The Downward Spiral Of Linuxcare?

starvo pointed us to a ZD Net story about the recent trouble at LinuxCare. It's got a fair amount of details about all the problems that led to both the CEO & CIO jumping. Linuxcare has been pretty mysterious about the whole thing, so it's nice to finally get some meat to chew on... the article is relatively fair.

Comments

Re:Open Source Based Company's Should Fail Unless

[tytso]

I have been thinking about the current marketing paradigm amongst OSS companies which is making software a commodity and then charging for support. The more I think about it, the more uncomfortable I feel. According to Open Source main proponent, ESR, Open Source is a superior engineering model than Closed Source and hence Open Source Software should be more reliable and stable than most Closed Source Software. This means that Open Source Software should need less support than Closed Source software.

Less support != no support. Going back to the oft-used "would you buy a car with the hood welded-shut?" analogy, of course a dealer who has monopoly control over servicing a car will make more money than a garage mechanic when anyone who is able to is allowed to service cars. And indeed, people who do know how to service their own cars can do so. But that doesn't mean that you can't make a living being a car mechanic. It just means that you won't be able to become the worlds richest man like Bill Gates using that kind of strategy.

The reality is that most people still need to purchase support for their products. Whether that support is paid for honestly via a yearly contract, or via forced upgrades to the latest version of MS-Office due to incompatible file-formats, you're still paying support/maintenance fees for your software, one way or another. And for those people who can't fix their computer problems on their own, or who could fix it, but don't have the time to do it themselves, there'll always be room for support plays.

Don't forget, companies like IBM make far more money off their professional service department than they do off of selling hardware or software. This doesn't change whether you're using Linux or some propietary software. What does change is the quality of the software, the quality of the support, and the fact that it's easier to support OSS. However, "easier to support" still doesn't mean that any random liberal-arts student is going to be able to support the software. That's why garage mechanics aren't going out of business, even though anyone could (in theory) learn how to fix their own cars.

Was Lack of Focus an Issue?

[theonetruekeebler]

The article provided good insight into the consequences of internal infighting among suits, the discord caused when management pretends its job is to rule its employees rather than facilitate their work as revenue generators, and the damage that can be done when a company spends money it doesn't have and may never get.

And right now the V.C.s are getting cold feet. It could be a bad time for LinuxCare to get a boost from outside. On the other hand, they've been around for a couple of years--hardly a random startup.

My subject question about lack of focus has to do with the increasing market visibility of particular brands of Linux versus that of generic Linux. I think that potential buyers now think of things not in terms of Linux--Linux itself is a given--but in terms of Red Hat vs. Caldera vs. SuSE vs. Turbo vs. Debian blah blee blah bloe. Saying you support Linux anymore is like saying you repair cars, when what cautious car owners want is to go to their manufacturer or dealership and get their service done there. Car is the commodity; Lincoln is the brand.

I don't know much about who LinuxCare sells its services to; would it be possible for LinuxCare to improve its revenue stream by becoming a support subcontractor to the companies who have the brand names and market presence? Say they started handling Red Hat's support calls. Red Hat is a known and trusted name at far as Linux goes; companies seeking support for their Red Hat systems would probably want to get support from Red Hat than a third party. Even if they knew the support call was transparently being re-routed somewhere else, there is a certain sense of security when the phone is answered "Red Hat Support Services, can I help you?"

Both companies could win big on an arrangement like this: LinuxCare could handle 99% of all calls themselves, and only bring Red Hat into the situation when things have gotten really obscure.

--

Let me count the ways

[gelfling]

Hmmmm... let's see:
1 A new CEO w/23 years exp in a successful but slow moving hidebound bureaucratic company
2 Lots of pressure to go public before the VC cash runs out
3 An untested business model
4 Few if any internal process or business controls
5 A new CIO 3000 miles from the home office developing a business critical function on his own
6 Building a tech support/CRM application from scratch where many components probably already exist. And oh yeah - no real customers to verify any of the basic assumptions or development requirements

Do I have this right? Is there any reason to suppose that success would have been possible? Nope.

Re:Geeks vs. Suits

[zorgon]

Yes, that wasn't covered well in the article was it?

I think VCs == suits by definition, and Kleiner Perkins is one of the big VC firms, yes?

Worth starting a thread on the topic of what makes a good suit in a geek world -- not all VC firms are this control-oriented. Cheers

This article is so wrong

[k8to]

Look guys, The CEO was a bad choice. The LXCare people knew this way early, but it's not an easy thing to fire a CEO. The CIO was brough in by him and was a fool. The both bled capital like crazy, the one in rediculous expenses, the other in the stupid "Sorcerer" project which was more or less irrelevant to their main business model.

What we've seen recently is two things

1. The booting of the incompetent, irrelevant, moneywasters
2. The trimming down of the staff to fit a company not planning on making all their money off an IPO.

Yes, LinuxCare doesn't have guaranteed success right now, but neither does Red Hat, Caldera, etc. Most Linux companies are in growth/bleed mode., which is always tricky.

I believe that if LinuxCare can focus on providing a high quality core product, and that is support, they will do fine.

I'm glad somebody said it

[FascDot Killed My Pr]

"...nebulous 'knowledge center'..."

And that's putting it kindly. I saw references (I don't remember where) to Linuxcare's vast storehouse of Linux-related problem resolutions and so I used it a couple of times. Total crap. I would guess that less than 10% of the top 5 items returned were on target. And that 10% seemed to be cut 'n' pasted from Usenet postings and mailing lists.

An LC employee is quoted as calling the "knowledge center" a "simple search engine", but even that is giving the tool I used more credit than it deserves.
--
Have Exchange users? Want to run Linux? Can't afford OpenMail?

Any time there..

[tcd004]

are opportunites to exploit a new economy, there are companies who jump in prematurely. I wouldn't be suprised if they go the way of the do-do. Just consider how many PC startups came and went in the 80's.

tcd004

Here is my Microsoft parody , where's yours?

A fiasco!

[jd]

Frankly, I am horrified by the way LinuxCare's management went about things. Planning? What's that? We're on a Get Rich Quick scheme! *SIGH*

The only way to get rich, quickly or otherwise, is to put in the leg-work necessary. A fancy name, a few scraps of vaporware and egos that could fill a Black Hole aren't enough to do anything but look stupid.

IMHO, 9 out of every 10 Slashdotters could have done better, with a tenth of the funding, on their own, over a weekend!

If LinuxCare want to have a management team that could get the respect of employees and the markets, they should print out the Linux kernel CREDITS file and find the top 10% (karma-wise) posters on Slashdot. These are the people who understand what is involved, who have the skills to comprehend what is possible, and who could guide LinuxCare in that direction.

(Most people who'd qualify, though, would probably turn their noses up. Anyone that smart would be, by definition, too smart to walk -onto- a sinking ship. If not, anyone want a job bailing water for the Titanic?)

Geeks vs. Suits

[zorgon]

I'm surprised nobody has commented on what appears to be the central theme of the article -- the whole geeks vs. suits dialectic is held responsible for the company's problems. According to the article: Rather than focusing on the technology, the high-powered excecutives brought in to make the company profitable in the competetive business community concentrated on personal perks (cell phones, parking spaces), and making money on the stock market. Would have done better if they'd left the geeks in charge for a while longer. IMHO Linuxcare need a Jobsian (Jobsesque? Gasseeoid?) suitgeek who at least has a love for the technology and a knack for the sales pitch. Remember what happened to Apple when the suits squeezed out the geeks from the top levels (okay flame me now, I'm gritting my teeth) -- same story here?

Open Source Based Company's Should Fail Unless

[Carnage4Life]

I have been thinking about the current marketing paradigm amongst OSS companies which is making software a commodity and then charging for support. The more I think about it, the more uncomfortable I feel. According to Open Source main proponent, ESR, Open Source is a superior engineering model than Closed Source and hence Open Source Software should be more reliable and stable than most Closed Source Software. This means that Open Source Software should need less support than Closed Source software. The upshot of this is that Open Source companies will never be as attractive to investors as closed source companies because closed source companies will always have larger profit margins, for instance, MSFT charges exorbitantly for it's software as well as for support (which is necessary with MSFT shitty software) while Red Hat charges only for support (which isn't necessary with a clueful admin or if one just reads USENET). Obviously even if they were the same size and sold the same amount of software MSFT would make more money and hence be more attractive to investors than RHAT which would eventually MSFT would grow larger than Red Hat. IMHO the recent downturn in Linux stocks seems to be based on this kind of reasoning especially since Linux stocks really became hot when it seemed like MSFT was not going to avoid being found guilty by the DOJ.

For the above reasons I have very little faith in any Linux company or other OSS pure-play ever becoming a very dominant company or even surviving for very long. The MSFT Halloween documents got it right when they regarded the commoditization of software as a death knell. VA Linux has found this out the hard way, what it sells is a commodity (a free OS and PC hardware) and now that other PC makers (who have more money, better distribution channels, more marketers, etc) now sell Linux boxes it turns out that VA Linux can't sell more boxes than anyone except Fujitsu Siemens. Now back to OSS companies before I drift way offtopic, companies that sell commodity software aimed at a market of experts then expect to sell support need to have a large source of income in the first place to create a large, well developed support network. Unfortunately, since their only source of revenue is from support but yet has to pay for both development costs and support the chances of such infrastructure being put in place is slim.

To make money from Open Source and become a successful company, a business needs to rely on more sources of income than support for software that is better engineered than its counterparts. Multiple revenue streams are required or else it is all for naught.

Re:Show me the money.....

[streetlawyer]

As the proud owner of a Masters' in Business Administration, I feel able to tell you that you are wrong. Whatever stock prices may or may not reflect, and whatever the shortcomings of LinuxOne's management (a plagiarised SEC filing certainly suggests they may be manifold), the point made in your italicised sentence is by no means completely irrational. Given that LinuxOne is cash negative (has a positive burn rate), it depends (depended) for its survival as a company on the ability to refinance at regular intervals. This constant, repeated cash drain made it what has been called (by, eg, Hyman Minsky) a "Ponzi" project (one which cannot meet its interest bill without refinancing).

Because LinuxCare was a Ponzi scheme, it needed constant access to new investors, in order to pay its bills. Therefore, the "stock-market instability" (ie, the unaccountable refusal of investors to throw good money after bad in this case, despite their willingness to do just that in the case of Red Hat et al) was indeed, a major factor in their downfall.

That's what happens when geeks run a company -- they forget about little technicalities like paying the bills in their insane quest for free "open source" solutions. LinuxOne suffered, pure and simple, from a surfeit of Quake-players and a dearth of those annoying, but often useful individuals, who you call "suits". Even though we favour smartly pressed Gap khakis these days.

--montoya

they do know their stuff, though

[matticus]

when i was talking to the LinuxCare guys at comdex, i was wearing a shirt with binary ASCII characters on the front, and the LinuxCare guys decoded it on the spot. they knew every question i asked them. i was fairly impressed-i would hate to see this kind of talent go down the drain.