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Dell Buys Equity in Red Hat
Lampropeltis Alterna
wrote in to tell us that Dell has bought equity in Red Hat.
Another hat has been thrown into the ring. I've always thought
of Dell as completely in bed with Microsoft, it'll be interesting
to see how they follow this up.
The reason to "go public" is to raise funds for expansion. Secondary reasons are so you can cash out your venture capitalists. I don't know if Red Hat was backed by venture capital or just by the founders, so this may or may not be a concern. A third reason is so the founders can sell off some of their personal holdings in order to get cash. I should mention that you can "go public" by selling bonds as well. These often require registration statements and quarterly reports to be filed with the SEC. This is a great way to find out about private companies that don't have their stock traded yet.
Going public has its downsides. First is that you are required to file reports with the SEC, which exposes your financial structure and your financial reports to the outside world. The next is that it can be difficult to justify to stockholders long term investment that may or may not pan out. How does Red Hat justify to a mutual fund manager hiring Gnome developers then putting the resulting code under the GPL? It might be the best decision from a business as well as ethical standpoint, but it is non-traditional and would probably require some explaning.
Red Hat seems to be able to find funds via private placements, so has been able to avoid going public. Remember, the longer you hold off going public, the better for the initial stockholders who will generally see less dilution.
There are two ways to "buy equity" in a company. One is for you to acquire an existing share of stock from someone who owns one. The other way it to buy shares issued by the company. The first is more common, as that is what people do on the New York Stock Exchange every day. In the case of a private company, they are usually issuing new shares to investors because then then money goes into the company's coffers to fund expansion. However, doing this dilutes the ownership of the existing stockholders.
Typically there is no real limit on how many shares a company can issue. Corporate charters generally contain a maximum number of authorized shares, but this can be increased by a vote of the shareholders. The real problem is the dilution, which tends to anger existing shareholders if it is excessive. Publicly traded companies often lose 5-10% of their stock price when announcing secondary offerings. Issue to much stock and you'll drive your stock price down to zero!
Of course the Red Hat founders are probably stock rich and money poor. They might be selling off some of their personal shares in order to get cash to spend on houses or whatever. But it is pure speculation to think of such things.
In fact, investment banks routinely make IPO stock available first to their preferred customers. This may or may not include Intel, but it probably does not. However, the odds of you being able to purchase IPO stock at the IPO price are zilch, unless you have some sort of in with investment banks you might not have told us about.
One of the more outrageous practices of the investment banks was to hold back a portion of the IPO stock until the price had already shot up on the first day of trading. They then sold the stock to favored clients at the IPO prices for an instant arbitrage profit. I don't know of the SEC has cracked down on this or not, but they certainly should have.
Posted by Mike@ABC:
I have to disagree with this "Microsoft Is Master Of All" view in the above posts. If it went to Dell and told them that they needed to quash (or support!) Linux, Michael Dell would certainly be within his rights not only to tell Microsoft to go to hell, but he'd probably also offer to testify against Microsoft at the trial.
Microsoft really has to watch its step when it comes to its OEM partnerships. It's already put revamped OEM contracts on the table in its DOJ settlement talks, and the company is already trying to play nice in order to convince the DOJ to lay off.
In other words, Microsoft has to act like every other software vendor out there, at least until the appeals are exhausted -- some time in 2001. By then, Linux (or BeOS, FreeBSD, MacOS, or whatever your poison) should have a good shot at ending the monopoly.
Posted by Mike@ABC:
Well, yeah. With a free OS, of course they're going to charge big bucks for support. But when you consider the high price of licenses for a Windows NT system, most bean counters will still look at Red Hat as a huge bargain. And most MIS administrators worth their title will probably either a) have a Linux hacker on staff, or b) just scroll through the newsgroups until he finds the solution to his problem.
There are a lot of people who don't know anything about Linux (other than what they've read on ZDNET) who would buy Red Hat stock based on media hype, and I don't think many people at Red Hat would want these folks voting in a share holders meeting.
TedC
I don't know that any of the companies that have invested in Red Hat have really invested that much; it's always an undisclosed amount.
I think they're doing for the image more than anything. Linux is riding the media wave that Java did two years ago, and a small investment in Red Hat is nothing to IBM, Intel, or Dell -- it's cheap, positive media attention.
Either that, or they're giving MS the digital finger...
TedC
Saw the announcements on the business wires. Checked Dell's web site - a search for Linux turned up nothing newer than mid March.
And where are they selling systems with Linux? All I could find on the web site were systems with different Windows/MS apps options. I'm sure this will all get fixed eventually.
In the meanwhile, it increases Linux's credibility when a vendor of Dell's size and "presence" at least announces they will "offer" linux on there systems (even if MS/Win remains 95-99%+ of their sales).
Don't get me wrong, RedHat 5.2 installs like a dream, for the most part. I've rarely had any problems with it attributable to RedHat. On the other hand, their Xconfigurator is fairly primitive as far as Monitor Selection goes, and it could be legitimately improved. Not a great big deal, but it would be nice.
:-)
What I'm talking about is largely more for reporters than anyone else. If RedHat made their install process more newbi-friendly, it wouldn't generate reports that make the lives of tech-people more difficult.
They laughed at Einstein. They laughed at the Wright Brothers. But they also laughed at Bozo the Clown. -- C. Sagan
Does anyone know if there's any equity left in RedHat that belongs to RedHat?
Do they plan to spend any of this money that they're getting to improve the installation process, like a full pnp list of monitors for monitor-autodetection? Adding more "intelligent" installations options, that will automatically invoke fips and things like that? Maybe invoking X in lowest common denominator for their install (options: B&W Color Graphical, or something like that)? They sound like they should be able to beat down the installation difficulties of Linux with money, at this point.
They laughed at Einstein. They laughed at the Wright Brothers. But they also laughed at Bozo the Clown. -- C. Sagan
From the article, I'm betting the sequence of events went like this:
1) Burlington is a customer of Dell
2) Burlington, being a forward looking company, decides to switch to Linux for it's operations
3) Burlington calls Dell, says "we need 1250 Linux workstations... Can you do it, or should we call Compaq?"
4) Dell buys equity in RH to cement their position (probably cost less than they'll make on the Burlington deal alone)
Therefore, I say Congradulations Burlington, you rock!
However, a better question is -- how good are the tools? Very good, as a matter of fact:
- The Symantec Visual Cafe Pro for Java was Info World's product of the year. I'd love to have VCP for Java in Linux.
- (If it is still available) I have got journeyman work out of their 7.2 C++ compiler for several years now.
- Symantec is one of the two major C++ compiler manufacturers for the Apple OS [the other being Metrowerks' CodeWarrior].
- A look at the board of directors reads like a who's who of top-notch technical programming talent. Whose tools and utilities have bailed thousands of us out of M$-induced hell.
If Symantec, Metrowerks (who has already announced), and Inprise (Borland) all move to the Linux bandwagon, then a lot of top notch talent and money will be on the side of all of us professional (i.e. making a paycheck by writing code) programmers who want Linux to be the OS of choice for everyone....Open Source isn't the only answer -- but it's almost always a better value than the alternatives...
Microsoft waited to release Windows 95 and some of the associated API's until all of their major applications (Excel, Word, PowerPoint, and Access) were complete and to a large extent, debugged. This means that anyone --Netscape, Lotus, WP, Novell, etc-- writing a competitive product was automatically several months behind in the ability to do compatibility testing and debugging of their own products. So (magazine advertising collusion aside) that M$ products would automatically get good reviews, sell more product, etc. until the other companies caught up, by which time a large percentage of the consumer and most of the corporate market has already bought and standardized on the so-called but only temporarily "superior" product.
Contrast this with Linux, where a given release is thoroughly pretested, and all of the applicable code is available from the get-go. This means that we're talking not only a superior operating system, but an equal opportunity business market from the get go. No using the operating system monopoly to sell application software anymore.
So I am 100% sure that M$is are NOT taking things very well. However, this time the Feds are finally watching the beast from Redmond with a magnifying glass. So M$ can't use their FUD and other monopolistic practices to keep Dell, Gateway, or any other major supplier "in line" without the DOJ slapping them silly (translation: levying heavy fines) for trying.
Software aside, for the major PC hardware vendors, Linux makes better business sense in either the server OR consumer market.
- They no longer have to pay an increasingly high OS royalty to Microsoft, nor deal with or be associated with M$ software or tactics.
- Over a period of time, the corporate cost of tech support SHOULD decline as Linux gains ascendancy, because 99.99%of all of the problems and solutions in Linux are solved and documented by the technical user base, and quickly incorporated into the code base.
- If Dell, etc. installers are doing their jobs correctly (this requires PHB* support), a machine sold next month should have more stable code than the machine bought today. Which translates into higher user satisfaction.
- End users and corporations no longer have to pay for what is essentially an OS tax - "service packs" to correct problems which should have been fixedin the basic OS. Instead, they are expected to become literate enough to apply true upgrades via a free source -- the Internet. Within a corporation, the cost of support will similarly decline.
All of these things will translate into higher repeat sales in the future -- good for business, wouldn't you say? My only question is, how long will it be before major players such as Lotus and Symantec wake up and shift gears into the Linux world?* PHB = Dilbert: Pointy Haired Boss
...Open Source isn't the only answer -- but it's almost always a better value than the alternatives...
I used to work in tech support at Gateway. One of their major accounts used Unix exclusively, and every box we shipped out the door to that client had Unix preloaded. Don't let the anti-MS hype fool you; it has always been possible to get ANY OS preloaded on ANY box from ANY OEM. They don't market that fact to Joe Blow, mainly because Joe Blow generally won't want to spend the additional cash it will cost.