Interview: Larry Augustin Finally Answers

Yes, we know this is overdue. We put up the original Ask Larry Augustin post on Jan. 10, and here we are posting Larry's answers on the 27th. The first few weeks after an IPO are hectic for any CEO who is involved in one, and we understand this, but the wait has been as frustrating for the Slashdot staff as for anyone else, and there was nothing we could do about it. Anyway, finally, here are Larry Augustin's answers to your questions.

1) THE question
by Nicolas MONNET

Much like most net-related IPOs, VA's valuation is impressively high. Much higher than bigger and older companies which have proven to be able to actually MAKE money. So let's assume that this valuation actually means something. How do you see VA Linux fulfilling this promise, IOW, what will it be like when it will sell as much as its stock price mean? Will it compete directly with Compaq and the likes on the server market?

Larry:

We're building a serious company here and we plan to grow significantly, and I think our valuation reflects that. I think we are undervalued compared to some of the other companies out there based on the potential of Open Source and our target markets. The market opportunity is huge.

We sell systems based on Open Source software and provide significant amounts of consulting services to companies building major sites on the Internet like eToys, Akamai, DoubleClick, and Starmedia.

As those customers grow, we grow with them. Intel estimates that only 5% of the servers needed to run the Internet by the year 2003 are deployed today. That's a huge market for VA Linux. That's where investors see the big potential.

But you have to understand more about what we offer those customers. On the surface, people think we're a hardware company. We're not - we're an Open Source company. We work directly with those customers to solve their problems using Linux and Open Source. We offer some of the most powerful high-density rackmount servers for the Internet server market as part of that solution. Since you mention Compaq, in at least two instances I know of VA engineers have rescued large installations using Compaq hardware. Although we offer the best hardware for Internet servers and will continue to do that, that's only a fraction of what we do. We have a tremendous amount of expertise in Open Source, and it's really that expertise that we offer to our customers, and you can see some of this in our announcement this week with HP. The systems side of the business really just gives us a solid platform on which to build a known, stable, and supportable solution for our customers.

So the one thing underlying all of our business is our commitment to Open Source. The computer industry is changing; Open Source is emerging as *the* way to develop software in the next decade. The companies that figure out business models that work around Open Source will succeed. At VA we will be the leader in Open Source. I've built a company with a commitment to Open Source at its core. I don't want us as a company to have any incentive to develop proprietary software. I'm building a company that succeeds if Open Source succeeds. That creates a business model where supporting Open Source development (through initiatives like SourceForge.net) are absolutely critical to us. We will be Open Source pure.

2) IPO Question
by jezzball

I know how you choose the people you picked as friends and family (being one of them), but were there any specific HOW-TOS you looked through? Did you weight projects? Is there a place where you've amassed this information for people to look at?

I was quite surprised myself at being picked, as several other people who I felt have contributed more than me weren't.

Larry:

Sometimes going second has its advantages. One of the pieces of feedback we had from the Red Hat program was that people in the developer community wanted to understand how their names were picked.

From the beginning we decided to create a process that was as mechanical as possible in extracting names of contributors Open Source projects in general and Linux specifically. Chris DiBona and Chip Salzenberg assembled a set of custom scripts that scanned for developer names. It's best if I just leave the description of that process to Chris.

Chris:

There is a lot more to this question, so this is a long one...

When it was clear that we were going to go public and we wanted to do a community program, Larry and Todd (Our CFO) asked me to start working on putting together a list of folks to target.

Since I got word pretty early (before the initial S1 filing). I wanted to plan for as much flexibility as possible, as I knew that while I would probably be in charge of administering the program that final say on who we wanted to help would be not just mine, but on the shoulders of Larry and others (like ESR, who is on our Board).

So I first got mirrors of Sunsite, gnome.org, kde.org and many other software repositories. I wrote a perl script to rifle through them and un tar.gz the source code therein. It worked out to about 11 GBs of files. I then ran an e-mail scanning script that Chip Salzenberg cranked out for me against the archives to pull e-mail addresses.

This netted about 17,000 e-mail addresses. Each e-mail address was stored with a reference to all files it existed in.

I then went through the list by hand and got rid of bad addresses. This included things like lug addresses, root@ addresses and corporate info addresses. I also removed known silly addresses (foo@bozo, billg@microsoft.com) and straight errors that got through (1024x768@75mhz and such). This brought the list down to 12,000 e-mail addreseses.

I set these addresses aside and began accumulating contributor lists for various projects including gnome, kde, cpan, debian and others. These when concatenated with the top 1000 addreses from the scanned addresses amounted to about 3500 e-mail addresses. Since our orignal target was to provide 2700 people with an opportunity to participate, we felt 3500 was an appropriate target.

We were wrong. About three days into the program, we realized that our returns were much less than anticipated. At this time I scambled to include more people, I took the next 1000 from the scanned addresses, the beta developers from SourceForge (another 950) and a bunch of people were added anyhow because we simply missed them (about 200 or so) We also realized that due to a glitch in the scanning process a chunk of the kernel credits list was missed and I added those folks and made sure they were notified. For the most part if somone had been in the kernel list, they had already e-mailed me personally and I had already added them.

Our selection process (including Sourceforge) meant that Open Source developers on other platforms were allowed in as well, which was cool by us as we feel open source benefits all platforms.

In the end we got to include about 1500 people from the community, when we realized that we were going to have more shares available in the community pool, we reallocated to allow people to recieve 140 shares. At this time our price had gone up to $30, so we allowed people to take part at the 50 share level if they still wanted to participate and didn't have the money for the full 140 or 100 shares. Someone on Slashdot suggested this, BTW.

Everything went very smoothly, and I'd actually like to thank everyone in the free software community. Why? Well, as many of us now know, the VA IPO was very hot, we had an astonishing number of people calling, e-mailing and visiting asserting that they were a community member, and we took all of them seriously as that's the right thing to do.

The reason I want to thank everyone is that, 99.9% of the time, we were able to tell right off if someone was legit if they were nice. For the most part, everyone we included in the program was nice, and everyone who was trying to get into it fraudulently was a jerk. It made it really easy, so thanks, I appreciate it and the folks at the Underwriters said that the folks in the community program were just about the nicest people they've had to deal with in any designated share program they can remember.

Also, to those who have done things in the free software world and were not given an opportunity to participate, I just want to say thanks for your hard work. We do appreciate it, but we were working with a limited number of shares and we had to stop somewhere, but this doesn't mean that we don't appreciate you or what you've done.

As a last note, we are -very- sorry we had to send such a huge e-mail out to everyone. A megabyte is a really big e-mail to get unexpected. The SEC was very clear on this, we were given the choice to send it out with prospectus and forms in a PDF format or not offer it at all. And since for 90% of the list all we had was e-mail address, this meant spamming a lot of people. In the end, I personally decided to do this, as I felt it would have been a greater error to not include free software developers in our IPO. So in essence I had to decide what was worse, spamming or exploiting the community. I chose to spam rather then exploit. I still feel bad for it, but I do feel it was the appropriate thing to do.

3) Prices
by FascDot

Every time I need to buy a computer (for self or business) I check out VA Linux Systems. But your prices are always $500-$1000 higher than even the Microsof-tax laden goods from someone like Gateway or Dell. Is this all due to volume discounts or is there something else at work?

Larry:

First of all it is not our intention to be the lowest cost source of a box. We're not just selling a box. Typically we're selling a great deal of service and support around the box, and in the end the customer gets a better value as a result.

But if you're just comparing box prices, it also depends on what you are looking for. We do competitive pricing comparisons weekly versus Dell, Gateway, and many others. We work very hard to make sure we are comparing similar configurations. We have some configurations in the server space where we consistently come in lower because we have products that are better suited to the customer. In other cases, we have configurations that are consistently higher. For example, our StartX MP dual processor desktop system has easily a lot more cooling and power than anything else in its space in the market. Frankly, the chassis and power supply are over-engineered for a dual Pentium III desktop. As a result, we look a lot more expensive when comparing products in that space; the quality is apparent until you open the system up and do things like thermal profiles inside the chassis.

Also, I don't think people realize that we do a tremendous amount of engineering on our products. Every disk drive is flashed to a known, qualified firmware level. We regularly work with disk drive manufacturers to fix firmware problems. We need to do a lot of qualification that a Windows supplier has already done for them. For example, we had an incident in November where we attempted to qualify a major name-brand memory supplier under Linux on one of the Intel server motherboards. We expected it to be easy because Intel and the memory manufacturer had already qualified the hardware under NT. Well, Linux is not NT. We could make the memory fail under Linux. In normal operation the error might show up as a system hang once every few weeks. That's unacceptable to us and our customers. We log thousands of hours of testing of every component and configuration before we qualify it under Linux. No one else does that.

4) The next step
by DarkRyder

Now that the IPO period is over, what directions do you see VA Linux moving in? Are there projects that have been placed on the back burner until the IPO could 'make it possible'? If not, have projects been undertaken, or put into the planning stages, that wouldn't have been if the IPO hadn't taken place? Or is this just a calculated business move, with no plans beyond simple, steady growth as a company behind it?

Larry:

As we said in our prospectus, we'll be using the net proceeds from our IPO to fund operating expenses including broadening our professional services division, hiring more R&D personnel, and expanding our sales operation worldwide (starting in Europe). Another important benefit from the IPO is the credibility it's given us as a company. A lot of prospective customers who might not have considered us before the IPO now look at VA Linux Systems as a company they know will be here over the long term. We're publicly accountable now, and we're focused on execution. It's a responsibility all of us take seriously.

5) Plans for other platforms?
by imac.usr

Specifically, the new PowerPC motherboards that some companies are planning to build...is VA planning any systems around these boards, or do you see a market for platforms other than i386 in your company's future?

Larry:

We're always looking.

6) Your view of Linux and the open source movement
by God I hate mornings

I've been watching with keen interest both Linux and the open source movement with great interest for the past few years. Now with anything Linux being the darling of Wall Street, it would seem all one has to do is mention Linux and watch the rush of money.

My question is this: How do you, personally, view your fellow Linux distributors? Do you see them as competition to be toppled? Or do you view them as competitors in a worthwhile cause?

Larry:

We are distribution neutral. I believe there is one Linux. We have pre-installed various distributions over time, and we're committed to supporting standards and customer preferences on this issue. Most of our customers don't really care too much; in internet infrastructure implementations, most people have very specific loads customized to their needs. We help them with that customization as part of our added value, and we pre-install the results. We often start from Red Hat, but based on customer demand we have also started making plans to offer standard Debian and SuSE based loads this year.

I can't remember actually competing with a distribution company for customer business. We typically partner with them. We put our competitive focus on counter- or quasi-Linux companies such as Microsoft, Sun and Dell.

7) Joint marketing effort?
by Floris

Watching all the little companies (and the not-so-little companies) that build and support Linux as an OS, I have been wondering about when we will see Linux commercials on commercial TV?

Some CEOs of Linux-related companies have said that their goal right now is to "grow the Linux market" rather than competition with the other vendors. The main competition would be Microsoft rather than each other.

However, Microsoft has a massive marketing machine at its disposal. The Linux vendors dont have nearly its marketing muscle. Are there any plans for a joint marketing effort to counter that?

Larry:

For practical reasons, we're not planning any TV ads. Most of our sales are to folks that buy based on information from other sources.

8) VA Linux Software Patent Intentions
by Aaron M. Renn

In your S-1, you mention that you have applied for a patent. Here is the relevant paragraph:

"Our systems consist primarily of commodity hardware components in combination with the Linux operating system. While we have developed some proprietary techniques and expertise, most of our activities and systems are not protectable as proprietary intellectual property and may be used by competitors, harming our market share and property, we generally enter into confidentiality or license agreements with our employees, consultants and corporate partners. We have also recently commenced a patent program and to date have filed one patent application. In general, however, we have taken only limited steps to protect our intellectual property. Accordingly, we may be unable to use intellectual property to prevent other companies from competing with us. In addition, we may be unable to prevent third parties from developing techniques that are similar or superior to our technology, or from designing around our copyrights, patents and trade secrets."

I realize you will not want to disclose the details of your pending patent application, but I am interested in knowing whether or not it is a software patent. And, what VA's policy towards software patents is, in general. Will VA apply for software patents? If so, how will they be licensed? Will they be made available on free software terms to free software developers?

Larry:

We have applied for a patent on the techniques we used in the design of our FullOn 2x2 high density rackmount server. We have some unique packaging technology there.

I personally believe the patent process with respect to software is broken. However, it has not been a priority because we have not applied for any software patents.

9) Intel influence behind the scenes?
by RelliK

A while ago VA Linux Systems (then called VA Research) used to offer Alpha systems. But soon after Intel's investment in VA, the Alpha systems disappeared. Last I checked AMD systems were not offered either (and don't tell me there is no demand for either Alpha or AMD). Intel is the *only* choice.

My question is: being a Linux company, will you continue to offer people a choice or will you, like Dell, become a slave to Intel?

Larry:

We dropped Alpha well before the Intel investment because we didn't have the resources to support Alpha and Intel on Linux. However, we're always exploring all of our options.

-------

Comments

Re:No way... Amazon has already won

[Tim Behrendsen]

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.

--

Re:The shareholders will not win

[Tim Behrendsen]

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.

--

No way... Amazon has already won

[Tim Behrendsen]

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.

But the reason they have won is that they won the branding war (which is the only war worth winning). They knew that they had to spend giant dollars to rise above the noise of every clown598.com.

Say what you want about Amazon, but they have succeeded brilliantly in diversifying from books. In five years Amazon will be the Wal-Mart of the web.

--

Re:No way... Amazon has already won

[SEE]

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

no AMD at VA - sigh...

[TheGratefulNet]

of COURSE it is due to intel's influence. intel is known to yank boards and chipsets if there's any sign of allowing choice in competitors boards and chips.

but that as may be, I was never in love with VA in terms of their customer-defined configurations. I tried several times to buy systems from them, but I did need to specify the motherboard I wanted used (I'm a system builder as well but I needed a totally built and warranteed system so that I could expense it at a previous job). they refused to even try to obtain that board (an asus mboard - which is hardly a step down!). and when I wanted to buy just a RAID subsystem (disks + controller + case) they would only sell complete turnkey systems (ie, it had to be a full cpu/ram/video/keyboard/etc system). and like I said, it was years ago before they went "big time" - I can only imagine there's less flexibility now than back then.

so my business always went with local system builders due to VA's inflexibility to work with me as a customer.

on the positive side, my current company does have a few VA systems and I must admit that their cases and fans were well selected. there is so much cooling in that system, that apart from a very expensive supermicro case or server cube, their system is the most ventillated one I've ever seen. but that was before they went all-intel - so I'm not sure what their current systems are like. nor will I spend the time to find out - there are many other system builders out there; ones that are willing to build to my spec.

at any rate, as a loyal linux advocate, I do wish VA well. for many customers, the level of service and customization is just fine for them.

--

Re:Why no AMD

[fastpage]

VA Linux uses mostly Intel products. Intel motherboards, CPUs, and chassises (for their servers). I wouldn't say that is because of Intel influence but Intel offers better channel support for their products then AMD does. You can buy virtually whole solutions from Intel that "work out of the box". That statement is more true for their server products then desktop. Intel also has a fair amount of kick backs for their products. So everytime you sell a cpu/motherboard/chassis/ network card you get a kick back from Intel. Obviously this is factored into the price by Intel. Intel also offers free training to resellers big and small. They have an extensive web site for resellers. AMD is harder to support because you have to use a completely different motherboard. This is not saying AMD sucks or their chipsets suck but its that you have to do x2 work for another CPU. VA Linux only has the man power to test and validate so many products so they streamline them so its easier for them. I know all this for a fact because I use to work for a reseller that does many of the things VA Linux does. VA Linux isn't a hardware company because you can basically buy all of their components that they use off the shelf with a few exceptions I would guess. Check developer.intel.com and then look at the products VA Linux sells. If you buy from VA Linux you're buying into their Linux support/expertise as you might not get from another vendor like Compaq or Dell. I know this probably sounds like a love fest for VA Linux but I don't work for them nor have I ever bought anything from them (nor do I plan to). But its simply how things are.

Re:Put your e-mail address everywhere in your code

[chrisd]

Hi,

I don't know about the other ipos coming down the pike, but with ours those email addresses were scored and hand checked before being added as backfill on the contributor lists.

As far as spam traps went, for those that bounced back with instructions, we followed them, but it was our experience that a small number of people actually missed out. Most people who felt they deserved being included and had super spam traps emailed me and we went from there.

Chris DiBona
--
Grant Chair, Linux Int.
Pres, SVLUG

Prices

[Duke of URL]

I know there was a question about the higher prices of VA boxes compared to other competitors (and I read it too). Sometimes appalingly higher. I'm wondering, is there anyone out there who has bought some VA servers and found that the added "services" touted make up for the price. Is it, or was it worth it to you?

Re:Prices

[technos]

For someone who is looking at a 100% uptime box it does make a difference.. And Augustin is right, they overengineer to death! Powersupplies often double the required wattage, extra case fans, fans on the drive rails, cable routing clips, bigger heatsinks, hi-grade cables, and everything burned way beyond norm. If you can deal with slight interruptions like bad cables, memory error, don't buy VA. But I can honestly say the party that uses that VA is oh so very happy with it..

Open Source mentioned

[asad]

Was it really necessary to say Open Source 15 times in the first two answers ?

DB Alex Brown

[Matts]

DBAB (now BT Alex Brown) were the nicest bunch of people I've ever dealt with over the phone. I honestly expected to be treated like a "newbie" to stock trading - and believe me I am - and asked some awfully naive questions... but they were all answered with patience and respect. I for one am very glad that VA chose Alex Brown, rather than the less fun experience I heard was had in Red Hat's share program.

Now if only my govt didn't want to take 40% back off me :-/

return of the regime . . .

[Anonymous Coward]

I hope you are like me and aren't taking this guy seriously. He, and VA Linux, represent a serious threat to the community. Just look at his name "Augustin". Now, the parallel that instantly comes to mind is that of the month of August. But we need to remember where that name came from. None other than the Emperor Augustus!!! The threat of the Roman Empire has resurfaced!!!

I'm not going to praise Christianity as a countermeasure to the Holy Roman Empire. After all, where is the Vatican, the "holy" capital of Catholosism? ROME FOLKS!!! It's not an alternative, it's a PART OF THE PROBLEM!!!!

This of course is not without precident. The Romans, as you know, practiced a rather stylized form of paganism. But even THAT wasn't theirs. They stole it from the Greeks, and just changed the names!!! A PR manouver copied time and time again.

The world has changed alot in the past 2000 years, but it is no less ruled by religion than it was. Only now it's not paganism or christianity that rule all business dealings and politics. It is of course scientology. The Roman threat does not represent an END to scientology mind you, it represents the ASSIMILATION of the religion we all love and hold dear!!! You will no longer be Ready to Receive the Knowledge after arduous training, all you'll have to do is PAY OFF THE RIGHT MAFIOSO. It happened to Medeterranian Pagans, it happened to the Catholics and it can happen to us too!!!

I'm not surprised that the next rise of the empire would take place from a linux company. After all, linux is driven by WORLD DOMINATION. Something wrong with this picture folks?!?!?! Look at this smarmy neo-roman; he doesn't even ANSWER SLASHDOT INTERVIEW questions in a timely fashion!!!

We must unite and assure the Church of Scientology does not not bow to Mr. Augustin and VA (Vatican Assassin) Linux. BOYCOTT VA!!! BOYCOTT THIS ARTICLE!!!! BOYCOTT THE WEST COAST OF THE UNITED STATES!!!! THEY'RE ALL PART OF HIS PLAN!!!!!

Why no AMD

[cgadd]

I notice the AMD part of the last question was completely ignored.

I can understand the difficulty of supporting both x86 and Alpha, but support for the AMD (being x86) is much simpler.

The lack of AMD support would seem to be purely due to intel's influence.

Stock price should also be discounted for risk...

[Guppy]

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.

The stock price should also be discounted based on the uncertainty concerning the "expected price of the stock when you sell it". In the case of Amazon and similar stocks, this uncertainty is substantial. Add to this the fact that Amazon has no dividend (No +1 on your die roll), so that the current valuation is now based entirely on future expectations. The question is -- are these high-flyers sufficiently discounted to make the risk worthwhile?

service, schmervice... we just want the box.

[ryan_nelson]

Larry wrote:
"But you have to understand more about what we offer those customers. On the surface, people think we're a hardware company. We're not - we're an Open Source company. We work directly with those customers to solve their problems using Linux and Open Source."

...that's just not true, at least not in the case of the *entire* list of companies he mentioned.

Specifically, at StarMedia, where i'm chief systems guy, we've got hundreds of VA's boxes racked up around the world... we *love* the hardware, and love VA's ability to get us another truck full of servers delivered really quickly...

...but we don't run linux on *any* of them. Like several other companies who've been challenged to scale *way* up, we run FreeBSD. On VA "linux" boxes.

i (and other members of my team) kind of resent outside companies talking about how we need their consulting help... it *is* kind of fun to get a "sorry, we don't support that" response from such an "Open Source" company... :)

...we're not so resentful that we'd stop buying servers from VA (did you get that last order, Larry?), we just want to make sure people know there's devil stickers on top of the penguins in our cage.

You can thank the SEC

[RebornData]

I'm with a company that IPO'd last year, and the restrictions on what a public company can say are tremendous. Basically, they can't share substantive information with any specific group- they have to share it with everybody in the world at once. So, it's basically impossible for him to say something straightforward and specific about any future plans, until they're ready for "the announcement". It would be impossible for him to give a straightforward answer on AMD- clearly, VA supporting AMD would be a BIG DEAL, and he couldn't say anything about it one way or the other until it's official.

I guarantee that post was checked by a lawyer before it was posted here.

I beg to differ.

[FallLine]

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....

Listen Up

[Rabbins]

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.

Re:Listen Up

[Rabbins]

Ahhh... but you only go on to further prove my point with the nifty fifty. Yes, non-tech companies such as Philip Morris, Coca Cola, Pepesico, Pfizer and General Electric were all in that group, BUT they (being non-tech companies) were the ones that fared best over the next decade.

The ones that fared worst were the tech (and they were high-tech for the 70's too) companies, such as Burrough Comp., Polaroid, Digital Equipment, Eastman Kodak and Xerox.... these were the companies that were selling at the highest valuations (their futures were though to be the grandest). They got creamed the worst.

As for a portfolio of all the computer stocks listed above? I have figured it out. Sure Compaq and Apple did extraordinary. But the combined average annual return for that entire portfolio comes to a fraction over 2% per year. Hmmm... that is not so impressive.

The point is that you stay out of such a speculative market.

consult what?!

[firestarter666]

Larry, I do not appreciate your false statements that VA Linux provides consulting services to StarMedia.

As Ryan Nelson, my most senior sysadmin, points out, we do love your hardware immensely, as it suits our purposes well. However, the fact of the matter is that we use FreeBSD, not Linux, which is not where VA's business is focused. As such, we have really not had much involvement with VA outside of ordering hardware, as your team does NOT have the FreeBSD expertise that we require.

In fact, perhaps the only consulting that has taken place was with MY team consulting YOUR team on alternate hardware components to replace those pieces of the host which have no supported drivers under FreeBSD, thus enabling us to continue to use your hardware to meet our needs. Yes, we were offered additional help in developing a FreeBSD driver for the unsupported hardware, for a serious premium.

If you were truly committed to Open Source, you would offer to develop drivers for other popular free Intel-based Unices without any type of monetary demands. This would, in the end, help you as well, as members of other communities outside the Linux community would turn to you for their hardware needs, thus driving your business further among competitors.

Don't get me wrong, I love Linux, and in fact use it at work and at home for my desktops. However, it should be noted that for large-scale operations, Linux does not always meet the requirements, and I would think you'd like to corner the market on these large-scale operations as much as possible.

Sincerely,
Adam Firester

What?!?

[um... 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.

Re:What?!?

[Anonymous Coward]

"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.. "

Let's take a look at comparing IBM or a large Computer manufacturer versus VALinux.

VALinux has mindshare with their IPO. They have capital to expand, and they have 50-100 really good open source programmers.

The largest part of the trilion plus technology windfall coming down the pipe will be in services. Larry says that 95% of the servers for 2003 aren't purchased yet and he therefore has a lot of room to grow.

Since Linux is OpenSource(repeat 30 times for effect) the competitive advantage of using that operating system with your competitors is almost null. So you must succeed in hardware and services.

Let's start with hardware. Dell has an outrageous evaluation because they have a direct model and a negative growth cost rate. That is almost every other company except Microsoft must spend more money to make more money. Not Dell. They get your money for the computer and they get the parts just in time so they don't have to pay the parts suppliers for another couple weeks. That's why they can grow so fast. IBM has gotten out of the PC in stores game to adopt the direct model after losing 1 billion in 1998. Wal-mart sells 70% of their product before they have to pay for it. They plan to sell 100% of their product before they have to pay for it by 2003. In low margin/low product differentiation businesses the supply chain is everything.

Can a bunch of Open Source people do that? Maybe, but it certainly is a different skill than writing code.

Let's look at their services business. A quick look at their site reveals they have some very impressive talent. It is quite possible that this is the best group of people to tweak and fix your Linux related server. That is as far as those 100 people can be stretched. After that the talent gets dilluted and they too are better off turning to the community at large to solve their problems rather than doing it in house. After all the Linux community won the best support award a few years ago(not just the people working for VALinux).

Let's compare VALinux to a company like IBM and look at some of the advantages each has. VALinux has better Linux talent and is small and nimble with huge amounts of capitalization. IBM produces a lot of OEM parts that are used by companies like ACER, DELL, and IBM to name a few. So they can tweak the hardware and the software for Linux before they release their products. IBM is manufacturing the new transmetta chip which is relying on mobile Linux. This will give them an advantage. IBM is also porting all four of their server platforms to Linux. It won't take too many years before the thousands of IBMers who will be selling, marketing, manufacturing, and programming Linux will be a serious challenge to VALinux.

Likewise VALinux threatens some of IBM's most profitable hardware with their scalable servers and clustering technology.

I can't predict the stock market. I don't remember the oil crash in the 70's but I know people in my family who lost their retirement. I do remember the wild real estate evaluations in the late 80's that didn't crash until the first couple of year in the 90's.

If that were to happen and VALinux didn't have as efficient a process as IBM or Dell they would hurt very badly very quickly. With respect to services it is going to be interesting seeing the new employees join to get options worth negative hundreds of thousands while their colleagues vest and can afford to just do open source for fun.

It should be interesting.

Cheers,
Amazon

Re:What?!?

[Rombuu]

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?

Limitations

[sallgeud]

I can't imagine why a company would want to limit itself to Linux. This is not to say that Linux is a bad OS...

Limiting yourself to one OS seems almost hyppocritical. Throughout history OSes have fallen, others have rise, and still some linger in the background. By limiting yourselves to only one OS, you're doing the exact same thing you hated the big boys for doing... (only carrying microsoft). I love the idea of providing a higher level of support, and think that it will be the one clear advantage that VA Linux will have... but this advantage is no good without some sort of flexibility. For all we know, what is OS X today could become the next major OS, running on all types of machines, while OpenBSD may be preferred by customers looking for the highest level of security and cryptography.

Naming a company VA Linux is like Dell calling themselves Dell Windows... it's silly and limits your scope of sales.

oh fuckin' well, just my $.04

Put your e-mail address everywhere in your code!

[Raphael]

After reading the paragraphs in which Chris DiBona explains how the developers were selected for the IPO, I conclude that the list of people was based on the number of times each e-mail address appeared in the 11 GB of source code he had selected. Or more probably, on the number of files in which the addresses appeared (it would be too easy to cheat by inserting your e-mail address a thousand times in the same file).

I understand that it is not easy to find an objective way to select the developers who contributed the most to the Open Source community. It is especially difficult to have a process that could be automated as much as possible. And it is extremely difficult to be fair.

But still... Now I realize that modesty does not pay when you write your code. Instead of inserting your e-mail address only once at the top of the AUTHORS file (and in the ChangeLog) but not in any source file, it seems to be better to include your e-mail address in every source file that you touch. Sigh!

And of course, don't use spam-traps if you want to get the opportunity to participate in some IPO. Sigh!

Hmmm... As far as I am concerned, I think that I will stick to the old habit of being credited only once or twice, not in every source file.

Worth the wait.

[Shoeboy]

This was beautiful, and totally worth waiting for. If Larry had rushed things, we might have gotten short, coherent answers. Fortunately the man is a perfectionist, and we got a total dodge of the AMD question, a lot of vaugeness and 135 repetitions of the phrase 'open source'.
Great.
--Shoeboy

How Not to Drop Names

[Sebbo]

We sell systems based on Open Source software and provide significant amounts of consulting services to companies building major sites on the Internet like eToys, Akamai, DoubleClick, and Starmedia.

If you're trying to endear yourself to Slashdot readers, perhaps you shouldn't emphasize your ties to eToys and DoubleClick this month. Eh, Larry?

desktop market

[Signal 11]

I'm alittle suprised VA doesn't want to play in the desktop market. It's obvious many slashdotters here regularily scan VA's offerings but are consistently priced higher than other companies. Per unit sales may be more on the server market, but for sheer volume desktops blow them away. I'd say if you want a larger net value, go with the desktops.

As you said yourself, Chris, there's tremendous market opportunity here. Why limit yourself to servers? Perhaps an indication linux is still not ready for the desktop... only time will tell, however...

The extras are nice

[mosch]

I've spec'd quite a few VA boxes in random consulting jobs and have always had spectacular performance and reliability with them, but the one anecdotal reference regarding service that I'll give is this.

We hooked up the box to use as a little firewall, and it wouldn't work. When I mentioned 'never mind, it's probably something flaky with our router, thank you for your help' they asked what kind of router it was, and offered to get somebody with Cisco knowledge to help. And this was for free. This was the first machine I ever bought from them, and was the incident that sold me on them for life. (the issue turned out to be a bad cable. DOH! that part of the incident convinced me to buy a good cable test kit)