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Red Hat Closes SF, Office, Lays Off Staff
pmccallick writes: "Wired is reporting that Red Hat just closed its SF office. The article goes beyond stating the facts to suggest that RH's business model is flawed." To be fair, the article also quotes an analyst who points out that Red Hat "has $320 million in cash on hand, that it consistently meets quarterly revenue expectations, and that its gross margins are improving."
It seems to me that the word was loud and clear at the time of their IPO. "We don't want another Microsoft!" Didn't this ring in the ears of everyone with a spare 10$M under their pillow as not overtaking?
Too much ego power. *tsk-tsk*
Yeah, but if you look at this graph, you see that they went from $30 to $6 in less than a year and a half. That's a lot smaller drop. The skyrocketing value a month or so after IPO was insane, and probably due more to speculation (gambling), rather than any correlation between stock price and reality.
Don't forget that Friday is Hawaiian shirt day.
When Red Hat opened that office, RH had not made some of the acquisitions it has now. That's what these layoff are about: aquisitions have created some redundancies. They have (at least) two other offices in CA, how many offices do you feel they should have in a single state??
Yes, their stock was seriously overvalued during what turned into a .com-IPO-blitz. Fortunately, they're one of the few ".com"s (I hesitate to call them that because of this) that had a (semi-)solid business model and product. Yes, its untested - but its still solid. They're making money and growing slowly, even if they aren't growing to match that initial stock price.
-RickHunter
In Santa Cruz, California I was paying $1275 a month to rent a two bedroom half of a duplex. In St. John's, I rented a three bedroom two-story house for $500, and in Maine I'll be owning a four-bedroom home for a house payment of $799 - with an oversized two-car garage.
Michael D. Crawford
GoingWare Inc
-- Could you use my software consulting serv
The idea is consultancy. RedHat, being one of the biggest developers of Linux, is probably one of the best places to go to get developers for a Linux system. For example, anyone who buys Oracle Applications is free to modify the system themselves, yet Oracle has a huge business contracting out consultants for $500/hour to do modifications. The reason? Oracle built it, and they know best how to modify it. RedHat recently got a $1 million dollar contract to port the GCC/binutils/etc to a new platform. Why did they get the contract? Because they are _the_ people to go to. Its not about buying licenses, its about expanding technology, and noone can do it better than the ones who made it. I'm not saying that RedHat is the only one making Linux technology, but the more development time a company puts in, the better position they are in to say that they can handle extensions.
Engineering and the Ultimate
Michael D. Crawford
GoingWare Inc
-- Could you use my software consulting serv
So something, once designated 'critical' will be critical for eternity? When I decide to drive to the store, my car is 'critical' to my 'plan.' Then, I notice the time, and the store is closed. My car is no longer 'critical' to my plans, because the plans have changed. Oh, look, a grocery store has opened in the bottom floor of my apartment building. Now I can sell off my car. Doesn't mean my finances are down the toilet. :-)
A poor analogy, but an analogy none the less.
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They're operating, they're releasing products, despite taking a beating on Wall Street and not making a penny of profit. Since I don't have their financials on hand, and no analysts inside or outside of Red Hat seem to be freaking out yet, I think these type of the-sky-is-falling are mostly from reactionaries, or people who wish to see Red Hat fail.
Note that it can take several years for a company to make a profit after starting up, private or public. Hell, Red Hat might still fail in the end - but you can't fault them for making the attempt to succeed, and the company shows no signs of closing its doors.
They're not dead yet, not by a long shot.
Someday, you're going to die. Get over it.
just what IS redhat's business model? who are they selling to? i used to work in a computer store and it was only the people that had a vague idea about computers but were trying to pose as expert users that considered commercially packaged linux.
who are they marketing to, exactly?
1) The cost of running an office is fairly significant - especially in a costly city such as SF. With the other two CA offices, I can see why they might chose to close it. Sucks for those staffers who want to live in SF though.
2) The comments on RH management are from a former RH executive. Salt. Pinch.
3) The web strategy has been constantly "evolving". Can you say Yahoo! ? From search engine to portal to AOL-wannabe.
4) They're meeting their forecasts - generally a sign of management that understands what they're doing.
/. fails to mention that OSDN (formerly andover.net) laid off 20% of it's staff a month or two ago. And they say they don't pander to VA.
IMO, Redhat is a good $500M operation. They have lots of cash, are doing well with expectations, and are slimming down operations in the post-dotcom-internet-irrationalstockblitz era.
Investors tend to hate on redhat now because they paid an irrational amount of money for the stock. However, the stock was good but just far to expensive. It is like paying $1000 for a sack of idaho potatoes. They will be great mashed with some roast garlic...Mmmmm. They were not worth the $1000, but they were worth a buck or two.
The IPO was raised and raised and raised because everyone wanted redhat, and it went through the roof, and it was always an interesting model worth some attention, but a 25B market cap was insane! That is close to GM right now! I think redhat can sell to a small audience, but it won't ever be a 25B dollar operation.
Target price: $3, and then it gets an ACCUMULATE rating.
We have seen this scenario before.
One of the things that IS similar to your average dotcom that once attracted investors is their cash reserve. Their most recent burn rate is apparently $1.9 million per quarter. At that rate, their reserves will last perhaps 20 years. If their management is to blame, as opposed to a faulty business model, look for them to start bailing out. Quickly. The downturn in the U.S. economy couldn't have come at a worse time for Red Hat. I wouldn't go near these guys with a 10-foot pole.
Actually they opened up their finacials to the press in June 1999. Just do a search on google about it.
"My head hurts, My feet stink, and I dont love Jesus." -Jimmy Buffett
No, they are not. They are a distributer who repackage other peoples applications. Almost all of the stuff they sell was written by others. They build, configure, integrate and package it. This is primarily what a distributor does.
The old paradigm of selling software *products* is dead.
On what do you base this claim ?
Now (as always) service is all that's left after the industry gets crowded and the margins decrease to nothing.
On the contrary, if you can create a software product that is valuable to your customers, there's no reason why the margins should decrease.
The only weakness RedHat has is having to wait until business gets enough brains to realize that the 25% it spends on software product is always followed by another 75% of support.
If it is indeed support that is more expensive, then that would seem to be more reason why the product is worth spending on (for example, if you spend 40% more on the product, and save 30% on support, you are making money.)
This means cash flow for sure even though the margins won't ever touch Microsoft's. But someday, this model eventually takes over, and then nobody's will.
Socialism is good for socialist economies.
This is not entirely true. Redhat primarily repackage and integrate. They do not develop an enormous amount of software (there is not one major software project that has been initiated and completed at Redhat).
For example, anyone who buys Oracle Applications is free to modify the system themselves, yet Oracle has a huge business contracting out consultants for $500/hour to do modifications. The reason? Oracle built it,
But Redhat didn't "build" Linux (well, they compiled it, but they didn't write it).
So why waste resources on development, and distribution packaging ? Why not just sell support ? would it not be more profitable ? THat's the problem with the "write-free-software-and-sell-support" "business" model. You're running two operations, one profitable (selling support) and one unprofitable (writing free software). So why maintain the unprofitable operation ? For example, why is it in Redhat's interests to allow their distribution to be downloaded for free, and why is it in their interests to fund software development >
Just what is Redhat's business model? Long term, how are you ever going to build a business as successful as people were predicting Redhat was going to be, selling something that is free?
Sure, they can sell some CDs and some training, that's could amount to a pretty successful business, but not a software empire like Microsoft or anything of that magnitude. This is the reason that RH's share price is tanking hard.
I personally think Redhat is a good thing to have around because they employr programmers that work on things I use, but as a business they reek.
All of which are true. But until RHAT starts making money, it's still not necessarily a good investment.
It's a better buy at $6.50 than at $150. But that doesn't make it a good buy.
With $42M in revenue, you're still paying about 25 years' worth of revenue for every dollar's worth of stock you buy.
The comparables for the rest of the sector are 12 years, and for the rest of the market, two years.
Just 'cuz a stock is inexpensive doesn't mean it's cheap. Don't confuse your feel for the future of the technology (Linux) with the future of the stock price (RHAT). The market's littered with the corpses of people who've made that mistake.
The stock market's about making money, not about boosting technology. It's neither good nor bad - it just is.
Support is expensive and time consuming. Outsourcing makes sense.
Anyone can sell tech support, sell me something I can't get anywhere else. How about web based applications like McAfee is offering their customers now? Or better software bundles on you distrib CD's? (I saw some Linux shipping with ViaVoice just a few days ago for $60, same price as ViaVoice without an OS is).
Burn Hollywood Burn
They still have an office in Oakland (and another in Sunnyvale). The San Francisco office is related to the acquisition of a Web development company (Atomic Vision) there. Maybe they decided they didn't need to be on both sides of the bay?
Stupid job ads, weird spam, occasional insight at
say so (and they won `best server solution' earlier this year from
some linux conference or another). What they don't do is try to make
support their core revenue stream, and they try to follow organic
growth (ie. build on your profits) rather than the IPO lottery.
Today that's looking like a smart strategy, though I think Red
Hat's troubles are overstated (one learns as little about the
fundamentals of a business from share prices in the middle of a run on
tech stocks as one does from them in the middle of an IPO gold rush).
"Red Hat laid off personnel doing duplicate work, said spokeswoman Melissa London. "Nine acquisitions in the past year created a lot of redundancies," she said."
Regardless of the financial health of RedHat, that's a perfectly valid statement. They did a lot of buying, and now they're streamlining. This bunch of closures and layoffs isn't spelling the end of anything.
"People who do stupid things with hazardous materials often die." -- Jim Davidson on alt.folklore.urban
Sun Microsystems today announced their intention to lay off a third of their Marketting staff in their Solor Robotic Lab which employess three people.
Someone you trust is one of us.
What the hell? Why is this newsworthy? Nine or ten people is not the end of the world!
Some of you are missing the point....
Redhat only lost 1.8 million, on close to 20 million in revenue. They are close to profitablity! They are proving the model.... sure they're not going to over take microsoft any time soon, but they are not going away. So what if they closed a office of 25 people... The story just had quotes from a bunch of laid off, disgruntled employee's....
-Tripp
Yes, Suse makes money, but their business model is very different from Red Hat's.
I hesitate to say whether all Suse code qualifies as Free Software or open Source, because I'm not sure. I think their installer isn't, and I'm not sure about YAST (their configuration tool). I know for sure that all Red Hat code _is_ GPL.
Anyway, I don't want to start a distro-war here, but I'm merely saying Suse doesn't have the same business model as Red Hat.
--
The imp hits!
Being an ex-employee of Red Hat (Europe), I've
experienced that Red Hat is a much better ex-employer than "current-employer":
the article is right when it says that they can't follow a strategy: their marketing strategy in Europe was very unclear and constantly changing. Result: SuSE is still very much the market leader in Germary (~80% of market share), and Mandrake which hardly existed 2 years ago, has more than 50% of market share in France.
Working at Red Hat was not a good experience for me (although you like to see plans changed on a weekly basis, but I don't)
On the other hand, Red Hat is a GREAT ex-employer.
Just add "Worked for Red Hat for X years" at the top of your resume, and post it on Internet.
I had up to 5 offers a day, and finally was offered a job that paid 50% more that Red Hat...
(and RHAT stock-options won't be worth anything before quite a while. Hopefully I'm not one of
the employees that used the offered 15% discount to buy stock at $150... that are now only worth $6.)
Can you imagine this scenerio:
Obviously this would not be a very good idea. Rural Montana doesn't have the connectivity and workforce that is necessary for a_____________
I don't want free as in beer. I just want free beer.
Andrew Tannenbaum allegedly said, "Never underestimate the bandwidth of a stationwagon loaded with tapes." The point is that the bandwidth you can get online can't rival the bandwidth you can get via physical media for large volumes of data. My installs from CD take around 20-25 minutes typically. And that it predictable. Downloading is more variable. If I had a CD burner, I would probably burn my own, but I don't.
The net will not be what we demand, but what we make it. Build it well.
Simple, Redhat expects to lose money every quarter. When they add up their earnings/costs at te end of each quarter, they find that they did, in fact, lose money. Therefore, Redhat has met their quarterly expectations.
-atrowe: Card-carrying Mensa member. I have no toleranse for stupidity.
The day that businesses, big and small, are judged by the quality of their work, rather than the $/acre of their site will be the day that economic Russian Roulette and ecological suicide are placed in the museum alongside Roman ruins, Egyptian mummies and other relics of failed experiments in society.
It's a small world and it smells funny; I'd buy another if it wasn't for the money; Take back what I paid (SoM)
They didn't just compile it. The have internal versions of just about every package they ship. They keep track of patches for every package. If you look at the source RPMS, you will notice that there are several patches in there - certain ones are from the devel mailing lists, certain ones are from RH themselves. This is an _enormous_ job. They patch everything from the kernel to the C library, to the compiler, to X, to GNOME - EVERYTHING. So, its more than just packaging. They have to know how the whole thing works - every linker flag that could bite you in the butt, every bug for every package, all that stuff. And that makes them _very_ valuable.
Engineering and the Ultimate
Many businesses either over-expand or have to re-strategize their spending. Unfortunatly, investors and the like tend to react and think that the company is going down when it does something like this. I think RH is stepping up to the plate by aggressively consilidating their resources. This is not a bad thing IMHO.
:).
On another note, I'm sure many of the employees that where part of the "review" in SF where quoting Office Space frequently
There is no longer anything that can be done with computers that is nontrivial and clearly legal. -- Paul Phillips
Dacels Jewelers can't be trusted.
I never bought a copy of redhat commercially (although a friend did). I just (legally) downloaded the ISO's and burnt copies.
Now that I'm more familiar with LINUX (2.5 years now), I'm experimenting with Debian.
Given that I wouldn't count on /. to report it, but I read just about every other Linux-related news site in existence and hadn't heard anything about this. Care to back it up?
IAAL,BIANLY
VA Linux, Slashdot's parent, isn't doing well either. The stock has dropped from 320 to 9. And they're still not making money.
What a crap article.
/etc and /var make a GUI to handle them.
How many other dot coms have plunged steeper over the same period, and have no product on the shelves at all? Quite a few. At least RH has real labs, real contracts, real projects and a real product.
Half a staff of 25 in a closed San Francisco office gets job offers in Oakland and Sunnyvale. Not to be insensitive, but out of 550 employees, this is hardly "a crisis" for RedHat.
I'll be the first to admit that RedHat has made/is making/shall make serious mistakes, but this closure is very mild (unless you're part of the half with no offer, that would/does suck, I've been there)
My advice to RH is the same as it has always been:
1) Drop the dumb subscriber model -- have a free login that is as good as Debian's Apt (you could learn a lot about packaging by watching "apt-get update; apt-get dist-upgrade" run on a debian box!)
2) Have a "silver/gold/platinum" tiered subscription model, in addition to the free one, w/ guaranteed response time/login (higher level == better performance/response). Be willing to sell "one time" tickets as well as annual subscriptions.
3) Somehow, someway, accelerate the various Gnome/Nautilus/Glade and other development tools such that its easier to manage and handle projects, create docs, etc. I know there are people out there working on "javadoc" like things for c/C++ -- hire them and make it nice.
4) Consider starting/sponsoring a project to CLEAN UP
5) Consider dropping your distro and adopting Debian. I know you are proud of RH, but the realeases appear to have significant flaws...7.0, 6.0, 5.0 were all disasters.
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this is good journalism. i have often wondered why "journalists" don't take it upon themselves to ask more disgruntled employees what's wrong with a company.
It seems to me that the way to figure out how to run your company is to shit-can a whole slew of people, and then ask them how the company should be run. Obviously wired news knows a reliable source when it sees one.</sarcasm>
bottom line - RH laid off ~10 people. This is headline news?
FluX
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"It is seldom that liberty of any kind is lost all at once." -David Hume
The headline makes it sound so bad, when it really isn't.
You're missing the point. RH had claimed that the SF office was critical when it opened, and now they are closing it? And what about that business model? It's hard to plan long-term when you base your plan on a certain market cap, and then that market cap gets slashed by 1/10th and more...
Twelve-and-three-quarter inches. Unyielding. This wand belonged to Bellatrix Lestrange.
i used to work in a computer store and it was only the people that had a vague idea about computers but were trying to pose as expert users that considered commercially packaged linux.
I'm a student of cs in Germany. All of my fellow students use Linux one way or the other and all of them have bought pre-packaged commercial Linuces in the past.
(Of course, one of them would buy Suse 5.1 and give it to the rest, then the next gets 5.2 and gives it to the rest etc., but there is no systematic borrowing going on. I had four boxes of consecutive Suse editions lying around here before I switched to Debian recently.)
But still, I think the ratio of buyers is quite high here. Probably mostly because downloading is more expensive and less convenient over here. Still, the morale is high, too. I enjoyed ordering Suse boxes for the companies that I worked for, because I knew it supported a product, a company and a distribution scheme I like.
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It wouldn't have total control over distribution of GCC, or Red Hat Linux, or any such stuff, after all, Mandrake was originally based essentially on RHAT's distribution.
The source of market value for these companies is indeed rather "vaprous;" it is mainly in the possibility of future cash flows, and with the way that free software is "like herding cats," it won't be the Iron Fist Of Bill that would pull in the money, but rather a rather more subtle, less rigid Waiting Carefully For The Money To Perhaps Come In.
If you're not part of the solution, you're part of the precipitate.
Half sounds like a lot until you realize its only about ten people. The headline makes it sound so bad, when it really isn't.
Have you read my journal today?
How do they license Linux for use in the embedded devices. Aside from the obvious alternatives (pocketlinux,ucLinux) why would a manufacturer rely on Red Hat to provide something that is already in existence, in which Red Hat really has no claims to 'license' a kernel that they don't own. As far as the distribution goes, if they are licensing it to commercial vendors for embedded systems is there any packages for the at-home hackers on this system?
I think that Red Hat does have a sound product, the company does seem somewhat strange. I still do not understand their primary source of long term revenue, perhaps I never will.
The stock had been way overvalued, he said, thanks to overly enthusiastic investors who "believed Red Hat was going to overtake Microsoft. They don't believe that now." Thankfully he at least said that. Best part of the article summed up right there.
Dacels Jewelers can't be trusted.
Rockland is the site of the Maine Lobster Festival and the Farnsworth Museum, where much of the Wyeth family's paintings are kept. I think it's a pretty cool place. Owl's head is pretty sparsely populated.
We had the house pretty thoroughly inspected. Some things were fixed up by the previous owners. It is indeed on a septic system.
Michael D. Crawford
GoingWare Inc
-- Could you use my software consulting serv
From the Wired articlue: "But its stock has taken a breathtaking fall, dropping from $151 to around $6 in less than a year."
Seriously, just look at this graph! If the stock prices, along with the firing of employees are any sign, then this is not merely due to "created by acquisitions, and said the move has nothing to do with any troubles at Red Hat."
--
RumorsDaily
I live in San Francisco, and the best computing/technology job I could find (no pretty papers, but I can learn) was at RadioShack. I finaly found a MIS posision for a payroll company in Pleasanton. (for those of you who don't know the area, Pleasanton is 1 hour away on bart, in the boonies) I tried everywhere I could think of in San Francisco, posted my resume on all of the web sites that I could find. I think that the dream that silicon is in silicon valley is dying out. At least at the entry-level posistions. :'-(
Before we all start saying that the open source business model doesnt work, simply because redhat is laying off people, there is a company that does make money at this. Its called Suse. The open source model for a software business can work, now whether redhat can make it work or not remains to be seen. I think redhat's problems have more to do with overextending itself with acquisitions, and the fact that there are so many other linux distros that are better. I dont want this to be distro flame war, so if redhat works for you, great, I'm happy for. I just prefer debian or mandrake.
"My head hurts, My feet stink, and I dont love Jesus." -Jimmy Buffett
Despite their minor woes, 3 offices in the bay area is rather much. With Oakland and Sunnyvale they pretty much cover the ends of the bay. SF must have been a money pit.
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A feeling of having made the same mistake before: Deja Foobar