPC sells, Mr. Hansen says. He declined to reveal the pricing of Newlix's software.

Elsewhere, Newlix still lacks a brand-name hardware partner. The company hopes its investment from Corel, which is forging relationships with hardware vendors for its Linux OS, will open some doors.

[Jan 6. 2000] Fool.com Rule Maker Portfolio

ALEXANDRIA, VA (January 6, 2000) -- There's nothing quite as instructive as a really BAD example. So let's take a break from talking about great companies -- potential new Rule Makers -- to remind ourselves of how bad it can get if we don't do our homework. Let's refresh our sense of skepticism with a close look at a soon-to-be-public company I mentioned last week: LinuxOne.

On September 22 of last year, shortly after Red Hat's (Nasdaq: RHAT) spectacular first day in the market, LinuxOne filed for an initial public offering (IPO) with an S-1 statement almost word for word identical to Red Hat's. The only difference was that LinuxOne had no earnings -- literally $0.00. It had no INCOME. It had never sold a product. It had only incorporated (in Nevada, a state with no disclosure requirements) a few months earlier. The company's entire assets on the S-1 consisted of about $150,000 cash (from their president buying stock in his own company) and a little under $5,000 of equipment (mostly their Web server). This was listed in dollars, not in thousands as is customary, apparently to make it look bigger.

The president of the company, Wun C. Chiou, left his previous position as president of NetUSA (OTC: NTSA) in March to found LinuxOne. NetUSA is a penny stock traded over the counter that issues unsolicited commercial email (i.e., spam) to advertise its products.

LinuxOne's home page keeps changing (at one point having "meta" tags telling search engines to categorize it under, among other things, "sex," "girls," "nude," "food," "drinks," "shopping," "Sega," and "Play Station") but at the time of this writing it only has a logo that sends email to the company if you click on it. That's it, otherwise the page is empty, and there are no links to any other pages.

On the basis of this, LinuxOne filed to sell 3 million shares to the public at $6-$8 per share, thus cashing in on the Linux hype for at least $18 million, and hopefully way more. I don't even think the Fools need to DO an April Fool's joke this year, this tops e-meringue in my book.

How can LinuxOne even HOPE to get away with this? Well, did you notice that Salon.com's (Nasdaq: SALN) stock just about doubled in one day when they simply issued a press release stating that they would be providing some content for one of Red Hat's websites? LinuxOne wants the Nasdaq stock symbol LINX, and VA Linux has the stock symbol LNUX. Maybe some of those billions will rub off, eh?

I've been writing about Linux in this column since way back, and I'm one of its greatest fans here at the Fool. Last I checked, the combined market capitalization of VA Linux and Red Hat was over $20 billion, with many more eagerly awaited IPOs like LinuxCare and TurboLinux waiting in the wings. But right now, the single most prominent force driving the valuations of Linux companies is hype. Linux is a "hot area," the technology du jour, as were "push technology," Java, the Internet, and anything-dot-com, before it. A few decades ago, it was electronics and plastics. There are a lot more dollars pursuing investment opportunities in this area than there are honest investment opportunities.

Presently, the mention of Linux in a press release can move stocks, even if all they did was simply convert their Web server to running under the Linux operating system. This is because a certain type of investor tries to jump on this kind of trend without a clue about where it came from or where it's going. And like all mindless sheep following the herd, these guys regularly get fleeced.

The truth is, the Linux market is just like the PC market: thoroughly commoditized. Two guys in a garage can easily assemble a working system out of parts, and just as you can stick a Compaq hard drive into a Dell computer, you can upgrade a Red Hat Linux system's Web server from a SuSE CD (or just download the new one off the Web directly from www.apache.org). This doesn't mean that profitable companies can't play in this space, just that participation isn't automatic domination. The difference between Tropicana and some guy with an orange tree in his back yard isn't the juice, it's the company. Saying, "Hey, I can do that, too," doesn't make you worth billions. Add what value you can, establish relationships with customers (that's all brand name is anyway), hire good people, grow your infrastructure. THEN have an IPO.

LinuxOne is not just a case of the emperor not having any clothes, or even the emperor not actually being royalty. As far as anybody can tell with LinuxOne, what is sitting on the throne is a dime store mannequin. But you can't tell this from LinuxOne's press releases. It opened offices in Taiwan, which isn't that big a deal when you realize its CEO is from Taiwan and probably still has friends and family there. Then, it announced a $500,000 deal with a company called "Power Source." Income? Not really. Power Source runs flea-market tables in California. If Power Source actually had $500,000 of cash to spend on anything, why would their e-mail address be a Hotmail account? If you call Power Source's phone number (on their Web page) before 9 a.m., you wake the poor guy up. But what Power Source CAN do is agree to accept $500K of products for LinuxOne and sell them on commission, remunerating to LinuxOne whatever they could make from the profits of selling it. Of course, that's not how the press release is worded.

What products Power Source will try to sell for LinuxOne is still up in the air, of course. LinuxOne has proposed selling renamed Red Hat CD's, but since you can get those for under $2 each by mail (from www.cheapbytes.com, among other places), that didn't pan out. They've also tried installing Linux on a hard drive and then selling the hard drive, but nobody seemed interested. The "quest for a product" continues, but that won't slow down the IPO.

This strategy of keeping a straight face and trying to look professional has paid off for LinuxOne, with news coverage that, while somewhat skeptical, calls it "The Next Linux IPO" and doesn't challenge whether or not the business is actually a going concern. Just as analysts tend not to issue "sell" recommendations for stocks, news organizations often try to achieve "balanced coverage" in the face of unbalanced reality.

This sort of thing puts our whole philosophy of paying extra for quality (QuaVa) in perspective a bit, doesn't it?

I can't repeat this enough: DO YOUR OWN HOMEWORK. It's a vicious market out there, buyer beware. Don't blindly trust a company's press releases, they're advertising. Don't trust what analysts say about it. Even the Fool has been small-f fooled before, right here in this portfolio. Our original paper money "Simpleton" portfolio included Oxford Health Plans (Nasdaq: OXHP), which one day lost 75% of its value due to "accounting irregularities." I know the stock market's booming like mad but DON'T go on margin, DON'T gamble away money you can't afford to lose, and DON'T put all your eggs in one basket. We don't always repeat that often enough here, so you'd better get in the habit of repeating it to yourself.

[Jan 6. 2000] IPO Doesn't Mean 'Ignore the Price Offered' By Bill Valentine, CFA

Wish you could have bought shares in VA Linux (LNUX) when it went public, do ya? Then might I suggest you read along, my friend. For what you do not know is that nearly every purchaser of this IPO in the aftermarket, is losing money right now. If this doesn't make sense to you, it will by the end of this piece. If, on the other hand, you've never heard of VA Linux, are totally confused, but are interested in understanding how IPOs work, you too should stick around while I cover the economics of initial public offerings (oh, that's what IPO stands for).

First, a little history of the recently made sort. On Dec. 9, VA Linux offered its shares to the public for the first time. I happened to mention the company in my weekend column as a potentially hot IPO, but had no idea that it would set the all-time, starting-day record for an IPO. The shares were priced at $30, but closed the first day at $239.25, for a rise of 698%. This was the latest blockbuster in a year that's seen a number of similarly outrageous IPO starting-day gains. Their stories have created an unprecedented level of both interest in, and confusion over, initial public offerings.

Let's walk through how an IPO is born and see if we can't understand what's going on.

A company decides to offer equity shares to the public for a variety of reasons. Ostensibly, a company uses an IPO to raise capital. But often an IPO is equally about a company's interest in cashing in.

The company goes to an investment bank or two (or, more often, investment banks go to the company). The investment banker's job, among other things, is to "price" the shares. That is, the bankers attempt to determine an appropriate value for the company. The bankers consider a variety of factors including how companies of a similar nature are priced, and how much interest the public may have in the offering. The result is an offering price or range. The original offering range for VA Linux was $11 to $13 per share.

The lead investment bank then enlists other investment banks to help sell the shares to the public. This "syndicate" typically pays the offering price for all the shares the company will make available, thus guaranteeing that the company gets its capital.

Meanwhile, word of the impending IPO floats around the market and the syndicate banks start to get an indication of interest in the IPO. More and more, investment banks use that feedback to adjust the offering price. When demand for shares outstrips the number of shares available — referred to as over-subscription — the offering range may get bumped up. In the case of VA Linux, the bankers bumped up the offering range twice. The offering price was $30 on the day VA Linux opened for trading. So that's what the people who bought LNUX on Thursday paid, right?

Not even.

The very first trade in LNUX was at $299. The stock went on to trade as high as $320 a share that day. There were so many market orders to buy that the selling firms found they could fill trades in the $300s.

Why someone would agree to pay ten times an offer price is beyond me, but that's what new owners of LNUX have done. Investors dismissed the $30 figure even though it was set by people who spend their lives valuing these things.

Others might argue that bankers undershot the demand and robbed the company of the capital implicit in $300 a share — a topic for another day. But very few investors got shares for less than $233 on day one.

...Three days after VA Linux went public, it was trading below $200 a share. At that price, almost every purchaser of LNUX in the aftermarket was losing money. The individual who had bought at $320, if he or she still held the shares, was down 40%. Everybody else was down less, but, with the exception of daytraders who may have bought during momentary intraday dips and sold during equally momentary rises, not one purchase was worth any money except as a possible tax writeoff.

So if you didn't get in on this IPO record breaker, count your blessings (and your savings).

[Jan 6. 1999] Morningstar.com Surprise! Linux Doesn't Cure Cancer

Let's get one thing straight: Neither VA Linux LNUX nor any of the other Linux companies that have come onto the market lately are worth anything remotely close to their current valuations. Period.

...In early August, Linux software distributor Red Hat RHAT priced its IPO at $14 per share, opened at $46, and currently trades at about $275. Last week, VA Linux, which sells hardware tailored to run Linux, one-upped Red Hat by pricing its IPO at $29 per share and opening for trading at a hair under $300. (For those of you keeping score, that's a new record for an IPO's largest first-day gain.)


...Moving from the general to the specific, here's why. First of all, the mania over Linux right now is just that--a mania. Although Linux is growing much faster than Windows NT (from a much smaller base, of course) and is very much a viable alternative to Windows NT for some uses, it's pretty far-fetched to extrapolate that success into any single Linux-related company becoming "the next Microsoft." Because nobody owns Linux, nobody can extract the same kind of monopoly profits out of the operating system that Gates & Co. extracted from its ownership of Windows.

Sure, some companies might run successful businesses by making Linux easier to use and offering technical support for the systems, but no business model based on service and support is ever going to approach the incredible level of profitability of a Microsoft-style "pay us for breathing" business. If you want to do anything with Windows, you have to play ball with Microsoft, and for that reason, Microsoft can make a lot of money in a lot of different ways. On the other hand, if you want someone to hold your hand while you install Linux, you just call whoever offers the best combination of pricing and customer service--which aren't attributes you can patent.

The bottom line is that no matter how much of a threat Linux is or isn't to Microsoft (which itself is a subject for an entire column), the economic benefits that flow from Linux's success will be distributed among a slew of companies, not concentrated in any single firm. However, the economic costs of whatever success Linux enjoys will be concentrated in companies--such as Microsoft--that profit from competing operating systems. Unfortunately, the only way to make any money off this fact is by betting against the company that Linux will primarily hurt if it does become bigger than big--and no one's ever made much money by shorting Microsoft.

More specifically, VA Linux itself is a frighteningly fragile way to play Linux, if that's what you're inclined to do. Right now, the company makes the bulk of its money by selling servers (powerful computers that do things like process Web page requests and run e-mail systems) that are tailored to run the Linux operating system. Unfortunately, this is not a novelty. Dell DELL and Compaq CPQ, among others, do the same. Realizing the fragility of a business based on selling hardware that almost anybody else can sell, VA Linux peppered its prospectus with references to all the money it plans to make by offering customer support (hand holding and troubleshooting) and professional services (designing large-scale systems, consulting, etc.).

Good thing, too, because services are often more profitable than hardware, and VA Linux's gross margin (the percentage of sales a company has left over after paying for the cost of the stuff it sells) was a measly 13.2% in the most recent quarter. Unfortunately for VA Linux, Compaq has a pretty large services group of its own (about 15% to 20% of sales), and Dell recently inked a pact with IBM IBM to offer Dell customers access to Big Blue's army of services personnel. Moreover, VA Linux's professional services group is a whopping three months old. This isn't a strategy that I'd pin my hopes on.

Oh, and did I mention that a single customer accounted for 17% of VA Linux's sales in the most recent quarter, or that the company's four largest customers for that quarter were all Web startups with an average age of about two and a half years?

Even if Linux does turn out to be the greatest thing since the graphical user interface, I sincerely doubt that people buying shares of VA Linux (or any of the Linux companies) at their current valuations will do anything but lose sleep and/or money. VA Linux, for example, is currently valued at almost $48 million per employee. That's a little rich for a company that only did a little more than $83,000 in sales per employee last quarter--especially one that doesn't look like it'll book a penny of profits any time soon.

[Jan 6. 2000] Linux Today: ComputerWorld Are companies banking too much on stock prices

"Ever since companies like Amazon.com, Yahoo and, more recently, Red Hat enjoyed their multibillion-dollar IPOs, their most important strategic challenge has been to conjure up a business model that could possibly justify their sky-high valuations. Not surprisingly, all three have decided that hypergrowth is really the only acceptable path forward."

"For example, since there was clearly no way that Amazon could justify its stock price as a mere seller of books, it actually has had little choice but to try to turn itself into an online Wal-Mart. Similarly, would Yahoo shareholders really have tolerated a CEO who was content to build just a premium search engine? More recently, Red Hat's purchase of Cygnus Solutions and its consulting services is evidence of a similar pressure to grow at all costs...."

"You can already see signs of similar risks for today's giants. Many people I know are tired of messy portals and are relieved to experience the pure search capability of a site like Google.com. Similarly, because they now must behave like titans of industry, key members of the Linux community are already losing some of their special luster. I've even started to check out Barnesandnoble.com as a quiet protest of Amazon's cluttered path."

Complete Story

[Jan 6. 2000] Linux Today CBS MarketWatch Are we facing Linux overload

"No matter how much of a threat Linux is to Microsoft, one thing it can't be is "the next Microsoft". As an operating system, it could give mighty Windows a good run for the money, but as a business, all the companies lining up behind the new operating system can't. And that's the argument Morningstar columnist Pat Dorsey makes."

"So what's the worry? Companies like Red Hat...and VA Linux...have rocketed to nosebleed levels after going public on investor optimism about Linux, and Dorsey thinks a lot of people will end up losing sleep and/or money over betting against Microsoft this way. He says the Linux Mania is just that, a mania."

Complete Story

[Dec 22, 1999] Dot-com dogs

[Dec 22, 1999] Salon Technology:  Can Linux billionaires carry the free-software torch.

See  below Slashdot Articles On The Linux Culture and Money that contains some interesting comments.

Will the huge financial worth of the founders of companies like Red Hat and VA Linux end up disillusioning small-time developers? These companies must now keep their shareholders happy -- will the goal of keeping stock prices high interfere with code design decisions that used to be based on purely pragmatic factors? And what happens if Red Hat and VA Linux stock goes down in flames? Will free software's rise to world domination be derailed?

Substitute whatever phrase you want for "free software": "open source," "GNU/Linux" or even just "Linux" will suffice. Indeed, the easiest observation to be made about this most recent outbreak of IPO madness is that the word "Linux" now enjoys the same semantic status as previous Internet economy buzzwords like "push" or "portal" or everyone's favorite: "dot-com." Just whisper the magic incantation and the venture capitalists, investment bankers and day traders will come a-running. Many, if not most, of these bandwagon jumpers can hardly be expected to have much faith in or even knowledge of the potential technical superiority of the open-source software development model. They don't care that the source code is freely available to all comers -- they just want to get their buy orders in on time.

Even if reasonable answers can be offered to the questions posed by worried skeptics, rational observers can be excused for thinking that today's delirious Linux euphoria might not necessarily be a good thing. Sooner or later, dot-com mania must be headed for a fall -- whenever you see this many lemmings gathered together in one place, you just know a steep cliff has got to be nearby. Could the rush to invest in companies which base their business models on free software be the last straw? Certainly, many observers who have long looked askance at the last few years of Internet insanity have seized upon the VA Linux IPO as just the latest, freakiest example of how crazy things are getting. So why not be nervous? Free software, once the domain of anonymous geeks concerned only with their code, has been sucked into the vortex of the dot-com maelstrom. How can it possibly come out unscathed?

The short answer is that it just doesn't matter. Free software can take care of itself. But the long answer starts like this: Sure, Wall Street and the day traders are absurdly overhyping Linux, but they are also unwittingly hyping the deep structure of what makes the Internet work for all of us -- they are pouring billions of dollars into the principle that great things can happen if you share your source code with the general public.

If, in the long run, Red Hat and VA Linux never earn a dime, and stockholders start pulling their hair out and analysts begin announcing downgrades, the world in general still stands to benefit immensely. That's because, right now, companies like Red Hat and VA Linux are substantially increasing the amount of software that belongs to the whole world. Software that solves problems, leverages creativity and intelligence, and, bottom line, is free. The companies may go away, but the software won't. What we are currently seeing, in essence, is the largest-scale bilking of the "free market" ever perpetrated, for the purpose of creating a common infrastructure of software tools that will be to the lasting benefit of all humanity. Merry Christmas, everyone.

...Vast portions of the Net, its mail transport mechanisms, bulletin board discussion forums, even the Web itself, owe their creation to the willingness of programmers to write code, contribute it to the general public and reap the benefits thereof.

The clear result of years of gift economy behavior on the Net has been the creation of a huge publicly accessible infrastructure that facilitates cooperation and collaboration -- a giant tool lending library stocked with useful items of all description. In a world that is increasingly run by and dependent on software, the creation of this library is of incalculable value. But up until very recently, the production of these tools occurred on a more or less uncoordinated, haphazard basis, according to the energy and enthusiasm of hackers working in their spare time.

The ballgame is different now. Companies like Red Hat and VA Linux, steeped in the tradition of the gift economy, now have the capital to hire hundreds, even thousands, of hackers, and put them to work creating even more publicly accessible software. Tools that once were hard to use are being made easier, projects that were once considered purely the domain of the proprietary software world, like word processing applications and graphics manipulation programs, are now being added to the public library arsenal.

...But it's a safe bet that many investors do not realize what they are part of -- a grand, world-class giveaway that may be more likely to benefit a budding entrepreneur in Indonesia or Paraguay than an investment bank or venture capital firm.

So what happens if five years down the line, VA Linux still hasn't turned a profit? Perhaps its core market will have been overwhelmed by a giant like Dell. Or maybe a Microsoft version of Linux will have swept the world. Some free-software fans worry that such a denouement will undermine the credibility of free software -- that once it is proven that businesses can't make money in the free software sector, further development will dry up.

But what's far more likely is that free software development will slow down, not disappear altogether. Hackers who wrote free software before it became a big business will continue to do so -- that's what they like to do, after all. The sheer number of users of Linux and other free software tools is also likely to ensure that developer interest will continue. In the meantime, the current golden age of free software will have bestowed upon the universe of software users a plethora of advanced tools that can be used for manifold purposes. For those without the resources to buy expensive software, there will be another path available -- the free software path.

In yesterday's world, a go-getting start-up hustler in China might have taken a chance and simply pirated some Microsoft or Oracle or AutoCad software in order to take care of business. And then, ultimately they may have paid a hefty price as a victim of a flushly bankrolled anti-piracy campaign. But in tomorrow's world, they'll just log on and download what they need, without having to agree to onerous license terms or cough up cash that could be better used elsewhere.

Slashdot Articles On The Linux Culture and Money

Class Action Lawsuit? (Score:1)
by The Future Sound of on Thursday December 23, @07:47AM EST (#19)
(User Info)
Why don't the developers get together for a class action lawsuit and at least get a slice of the pie?

Didn't the AOL volunteers do such a thing? It seems to me there's a precident here.

It's one thing to bust your ass for your own greater glory, but how can you sit back and watch someone else profit handsomely from someone else's labor?
Re:All I care about is products & GPL (Score:4, Insightful)
by Jon Peterson (jon@ssssssnowdrift.org (remove extra esses)) on Thursday December 23, @08:13AM EST (#36)
(User Info) http://www.snowdrift.org
I would not go so far myself, but it is a GREAT FALLACY to say that the GPL ensures the survival of good OS projects in the face of money (or any other threats).

There are many reasons OS projects die out, here are a few:

1. Too hard
2. Too boring
3. A key developer leaves
4. LACK of PUBLICITY
5. Infighting
6. A rival project

Now, how many of these factors can be easily influenced by any corporation with alot of free cash?

1. No, a hard task is still hard
2. Not per se, but a salary can make up for dull coding.
3. Absolutely. I doubt that a KDE hacker will leave to work on Gnome just because RH offers a fat cheque, but a similar situation is quite easy to imagine.
4. Currently the biggest. Who wants to work on a litte backwater project when you can work on Teh GIMP and brag to all your friends about it? Publicity has a massive effect on the momentum of OS projects - And lets see now:
linux.com (commercially owned)
slashdot.org (commercially owned)
freshmeat.net (commercially owned)

Looking just great :-(

5. Not especially. There's nothing like an ego to rise above cupidity :-|
6. Very definitely. A little project that's been chugging along fine can be killed off in a flash if a company decides to throw a few full time developers at it. Sure, if everything is GPL then the little project can take code from the big new one - but as we all know that's rarely how things work. Lots of NIH syndrome.

Now, you ask, why would our loverly OS company like RH or VA linux want to kill off an OS project? Well, pretty damn obvious I'd say. Are you going to tell me that RH has no interest in seeing, say, harmony bite the dust*


*Yes I KNOW harmony isn't around, and no I'm not making any conspiracy theories, but as we see different companies go down different architecture paths like this, you MUST realise that they have vested interests in alternative OS projects failing.

Since this is in reply to TC, I'll leave conjecture on financial backing for Perl vs Python as an excercise for readers :-)

 

Questions for the economically inclined. (Score:2)
by Greg Merchan on Thursday December 23, @08:15AM EST (#38)
(User Info)

Is this 'irrational exuberance'? Or is this a new phenomenon?

Suppose these companies never turn an accounting profit or share holders never see a dividend. Would that be money lost? Or might it reflect a non-tax, non-government method of funding society's infrastructure?

Are we witnessing the birth a new type of charity? One that yields slightly more direct returns than traditional charities?

Has anyone the The Leisure Theory of Value by Michael Miller? I think there may be some ideas in it that are very important as we become more of a service-based economy than an manufacture-based economy.

Keeping Linux users happy (Score:0)
by Anonymous Coward on Thursday December 23, @09:39AM EST (#56)
This of course does not apply to everyone in the Linux community because you can never keep everyone happy all the time unless you're only concerned with yourself (which you should be). But the bottom line to keeping the Linux community happy is that you can't. The Linux community, the majority of the users not necessarily the developers (at least none I've read about), are simply un-aged curmudgeons. They want to hate anything and everything. If they say the things name in a room and one other person in the room has heard of it, they will jump ship. Its just the way they go.

In addition, the only solution to keeping the more sane people who actually do benefit from the rock-solid stability and the open-sourceness of Linux is self-sacrifice. If you do anything but bleed yourself dry until you're dead, you're viewed as a heretic. See the recent story on Amazon.com's founder being made Man of the Year and the response of the Slashdot community (almost synonymous of the Linux community), the only reason they hate the guy is because he made money. The Linux community is anti-capitalist and all about communal sharing. 1st thing that happens in a communal setting where everyone is treated equally and all, is brain drain. The smartest of the community realize they are working thankless jobs for the benefit of people that can't comprehend what they do, realize they can actually be appreciated and rewarded if they move, and they do, they flee. Communist Russia saw it happen as have every other farcical foray into collectivism have seen. The Linux community will see it too, and they'll be happy then. Why? Why would they be happy for losing their smartest developers? because their mantra is that if its open source, it will be improved upon by mystical forces about which they know not. Sorry, but 99.9% of Open Source projects never have more than 1 maintainer and they usually die quickly. Linux wand the 2 or 3 other big projects are flukes.
Humility is the deepest form of conceit (Score:0)
by Anonymous Coward on Thursday December 23, @12:38PM EST (#82)
All of this incessant navel-gazing and faux "introspection" coming out of the newbie-millionaires from RHAT and LNUX is really nauseating.

I really loved the highly sanctimonious way Eric Raymond told us he's still carry his own luggage.

Guess what ESR - in Silicon Valley, folks with your cash are all over the place, and hardly any of them torture the world with ridiculous navel-gazing articles.

Really folks, humility is the deepest form of conceit, and it certainly shows with the recent linux IPOs.

Re:coding for free (Score:0)
by Anonymous Coward on Thursday December 23, @02:32PM EST (#90)

I've been reading on mailing lists, where college kids who, of course, think all software should be free, don't want even closed source software companies to make money selling there products which in turn supports their developers. This is ridiculous and both ESR and RMS need to educate people better that coders have to live and in order to live you need to be paid a living. But ESR wants coders not to get paid for work that's fulfilling, he wants you to work on a help desk during the day and then code at night. That's an awful way to live! Especially, if you are a talented coder. You should get paid in a profession that maximizes the use of your talents.

This open source economic "bubble" will surely burst, and I can't wait to see when it does. For open source to thrive, you need the deep pockets of Oracle, Sun, and IBM--the anti-Microsoft crowd. However, once open source starts inflicting on their territories--superior "free" databases and superior low cost servers, the open source guys won't have a leg to stand on. So, it's best that they make as much money now while they can, because it won't last long.


Corel

[Dec 21, 1999] Redherring.com - Corel CEO shills for stock by loving Linux - 12-18-99

"It's a hypefest, big time," says Mr. DeLavergne. "He's playing that Linux card to position himself with the Linux stocks. I'm not anticipating any growth from Corel over the next few months."

What about that Linux valuation? Well, based on Corel's recent price of $24.81, Mr. DeLavergne believes that Corel is overvalued. He has issued a Reduce recommendation with a target price of $7.

CFO RESIGNS
How optimistic are Corel executives about the strategy? You might want to consult with Michael O'Reilly, the company's executive vice president of finance and chief financial officer, who was largely credited with returning the company to profitability after joining Corel in 1997 as a 21-year veteran with KPMG. Mr. O'Reilly resigned on Wednesday. Before the news of Mr. O'Reilly's resignation, Jim Orban, Corel's executive vice president of sales and marketing, announced on December 7 that he will be leaving the company effective December 31.

In days like these, it probably serves investors best to look at a company's track record before jumping on the investment bandwagon that follows a raft of Linux-related press releases. Corel has struggled during its 15-year existence. Its last strategy shift, a misguided effort to compete with Microsoft applications on alternative platforms with catchy buzzwords, resulted in years of losses and a plummeting stock price. After a return to profitability, the CFO who engineered the recovery has resigned, and the CEO has launched a new strategy that focuses on -- you guessed it -- competing with Microsoft applications on alternative platforms with catchy buzzwords.

[Dec 17, 1999] SmartMoney Today/ Market Today:  Hey, Forget Financial News! SmartMoney.com's a Linux Company, Too
By Ian Mount and Matthew Goldstein

...Many companies have felt especially compelled to disclose their Linux news since the raucous debut of VA Linux (LNUX). In the eight days following that Linux-services firm's Dec. 9 IPO, about 400 press releases with mentions of Linux found their way onto the public relations newswires that feed into Dow Jones News Retrieval. No wonder one publicist we interviewed referred to the process as "Linux spamming."

Admittedly, some have good reason to release Linux news; like companies from Hewlett-Packard (HWP) to eShare (ESHR), they may be understandably eager to tout a legitimate marketing agreement or a Linux-friendly product. In an investing world where shares of Red Hat (RHAT), which were priced at $14 at the August IPO, now trade around $250 and where shares of VA Linux rose 698% at their Dec. 9 IPO, who wouldn't want to bask in a little collateral love?

But there are those Linux releases that are so tangentially related to actual business performance as to bring into question the motives of the companies that release them and the prudence of investors who buy in. Adding to the ambiguous nature of these releases, many of the companies making such announcements possess stocks that are, to put it politely, a little languid.

Take Minneapolis-based K-tel International (KTEL), whose stock slipped from a high of $13.50 a year ago to $4.50 before a recent mild rebound to the $8 range. On Thursday, the nostalgia-music vendor released a Linux-riddled statement announcing that as of Dec. 1 the company had moved its e-commerce technology onto Linux-based systems, aided by Red Hat. The release devoted one paragraph — all of 90 words — to K-tel itself before launching into a four-paragraph, 237-word discussion of Red Hat.

...The market loved the announcement. On the day of the announcement, K-tel shot up as much as $2, or 24.2%, to $10.25, before settling at $8.81, for a 56-cent gain. Over 4.6 million K-tel shares were traded Thursday, compared to an average of around 650,000. Friday, the stock fell back 97 cents, or 11.3%, to $7.63. It is unknowable whether investors who jumped into the stock were traders playing momentum or naive buyers responding to the tantric repetition of the L-word, but those who bought at $10.25 certainly saw their investment dwindle.

...Linux lunacy led Zap.com (ZPCM), an Internet search engine, to inform the world on Dec. 9 that it just added several Linux-related Web sites to its list of the 200 best Internet sites. Thanks, Zap. We would have been lost without that bit of information. Officials at the Rochester, N.Y.-based company were unavailable for comment. But is it too cynical to suggest the release was intended to give Zap.com's stock a zap — especially since its share price was falling in the days preceding the announcement? Zap.com's stock rose nearly 33% from Dec. 9 to Dec. 12, before giving back some of those gains.

A public-relations executive who gets paid to write some of these releases says there's nothing wrong or misleading about a company touting some tie-in with Linux. Michael Manahan, president of Los Angeles' Magnum Financial Group, says a press release is often the only way for a small company to communicate with investors, since there are no analysts following the company and no reporters writing stories. Manahan says issuing a press release to pump up a stock actually does more damage to a company than good. "Any company that does that is playing with fire and being rather foolish, because it will come back to bite you in the behind if the price moves up to the point beyond which it's sustainable," he says.

For their part, the people at Red Hat and other actual Linux companies couldn't be happier with the situation. There's nothing like free publicity, especially after months — if not years — in the darkness of anonymity.

"From our standpoint, it's phenomenal news. It was six, seven, eight months ago that we couldn't get a company to 'come out of the closet' on their Linux deployment," says Red Hat spokeswoman Melissa London. "Whatever the motivation may be for dropping the releases, for the Linux operating system in general I think that it's a good thing."

Coming out of the closet on Linux evidently isn't so frightening anymore now that investors have dubbed the operating system the Next Big Thing. And for as long as investors react with enthusiasm to press releases that chant Linux, companies will no doubt continue to put them out. The headline of a Dec. 10 release from Los Gatos, Calif.-based "Pre-IPO start-up" Wish.com encapsulated these wistful Linux dreams perfectly.

"Santa Delivers With Open Source Linux."

See also Slashdot Articles RMS on ESR's Wealth; Linus on IPOs.

Recent IPO offering announcement by Santa Clara-based hardware vendor VA Linux Systems, the so-called "Linux commercial space" is becoming increasingly crowded. See UPSIDE: Filling in the Scorecard. As one Slashdot reader commented:

down the rabbit hole (Score:2, Insightful)
by Signal 11 (signal11@mediaone.net?Subject=Slashdot) on Saturday December 11, @10:51AM EST (#9)
(User Info) http://www.malign.net

Is it just me, or has Linux started absorbing (at an absolutely incredible rate) all the qualities it's supporters initially dismissed as both irrelevant and/or evil?

Linux is supposed to be "free speech, not free beer"... yet here we are making money hand over fist. If you contributed an open source project *BLAMO!* you get The Letter and an opportunity to make alot of money.

ESR made it big (as he should.. he's on the board of directors), Bruce Perens is off now with his vulture capital friends, and Rob of Slashdot fame joined up with Andover.net, now going for IPO (or maybe they have already, I wasn't paying attention).

We've been fighting all these spectres of Big Business Squashing the Little Guy, actively refuting the FUD companies throw against our cherished OS' (while replacing it with some of our own, admittedly), and essentially emulating all the behavior of the big businesses we're fighting against!

Anyone else feel like Alice after falling down the rabbit hole here?....

That wasn't what I was driving at - money changes things. It changes people, it changes countries, it changes many things. Like Midas' touch.

I'm worried that as geeks move up the social/economic ladder they're leaving behind some well-earned lessons about the price of being different. We're the stars now of our society - financially well off, we can satisfy our material wants, we work what most people consider to be ideal jobs, and we're the envy of most of the country if not the world. Can you believe, even for a moment, that this isn't having an impact?

I'm wondering what's going to happen to this group of social outcasts whom I happen to belong to - will they embrace society, or use their power to change it (thus taking the risk of losing the aforementioned economic gains)? This question is far more important than the monentary concerns voiced so far, IMO. Geeks now have both the economic power and intellectual prowness to encourage dramatic social changes. Will they take advantage of this, or trade that for financial security?

Another more funny interpretation of events:

m0n3y$ d00d (Score:1)
by Jikes (jikes@myrealbox.spum.com) on Monday December 13, @11:40AM EST (#40)
(User Info)
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, and sometimes both.

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...

Bah. BAH I say! Linux was a vast playground of toys, a wonderfully mutable fantasyland of things that no copy of Windows could ever provide... A fluid organic collection of a hundred thousand objects and programs and hassles and incompatibilities and treasures and scripts and files and devices that gave you free reign to do whatever, wherever, whenever, and however with your machine, as long as you had no life and lots of free time.

Now it is a buzzword, even though not one line of code in the vast tapestry of open source stuff has changed as a result.

The solution is simple: Someone grab all the domains that have anything to do with BSD, lock down the ftp servers, fork and encrypt the cvs trees, destroy the furtive press releases, hide your stuffed daemons in the attic, wipe the sites, and RUN like the wind! By the time Wall Street finds us, the Purple Kool-Aid Project should be out of beta...
Karma Police Squadron Leader

VA Story

"Looks like a lot of you folks that bought high may never see your $$$."

Remark to Andover.net investors on Raging Bull Web forum

VA story: "Internet mania reached new levels of frenzy Thursday as investors paid huge multiples on an initial public offering, giving a market value of almost $10 billion to a tiny company with powerful competitors, little revenue and no expectation of earnings in the foreseeable future." NYT. A quick reality check of VA, for example, gives us net revenues to 29th October of just under $15 million, and an operating loss of over $10 million[Register]. As one Slashdot reader put it : " They don't actually do anything other than sell Linux boxes, right? Or is there something else they do that I'm missing? Looks to me like Linux is becoming far too much of a buzzword for its own good. Perhaps the reason it did so well is because VA Linux is the only Linux IPO recently to actually have the word "Linux" in the company name..." See also Eric S. Raymond Wealth Clock

Yahoo! Insider Trades - VA LINUX SYSTEMS INC  -- demonstrates an Larry Augustin's  confidence about the company (he never purchased a single share of VA Linux via 401K or other plans.  Full table contains intersting information about other shareholders and top officers of VA Linux. It also helps to explain why VA Linux does not support AMD.

26-Feb-01 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
134,000
LNUX Proposed Sale (Form 144).
Estimated proceeds of $703,500.
23-Feb-01 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
41,000
LNUX Proposed Sale (Form 144).
Estimated proceeds of $215,238.
30-Aug-00 AUGUSTIN, ALICE K
Affiliated Person
3,000
LNUX Proposed Sale (Form 144).
Estimated proceeds of $145,341.
30-Aug-00 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
* 3,000
LNUX Sold at $48.45/Share.
Proceeds of $145,350.
30-Aug-00 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
30,000
LNUX Sold at $48.45/Share.
Proceeds of $1,453,500.
30-Aug-00 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
30,000
LNUX Sold at $51.19/Share.
Proceeds of $1,535,700.
30-Aug-00 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
90,000
LNUX Proposed Sale (Form 144).
Estimated proceeds of $4,500,000.
14-Jun-00 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
3,599
LNUX Sold at $31.32/Share.
Proceeds of $112,721.
13-Jun-00 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
* 552
LNUX Sold at $31.04/Share.
Proceeds of $17,134.
13-Jun-00 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
7,198
LNUX Sold at $31.04/Share.
Proceeds of $223,426.
9-Jun-00 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
* 2,020
LNUX Sold at $36.28/Share.
Proceeds of $73,286.
9-Jun-00 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
40,640
LNUX Sold at $36.28/Share.
Proceeds of $1,474,419.
8-Jun-00 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
* 400
LNUX Sold at $37.51/Share.
Proceeds of $15,004.
8-Jun-00 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
7,997
LNUX Sold at $37.51/Share.
Proceeds of $299,967.
7-Jun-00 AUGUSTIN, ALICE K
Affiliated Person
150,000
LNUX Proposed Sale (Form 144).
Estimated proceeds of $544,860.
7-Jun-00 AUGUSTIN, ALICE K
Affiliated Person
6,000
LNUX Proposed Sale (Form 144).
Estimated proceeds of $240,000.
7-Jun-00 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
* 3,028
LNUX Sold at $38.23/Share.
Proceeds of $115,760.
7-Jun-00 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
60,566
LNUX Sold at $38.23/Share.
Proceeds of $2,315,438.
7-Jun-00 AUGUSTIN, LARRY M
President, Director, Chief Executive Officer
120,000
LNUX Proposed Sale (Form 144).
Estimated proceeds of $4,800,000.

 

Re:Why no AMD (Score:1)
by Deosyne (a_111PLEASEDONTSPAMME@hotmail.com) on Friday January 28, @04:25AM EST (#184)
(User Info)
It may have something to do with this quote from the Corporate Profile section of the About VA portion of their website: "Also during the first quarter of 1999, VA attracted equity funding from well-known Sequoia Capital and from Intel. Likely a matter of not biting the hand that feeds you.

Deosyne
What?!? (Score:5, Insightful)
by um... Lucas (lk@caralis.com) on Thursday January 27, @12:24PM EST (#10)
(User Info) http://www.caralis.com/us/lucas/
He feels they're UNDERVALUED?!?

No. VA Linux, just as every Linux, .com, software, hardware and tech company are grossly overvalued. Really. There used to be a day when companies were valued based on their actual performance. Amazon suceeded in corrupting that definition so that it included their future performance.

Now, every company out there seems to believe that they should be valued based on what they think they can do rather than what they are doing now.

It seems that IBM is about the only tech company that's valued anywhere near the levels it's revenue would reflect if it were in any other industry. They actually trade a lower PE ratio than General Electric.

I mostly liked everything else he had to say, but due to the order of teh question, i was set off by him. Build a company. Get the sales. Get the PROFITS. Then you'll get your valuation. Any other order is just insane.
Opinions differ (Score:2)
by Uruk (s2mdalle@titan.vcu.edu) on Thursday January 27, @12:41PM EST (#25)
(User Info) http://opop.nols.com/index.shtml
Opinions differ as to whether or not the stocks are actually overvalued or not...I've heard a lot of people including many slashdot posters claim that there's going to be a bloodbath probably this year on the stock market and such.

As it happens, I have a lot of relatives in the securities industry in one form or another. (People who work in pension plans, stock brokers, and so on) They seem to think that the market may be in for some type of "correction" but nothing like a major bloodbath or crash for a long time.

Specifically, I was told that "When your shoeshiner gives you stock tips, it's time to get out of the market" I.e. when everybody and his brother is borrowing money to play the stock market because they've never seen anything BUT a bullish market, you know that it's time to get out, because stocks are being used as a money-making tool completely independant from the company that you're investing in. And that's where the real shit hits the fan. Fortunately, in the opinion of many I have talked to, that hasn't happened yet.

Oh, one other note - maybe that whole stock overvalued thing is a moot point now - check the current price on VA stock (symbol LNUX) - they've been in a tailspin for a while. Mind you, they were so high that you can be in a tailspin for quite a while and still have a decent stock price, but they've lost a lot of ground nontheless.

There are three types of people in the world; those who can count, and those who can't. http://opop.nols.com/index.shtml
[ Reply to This | Parent ]
I beg to differ. (Score:3, Insightful)
by FallLine on Thursday January 27, @01:45PM EST (#62)
(User Info)
The original poster is somewhat mistaken, however LNUX is way overvalued by any traditional measure. They've got a market cap of 5 billion dollars and they're not even profitable yet. To justify these kind of valuations you have to have HUGE expected growth, but what do they have to justify these expectations? 5 Billion dollars is a hell of a lot of money to risk on one fledgling little company without any propietary technology (well almost) of their own. What they have is maybe a marketing position, but then you'd have to ignore the likes of Dell, Compaq, gateway, etc? And can you give me any good reason why VA Linux is in any better of a position to capture the Linux market share than say ASlabs?

Another point i'll make is that these investment banks and brokerage houses really don't give a damn how good a security ACTUALLY is. Whether you, the investor, win or lose money doesn't much affect them. They want to see maximum volume, that is how they make their money. It is in their interest in fact to keep their mouths shut.

My bet (and yes, they're a dime a dozen) is that these Dot Com stocks go the way of the Bio Tech stocks of the 80s and 90s, from RedHot to the plague in 1 second, I suspect within the next year or two. No one is going to want anything to do with them. The real shame is that while these stocks Dot Coms are redhot, they push many more legitimate companies out (e.g., VCs now have a totally unrealistic time frame/turnover and growth (not real growth, but valuations rather) expectations with the Dot Coms). And when they finally plummet, the more legitimate Dot Coms that eventually emerge will find it very very difficult to raise capital. I'm counting the days....
[ Reply to This | Parent ]
Re:I beg to differ. (Score:2)
by Uruk (s2mdalle@titan.vcu.edu) on Thursday January 27, @09:28PM EST (#162)
(User Info) http://opop.nols.com/index.shtml
"
Another point i'll make is that these investment banks and brokerage houses really don't give a damn how good a security ACTUALLY is. Whether you, the investor, win or lose money doesn't much affect them. They want to see maximum volume, that is how they make their money. It is in their interest in fact to keep their mouths shut.
"

Not entirely true. Sure, brokerage houses would make a lot of money if the volume simply went through the roof by reaping all of the commisions on the sale, but at the same time, this kinda reminds me of a store owner who rips off his customers is small almost unnoticeable amounts - sure, it's good for profits in the short term, but eventually your customers figure it out and go elsewhere - brokerage agencies don't just get you to buy as much as you can, but try to get you to buy what they consider to be quality - otherwise you don't come back. Repeat customers is what makes or breaks the business in any line of work - quick profits by looking out for nothing but your self interest rarely makes the most money in the long haul.

There are three types of people in the world; those who can count, and those who can't. http://opop.nols.com/index.shtml
[ Reply to This | Parent ]
I disagree. (Score:2)
by FallLine on Thursday January 27, @10:26PM EST (#172)
(User Info)
The brokerage houses ARE collectively making a lot of money. It doesn't take a genius to see the risk involved in many of these equities. It IS going to be a problem.

Historically and empirically speaking, this has been demostrated to be a problem. The 80s and the BioTech crash is a great example of this, it's been demonstrated many times that these firms would keep on pressing them even though they KNEW they the security was fundamentally bad.

Brokering is a fundamentally different issue than selling merchandise. Brokers are merely intermediaries, they don't control the merchandise. The merchandise is beyond their control, and therein lies infinite deniability. Furthermore, most buyers understand that there is a certain amount of risk (unlike merchandise buyers, who expect an absolute gaurantee). So if the buyer were to lose 30% of their retirement money, how are they to know that their problems are the result of freak bad luck, or symptomatic of a larger systemic problem in the brokerage firms? How are they to know that their broker could have known? That it wasn't just the market?

Even without this absolute callousness issue, there is a question of risk aversion. It is not their money that they're putting on the line. A risk of 1% of these companies defaulting might be tolerable to them, but intolerable to the individual that is heavily into those securities. Their customers have to incur some risk anyways (if they want to play the stock market), they add a little more risk, and they can increase their volume by a multiple.... Never mind individual brokers whose interests are not necessarily the same as their brokerage house....Particularly when the customer needs little to no urging.

[ Reply to This | Parent ]
Re:What?!? (Score:2)
by SEE (ehrbar@home.com) on Thursday January 27, @12:44PM EST (#28)
(User Info) http://www.easypages.net/hosting/personal/see/index.html
Actually, companies have always been valued partly on their current earnings, partly on their assets, and partly on their expected future earnings. For example, a company that is expected to earn 10 million next year will be valued at less than one expected to earn 100 million, assets and current earnings being equal.

No, what Amazon did was convince people that a long term buisness plan and a brand name were worth billions of dollars despite massive losses in a rapidly changing sector of the economy.

My prediction: Amazon dies in five years having never turned a profit and having been killed off by smaller, faster, smarter rivals with less debt. The brand name is sold to another retailer by the bankruptcy court, and eventually fades away.

Steven E. Ehrbar ehrbar@home.com
Re:No way... Amazon has already won (Score:3, Informative)
by Tim Behrendsen (tim {at} behrendsen {dot} com) on Thursday January 27, @05:33PM EST (#141)
(User Info)

Well, remember that fundamental business rules haven't really changed. You still have to connect products to customers. It's the communication with the customer that's changed. It's never been more direct, or less expensive to present your wares to an individual.

However, that doesn't mean you don't have to market anymore, maintain warehouses/inventory, service the customers, or whatever. Once you've decided to launch a new product line, you have to hire experts for that domain, line up suppliers, reserve inventory space, buy inventory, on and on. And when you're amazon, you can't just slap up a web page and see what happens. What will happen is that you will get a flood of orders, and Amazon has to be ready to receieve those orders. That means more servers, more customer support reps (who have to be trained on the new product, which means you have to write training manuals, etc).

Let's face it... e-commerce is just catalog mail-order, going all the way back to the original Sears catalog. The web just makes it easier to automate the ordering systems. In essence, rather than a clerk entering your order into a fulfillment system, you are entering the order directly into the fulfillment system. And instead of having to print catalogs, you can instantly see what's available.

But it still boils down to ordering from a catalog.

Eventually a lot of these companies will have to justify their valuations. Some of them are going to grow into being justified, and others aren't. If anyone is going to grow into justification, it will be Amazon because they have the branding. Some people think branding is dead, that people will just hop from site to site looking for the best deal. Some will, but I bet most won't. Never bet against the laziness of the average individual. Most won't worry about saving a few bucks when they can go to a place that's comfortable, hit one button, and the order appears on their doorstep without any fuss or trouble.

---
Self promoting sig: I was a founder of EduPoint.com. Check it out; it's pretty cool.

Re:The shareholders will not win (Score:0)
by Anonymous Coward on Thursday January 27, @05:19PM EST (#139)
And tech booksellers like bookpool.com and other small specialized sites can seriously undercut Amazon and BN (a blanket ~35% discount on O'Reilly titles, for instance)

I'll never order another book from Amazon.com.

I don't need to, they're not a good deal.
Re:The shareholders will not win (Score:3, Interesting)
by Tim Behrendsen (tim {at} behrendsen {dot} com) on Thursday January 27, @05:40PM EST (#144)
(User Info)

Amazon needs to completely run Borders and Barnes & Nobles out of business to realize the price of its "future growth".

Not at all, for two reasons.

1) Amazon doesn't have to be a monopoly to be the dominant player in a space. One of the rules of branding is that it rare to have more than a 50-60% marketshare. Above that, people distrust you because they feel their choices are limited. For Amazon to be considered a winner, they only need to have the dominant marketshare.

2) But, as you point out, to justify their valuation they probably would need the entire book market. That's why Amazon doesn't care about domanating the book market, they want to dominate the web retail market. In essence, they want to be the department store (or Wal Mart) of the web. It's no coincidence that Amazon hired a lot of high-level executives from Wal-Mart. WM is incredibly efficient in their distribution systems, and it's that experience that Amazon wanted.

Bottom lines, it's not about the books. It's about product diversification.


---
Self promoting sig: I was a founder of EduPoint.com. Check it out; it's pretty cool.

You are right about one thing :) (Score:1)
by Rabbins (robbins@rickjames.IEATSPAM.sapien.net) on Friday January 28, @09:29AM EST (#190)
(User Info) http://k-swimming.org
If they can lose money at books and CD's, they can probably do a great job at losing money in other areas.

*I am the bully who made gradeschool a living hell for you and all your geek friends... and now I've found you!
Re:No way... Amazon has already won (Score:4, Informative)
by SEE (ehrbar@home.com) on Thursday January 27, @03:04PM EST (#96)
(User Info) http://www.easypages.net/hosting/personal/see/index.html
Amazon can turn a profit any time they want... all they have to do is turn off the marketing machine and stop spending so much on infrastructure.

Nope. As Forbes points out, Amazon's "marketing" costs include packing and shipping books and CDs, and the costs of storing things in its warehouses. That means a major part of their so-called "marketing" costs are intrinsic to each sale itself, and cannot be cut.

At the same time, the entry of competitors is going to cut into Amazon's latitude. Amazon originally discounted a larger number of their books than they do now; the result is a number of customers have defected to BN.com, which has a borader selection of still-discounted books. Amazon's book division can't turn a profit if it returns to the old pricing scheme; it also can't turn a profit (in the long run) if BN.com consistently undercuts it on the same products.

Amazon itself admits its current buisness model is unsustainable in the long run. It is simply my analysis that Amazon will not be able to successfully transition to a sustainable model that justifies anywhere near its current valuation.

Steven E. Ehrbar ehrbar@home.com
Re:No way... Amazon has already won (Score:2)
by Tim Behrendsen (tim {at} behrendsen {dot} com) on Thursday January 27, @04:08PM EST (#118)
(User Info)

Well, I have to admit that I didn't know about this "accounting trick", although I would prefer to see the original data rather than relying on the mainstream press to report accurately.

Still, I think the point still stands. Amazon has by far the strongest brand on the web. B&N has the overhead of real stores, so the overhead advantage should go to Amazon.

Also, you're just focusing on the books. I think most would agree that just the book business would not justify the valuations, but if Amazon can truly become the department store of the web, then they could justify their price.

I mean, it's not as if Amazon has wimpy revenues. There is a lot of room for them to improve their product fulfillment and efficiency. I just don't think they are particuarly focusing on efficiency at this point; their stated short term goals are to build brand and expand their product lines.

---
Self promoting sig: I was a founder of EduPoint.com. Check it out; it's pretty cool.

[ Reply to This | Parent ]

 

Re:No way... Amazon has already won (Score:1)
by SEE (ehrbar@home.com) on Thursday January 27, @05:03PM EST (#136)
(User Info) http://www.easypages.net/hosting/personal/see/index.html
Yes, Amazon has lower overhead overall then B&N. Barnes & Noble has the advantage that it actually turns a profit on the brick-and-mortar operations, which essentially makes the BN.com warehousing free and serves as "deep pockets" for on-line discount wars.

And the focus on books was just to serve as an example of what can happen in the music, DVD & video, electronics & software, toys & video games, and home improvement areas -- all units which Amazon says are further from making a profit than the books division.

I just don't think being first is going to cut it in the long term. As Amazon starts hurting brick-and-mortar retailers, they're going to respond with their own Web sites, with their own established brand names. And those web sites will be competeing with prices subsidized by their brick-and-mortar revenue streams, market research already being done by their brick-and-mortar stores, and the addition of web addresses to the ads they're already buying.

No, they won't like canniballizing their own sales -- but they'll prefer it to letting Amazon eat their lunch.

Steven E. Ehrbar ehrbar@home.com
Re:No way... Amazon has already won (Score:2)
by Zoltar on Thursday January 27, @05:22PM EST (#140)
(User Info)
IMHO Amazon is smart to branch out. All of the .com's who are just specializing in books will loose, just like all of the mom and pop bookstores. How many of those are in your neighborhood today. Not many in mine, but I can tell you where the B&N and Borders are... It's kind of sad really. I despise all of the "Super Stores" / Wall-Mart's...

Books are a commodity, most people will buy on price if they consider all other things equal. I think that if soemone can find a way to get next day shipping at no additional cost and be *very reliable* then they will win.

I agree with your point about the Amazon branding, I think that there are a lot of newbies who don't even know enough to look anywhere else but Amazon when they want to buy a book online.


This whole thing kinda ties into the problem that VA Linux will have unless they can really prove that they give you better service and better boxes than Dell... Computers are a commodity and many people will buy on price...
Re:What?!? (Score:3, Informative)
by Rombuu (rombuu@surfree.com) on Thursday January 27, @12:47PM EST (#31)
(User Info)
There used to be a day when companies were valued based on their actual performance. Amazon suceeded in corrupting that definition so that it included their future performance

Oh really? When I was studying finance I learned that the value of a stock should be equal to the sum of a series of expected dividends plus the expected price of the stock when you sell it, all of which should be adjusted for the time value of money. In other words, stock values always have and always will reflect the future projected performance of a company. Amazon didn't invent this.


It seems that IBM is about the only tech company that's valued anywhere near the levels it's revenue would reflect if it were in any other industry.

That's like a utility company complaining that their stock would be valued higher if they were only in the media business or something.. silly..

I mostly liked everything else he had to say, but due to the order of teh question, i was set off by him. Build a company. Get the sales. Get the PROFITS. Then you'll get your valuation. Any other order is just insane.

Hey, if you so damn much smarter than the market, you should short the stock. You should make a killing when the stock goes in the tank, right? Or are you just shooting your mouth off?
Re:What?!? (Score:1)
by um... Lucas (lk@caralis.com) on Thursday January 27, @01:00PM EST (#39)
(User Info) http://www.caralis.com/us/lucas/
There used to be a time when companies were generally valued at 7-15 times earnings. As people have gained confidence, that level has been growing. And no, amazon didn't invent the whole valuation scheme. But it arose somewhere between Microsoft and Yahoo. Amazon was just there to ride the wave as far as it could.

The whole tech industry is suffering from over inflated stock prices. Yes. Suffering. Becuase once the bubble bursts, lot's of former millionaires will once again be mortal again. It's only a matter of time before the gov't puts the breaks on the growth trend we've been having for the past decade. And then what?

I'm not saying I'm smart. I'm just saying that Wall Streets insane. They're all hunting for the next Yahoo's, Amazons, or Microsofts... WHen they pump up a companies value, most companies don't realize it's because of traders and not themselves.

Let's see LNUX is 131 a share today.... Would you buy it at $90/share in 6 months? But you need to pay today. That's how shorts work.

No... I don't have the money to gamble on something like that. Sorry, but though the street seems to be sanening up, it's still much too insane for me to get into anything like.
Listen Up (Score:3, Interesting)
by Rabbins (robbins@rickjames.IEATSPAM.sapien.net) on Thursday January 27, @02:02PM EST (#73)
(User Info) http://k-swimming.org
I agree and disagree:

Amazon did not invent these valuations, and neither did Microsoft or Yahoo. This same exact speculative bubble has risen around every new medium invented. You name it... from spices to the ol' tulip bulb mania to railroads to cars to telephone to catalougues to radio to TV to one of the most recent: computers.

How many people remember how many computer makers there were in the early 80's?

I remember a few... how about Apple, Atari, Burroughs, Coleco, Columbia Data Systems, Corona Computers, Delta Data Systems, Digital Equipment, Eagle, Franklin, GRiD Systems, Hewlett Packard, Hyperion, IBM, ITT, Kaypro, Mohawk, Data Sciences, NCR, NEC, Olivetti, Osborne, Sanyo, Seequa, Sunrise Systems, Tandy, Televideo Systems, Texas Instruments, Victor Technologies, Xerox and Zenith.

Most of these companies are not in the computer business anymore, and many of them are not in *ANY* business at all. Yet, they were all trading at hundreds of times earnings (if they were earning anything at all) at one time.... Because computers were going to change the world. Sound familiar to anything we are seeing today?

Also keep in mind that some of the most succesful computer makers today had not even come into existance during this hotbed of speculation... Dell and Gateway for instance. First is not always happily ever after.

The internet will change the world. But make no mistake, it is a speculative bubble right now. It will burst. Some will make it, but the vast majority will fail and be replaced by ones yet to come. At some point, stock price *will* equal the actual performance of the company... it always has, it always will. Because after all, you are actually owning a portion of that company with your shares.

Ever read about the 20's? Ever read about the late 60's and early 70's when the so called "Nifty 50" (the majority of them, technology stocks) lead the market to all time highs and were thought unstoppable? Well, in 1972 they were stopped... and they were stopped for the next 10 to 20 years (some have still not recovered).

I choose to invest in companies that have proven they can perform and thrive in tough markets and have great oportunity for growth well into the future. The internet is a fool's market right now, and the majority of the fools will get burned. Just pray that someone is dumber than you when you sell your shares.

*I am the bully who made gradeschool a living hell for you and all your geek friends... and now I've found you!


Salon Technology Dissecting the VA Linux IPO

Conventional wisdom holds that these stocks are bought by small investors who are willing to buy into a good story at any price. According to this theory, the buyers for VA Linux are true believers who think that Linux-based computers will eventually displace the Microsoft monopoly.

In this case, the conventional wisdom seems wrong. In scouring hundreds of messages on investor bulletin boards, I did not find one person who admitted to buying VA Linux at $320. This is significant, because investors who like a stock tend to be vocal about it. Many will happily go on Internet message boards to defend their purchases - in part because the buzz helps keep up the price of their holdings. If individual investors are not out in force defending the companies prospects, you have to figure they're not holding the stock.

There is another possible theory, and that is that the investors who bought VA Linux the moment it opened did so largely by accident. Something like that happened in November 1998 with TheGlobe.com. Naive individual investors put in orders to buy the stock before it opened without specifying a "limit," or top price. The next day some of them were shocked that instead of buying the stock at a little bit over the IPO price, their trades had been executed at $90 a share.

In this case, I don't think that happened, either. After TheGlobe.com went public, many brokerages instituted tighter control to make sure this didn't happen again. Most will now not let investors ask to buy a new issue without putting in a limiting price.

So who was it who bought VA Linux at these astonishing pricing?

There's one theory that has gotten a lot less notice than it should. Earlier this year, TheStreet.com's Cory Johnson reported that investment banks were asking institutional investors who got shares in hot IPOs to buy additional shares after trading opened. In other words, a large mutual fund might get 30,000 shares of a hot stock at the low offering price - but only if fund managers indicated they would buy 60,000 more shares after the stock opened for trading.

"It might not be stated explicitly," says Johnson, "But investment banks will give shares to funds that will buy more shares in the after-market and support the stock."

Why would investment bankers want institutional investors to do this?

Simple. It assures that when trading opens there will be significant demand for the shares. That keeps the price up, gives company insiders a healthy profit, and makes the investment bank that underwrote the offering look good. (It's the investment bank's job to generate investor interest, and there's no better proof of investor interest than a blockbuster first-day opening price.)

Now look at it from the point of view of the mutual fund or other large institutional investor that might have purchased these shares. Let's say Bigshot Internet Fund got 10,000 shares of VA Linux at $30 a share. Then let's say it bought 20,000 shares more at $280 a share. The stock ended the day $239 - let's say $240 to keep the math simple.

Here's the final result. On paper, Bigshot Internet Fund made $210 on each of the shares it got at the offering price. It lost $40 on each share it bought at $280. That's a $2.1 million paper gain, and an $800,000 paper loss -- a total profit of $1.3 million. So it works out well for everyone involved. The company has a great opening day, the investment bankers look good, and Bigshot Internet Fund still makes plenty of money.

The funny thing is that there's a very good chance that Bigshot Internet Fund sold its low priced initial allocation. In other words, Bigshot Internet Fund could be both buying and selling stock in VA Linux.

I can't prove that's what happened. But right now it sounds like a better explanation than the idea that there are tens of thousands of small investors putting lots of money into a stock that has jumped above $200 -- if only because I can't find those naive investors.

I like this theory, also, on epistemological grounds. The market is a lot more sophisticated than it is given credit for being. It is generally a bad idea to assume that investors who buy a stock do so because they are simply silly or inexperienced. Sometimes, of course, that is the case, but more often it turns out that the market behaves quite rationally, and it is only the observers who are naive.



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