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Red Hat IPO Rumors on news.com
fruviad sent us a link to a story over at news.com talking about
Red Hat's New COO
that will be starting Monday, and talks about unconfirmed IPO
rumors for what they call the "Darling of the Linux world".
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But the stock price may not be able to be sustained.
Just remeber, IPO != riches or success. Half of the new IPOs are trading at or below their opening price a year later.
The only people who are assured to get rich off the deal are the underwriters.
Redhat's whole business model doesn't offer shareholders any vision of future revenues. Ok, so Redhat may continue to fund and develop more and more products and better versions of Linux. But unlike MS, they can't set market prices, because anyone can distribute, and distribute for free at that. What's their spreadsheet look like?
I guess they can sell books like ORA as Linux
manuals, but it's pretty weak.
Redhat also can't claim support as a revenue leader. Support is a primarily a loss leader. Consulting? Perhaps, but Redhat would have to build up a big consulting arm ala IBM/Oracle/CA/insert random consulting company.
Consulting is highly labor intensive vs product development.
Redhat may be able to claim a per-customer valuation and "sell access" to people who have bought the Redhat CD. Redhat could also try to become a "linux portal"
They can also claim some valuation based on their "brand" .
But all of these assume Redhat is going to change its business model.
Open-Source hype alone is not going to sustain investor interest in a company which may not have any future.
It's easy for Slashdot users to go "man, OSS is wonderful. How could anyone not look at this and see it is the future. Therefore, anyone with intelligence should put their money and effort there."
Nothing is inevitable.
Tonight on the way home, I'll stop by the supermarket and buy some milk, bread, and a bottle of cheap whisky. None of these made by the supermarket. I guess they're "profiting from other people's work."
Sure.
There are other business models beside the "starving artist in the garret" or the "evil empire".
I think RedHat has a killer "supermarket" business model and has the potential to make a ton of money.
In a few years, the PHB and you, yourself, will not want to buy direct from the software developer or download the latest and greatest off the Internet -- he and you will want to buy from the RedHat or the Caldera supermarket to get the guarantee that the goods are fresh and tasty and non-poisonous and nutritious and not adulterated.
Just like you won't buy food from some guy in the alley. Drugs, maybe, but not food for the family.
And the RedHat supermarket gets to pick and choose among available products and suppliers to make that guarantee. And they'll work like hell to
package it and present it and market it to bring you in.
And they'll sell it through the local Borders Bookstore or CheapBytes, so they won't have a ton of overhead like CompUSA.
Red Hat puts money and information back into the developer space to insure a steady supply of good products and happy, well-fed developers. As they do now. All under GPL or NPL or whatever.
Win/win all the way around, in my opinion.
And if I don't like their produce department, I go down the street to the next Supermarket.
Now that's freedom.
Sign me up for a piece of the IPO.
There are loads of companies with very deep pockets who could buy a company the size of RH and not even register a dip in their quarterly earnings graph. Just think - IBM would not have to develop their own distribution - They'd get a good distro with a good customer base - and remember IBM has reasonable cachet with linux customers (certainly compared to a M$).
As a way to make a pile of money and to retire very wealthy at a relatively young age, a Redhat IPO is an excellent idea. Just think what Redhat is worth (mostly in terms of earnings potential) $100M, $1B, what - hey, Young could buy a island to retire on.
Note that Bob Young may be annoyed, but not necessarily truthful. He may have answered the question like that because he was thinking "Duh, stupid, if I told you the REAL answer then I'd be in trouble with the FTC!".
The Feds have very strict rules about IPO's, and if you don't follow them exactly, you get hit with a big stick.
-E
Send mail here if you want to reach me.
My comment was as an outsider looking at Red Hat snapping up all of these executives who are experienced at taking companies through the IPO stage.
Frankly, there was probably a half dozen other people thinking the same thing the moment they saw who Red Hat's latest aquisition was.
I have no inside knowledge of Red Hat and whether or not they are planning an IPO anytime soon. I don't think they have their ducks in a row yet for an IPO at the moment, but they may within six months. From what little I know of Red Hat Corporate, they are having difficulties dealing with their growth, and these new aquisitions may simply be Bob bringing on board people who know how to manage a company that's as big as Red Hat (Bob is a VERY bright guy, but somewhat 'scatterbrained' as we put it down here in North Carolina, i.e., not the kind of detail-minded person needed to do the actual day to day business of managing a company that's gotten as big as Red Hat).
On the other hand, no matter how much the people at Red Hat deny it, the IPO *will* come. Very few startups can make the investments needed to create a major corporation without massive amounts of venture capital money (which comes with IPO strings attached). If Red Hat wants to create a professional support organization with outside reps and etc., like is needed if Linux is going to attack the enterprise, they're going to need money. A *LOT* of money.
I think many people in the Linux community don't realize just what kind of support the Fortune 500 demands and expects for their enterprise systems. Red Hat's telephone support is a start, but many of the very largest companies expect someone to come ON SITE to fix things -- immediately, if not sooner. We in the Linux community have come a long way. But this war is not over, and there are still many battles to be fought -- and most of those battles take money. Lots of money. IPO-type money, eventually, because if you get enough money out of venture capitalists to make it happen, they will demand IPO sooner or later.
-- Eric
Send mail here if you want to reach me.
I agree with your assessment of where Red Hat is, at this particular time. Bob Young is brilliant, but he is not a manager. Luckily it appears that he is getting the kind of management help he needs to turn Red Hat into the kind of company that he wants. (I'm not forgetting Marc Ewing in all of this, BTW, but Marc has always been more comfortable with the technical side of things and left the business side to Bob).
The "suits" can destroy a startup if they're not careful. But I'm betting on Bob and Marc and Donny and Erik and etc. keeping these managers on track so that they can create a corporate structure without destroying what makes Red Hat special.
Send mail here if you want to reach me.
But... RedHat already has commercial investors that in turn have their investors. At this point in the game, I think most investors involved are knowledgeable about the alternative to a level playing field in the OS game. Extinction! They are investing in something that is a real or potential benefit to their continued survival.
Going "Public", on the other hand, is a different animal altogether. The positive aspects of which would be pubilc involvement in the free and open source community, the availability of an investment point for those interested in Linux's continued growth and their own personal profit, the influx of cash that could provide a boost to R&D, the increased competition to provide for better and more widespread services for Linux customers. The negative aspects could be the alteration of the decision making process as others have pointed out and the proprietization of certain components of commercial distributions - however, in well run companies, a market analysis is done to determine the customer makeup - and if RedHat's customers are expecting adhereance to free and open software standards then that is *HOPEFULLY* what the CEO will ensure.
Microsoft used to have a very large - very technical userbase. To a degree, they still have a goodly mindshare but only because of the profit motive. Many of the technical protagonists that Microsoft used to depend on as customers have literally *Migrated* to Linux and become antagonists. Is such a migration something that a profit minded RedHat is willing to endure? Who knows?
On the flip side, look at Caldera. For the longest time, they have been marketing to the business crowd and succeeding on a moderate scale; now they are targeting a different market segment with their newest release - newbies. They may lose some technical users but gain many non-technical ones. They are a corporation that is looking for profit!
Money for Linux can't be a bad thing... It may change the goals of some companies but as long as they sell a product based on GPL work, it can't be all bad. The whole community benefits from modifications they make that in turn get used by other corporations who make modifications that in turn get released to the community and so on ad-infinitum. The best possible benefit *I* can see is corporate sponsorship of Free Software/Open Source projects and additional hiring of programmers to work on such projects. I consider getting paid to work on Open Source projects to be a kind of sponsorship; creating more time for Open Source work - accelerating the process.
Codifex Maximus ~ In search of... a shorter sig.
Posted by Dean Townsley:
Personally, if Red Hat goes public I will almost surely not buy another of their distributions and I will most likely switch to Debian as quickly as possible. One of the main reasons I like Red Hat is because they are private, which means that their policies (which I have liked up to present) are likely to stay in place.
In the current stock market (especially as overvalued as tech stocks are) it is very hard to demonstrate that the motivation for going public is anything other than to get rich quick. I think staying private this long, probably under enormous pressure, says a lot good about Red Hat. I think to give it up now would be the wrong thing to do. Hopefully this is just a rumor.
Just my opinion, and I will vote with my dollars.
Do you have to work hard to be this ignorant, or does it just come naturally? All the projects you name are Free Software. Why shouldn't RedHat dist them on their CD? Hell, if nothing else, there's the minor little fact that the devlopers of those packages didn't ask for any money.
But all this is beside the point. Free Software has precious little to do with selling or buying...it has everything to do with :
- FREEDOM
And the really cool thing is, RedHat gets that! They give all their code back to the community. You can still dload the whole distro from their website (modulo their bandwidth problems & mirror setup). You can still buy their distro from CheapBytes if you want. Most importantly, you can still hack their code & dist it out with your changes under the GPL.Why the fsck does everyone have such a hard time with the idea that a company can be both moral and successfull? As Don, Joe and the boys said:
--
"First they ignore you.
Then they laugh at you.
Then they fight you.
Keep in mind a good point that JWZ mentioned in http://www.jwz.org/gruntle/aol.html :
If Red Hat goes public, things might not change for the better.Just something to think about...
If I was Redhat, I wouldn't do it. Publicly traded companies have to answer to Wall Street Analysts, who "represent" the interests of shareholders. In the past, economists would complain about the short horizen Wall Street forces on American business. In the over-hyped Internet market, that horizon has shruken to hours. Not a good way to run a business for the long term.
/. being a great example (IW called it a portal :)). And of course, the free software ideals Netscape ripped off, live and thrive on.
None, and I mean none, of the Internet companies have yet proven that they are viable for the long term (AOL beig perhaps an exception, but AOL was never really an Internet company). The biggest ones - Yahoo, Amazon, et al are rolling up smaller companies in a desparate attempt to ensure that some thing, anything, will help them be here tomorrow. The Jury is still out. (NB: nearly sll of Yahoo's ad revenues come from IPO money from other Internet companies; Amazon loses $7 for every book it sells, and there is no let up in site: are these businesses that have a future?).
Of course, I am not the CEO of Redhat. So its his decision to make. He and his company are the only ones to be affected.
What about the community? Yahoo and Netscape are great examples. Once they went public, they totally lost touch with the community values that got them off the ground in the first place. Does that make a difference? Not at all. There are many places on the Internet where the community values of the "early days" still thrive, despite Yahoo,
So Redhat will become a sell out if it IPOs. It's inevitable. It's owners may or not become rich. Big deal. I wish them well if they do. Free software will continue to flourish and thrive.
If this is is how you feel, then you are opposed to the concept of free (as in freedom) software and open source. Furthermore, you are against Debian's Free Software Principles (since you say you want a cut of any money made).
Stallman's whole program is that people should be paid for services, not the software, and packaging and distributing software on CD-ROMs and supporting the customers is a service.
I talked to Bob Young at LinuxWorld Conference and Expo... When I asked if they are planning to go public, he first looked annoyed, then told me that they have no intention of going public within the next 20 years.
It is interesting, even if there are only a couple posts so far, to see what people have to say about this.
It is interesting because I remember reading usenet posts back in the day, about Yahoo! going public. People said "Yahoo's revenue will be smaller than that of any magazine or newspaper. It would never get as much advertising revenue as say, any of the major CABLE networks." and "How can people invest in Yahoo when they give everything away for free!"
I think Redhat's comments bear striking similarities. But the fact is, Linux, from a market standpoint, doesn't have a set business model. It took a couple years AFTER the Internet hit the big commercial time for people to get it all figured out, and we still don't know what the heck we're doing.
But Open Source Software, much like the Internet before it, is due very soon for investor success. It may not be adopted as early and as quickly as YAhoo! and Netscape were, but believe me, the parallels as to what was going in in the early 90s for the Internet, and what is going on in OSS world now are strikingly similar.
Heck, we all learned that the stock market is a spiral from Pi, right?
--Clay
http://www.knowpost.com
Having run the venture gauntlet I can say with some certainty that they must be thinking of an exit strategy. They IPO (and/or) get acquired by a behemoth company like IBM or Microsoft, or they grow into something like a Microsoft otherwise no real value has been returned to the investors. In the meanwhile they are doing all the right things. Building the brand, putting a crack management team in place and generating tons of PR.
When you start going after money, angel (individual investors) or venture, it's all about valuation. Venture guys have an interesting saying- "is's the Race, the Horse, and the Rider..." This means the time must be right, the idea good/popular/compelling and the team must be proven people who can execute thus increasing the value of the investment. When you get beyond the angel investment stage it's purely a numbers issue.
I think the real concern here is the public and perceived value of Red Hat. We get lots of calls asking us what the ticker symbol for Linux is. If the Red Hat plan is to make the Red Hat brand synonymous with Linux (Linux & GNU Tools) then all I can say is let the buyer beware... (espically if the ticker symbol is LINX or something like that) In the meanwhile their execution of the process is good, brings Linux into the public imagination and captures the attention of people tired of beta testing Bill's code.
Startup companies go through perilous periods of growth--and statistics show that a majority fail to make such transitions. RedHat is at such a stage.
I've been through several startups, both successful and not, and the two most perilous times are
- bringing the initial product to market, and
- making the transition from "lean and mean" to "well-organized."
The latter is the stage that RedHat is at: too many employees to organize informally, but much danger from instituting more formal "rules and procedures" inappropriately. It really is a phase change (like from liquid to solid) in the life of a company when informally organized groups of dedicated individuals are no longer enough to hold a company together.Those of us who work as drones for corporations (like I currently do) often are isolated from the organizational needs of a company as it grows beyond the everybody-knows-everybody-else stage. There is a bit of black art about bringing many groups of people with wildly divergent world views into focus upon a common goal. Many more people are bad at melding the combination of leadership, support, and organization than are good at it. Companies will pay people big bucks just on the vague notion that someone has such skills.
It's unnatural to treat people a bit like objects, organizing them according to their attributes, yet still allowing them to remain human and develop their abilities as well as contribute them. Yet that's what makes companies successful. It's especially hard in technological areas, where each developer is more of an expert in her/his specialty than the manager is--but where the overall product forms the goal, and not any particular expert's view of it.
The sad thing is that many of us have never worked for a good manager--or worse, we have, but our current manager is compentent in nothing beyond sucking up to superiors. A good manager is a rare breed. Now think of how rare a good manager of managers must be! Yet companies die for the want of such people. I've seen it happen right before my eyes. And this is the saddest thing of all: to see the effort of good people wasted because management sucked. Almost everyone reading this will see it, if they stay in the industry long enough.
Although I doubt I've swayed many (if any) management-haters among us, my point is: RedHat needs someone with a special set of skills and experiences. Private and public corporations both need the same things from their upper management. The fact that RedHat hired someone who has worked as an upper manager in public corporations says nothing about their intentions for going public. But it's a good sign that they are preparing for their own growth by hiring someone who has been through this difficult phase several times before.
I think that non-proprietary software co's like Red Hat and internet portals and stocks are two different animals in my opinion. Many of the internet stocks will eventually fall from grace anyway if they don't eventually make a profit like Yahoo.
I think that software companies that charge for popular Linux applications will make good money. Thats obvious. I have no problem with that.
I like the OS free and non-proprietary though. I think that is the most important thing for the future of computing, a commonly used non-proprietary OS that is rock solid. No stinkin BSODs. Open and solid.
How much would Red Hat benefit from going public? Of course they'd get a boat load of cash, but how much cash do they need to make their goals? They don't need to take over the world to be sucessful.
Young and partners may want the profits all for themselves.
Tons of cash help co's like Qwest which build huge expensive physical constructs more than they do software companies which may be able to stand on their own just fine. Not every big company needs to go public.
Please don't lecture me on all the ways going public and getting instant cash would help Red Hat and maybe even us in the end. I can think of plenty of things they could do with the money, but the real question is, is it necessary and is it the best choice for Red Hat's current owners and their goals for RH?
I think if Redhat were to donate a certain percentage of the shares to some Linux organizations, like Linux International, SPI, OSI, FSF, whatever, and if lots of Linux users bought as many shares as they could, then the issues of Redhat doing bad things because of shareholder interest would be irrelevant. The linux community and the remaining shareholders would be the ones to have the say in what Redhat did, as far ash shareholder interest is concerned.
What do you think? BUY BUY BUY!!!
If Red Hat goes public now, it will make Rob Young and the rest of the Red Hat crew a ton of money. Almost guaranteed.
:)
Why?
1. Because traders love the internet. Linux is related to the internet (somewhat). Look at stocks like Amazon (no profits *ever*) and K-TEL (ugh).
2. Operating systems are big money and make good stocks. Witness Microsoft, the company with the largest market capitalization *ever*. Granted, MS does other things besides OS's, and Linux is non-proprietary, so the potential is smaller. But even if Red Hat becomes 1/100th the size of MS it will be huge.
3. Linux is in the news. In case you've been living under a rock for the past few months, Linux is the newest media darling. Even my mom has heard of it now. And news affects stock price. Thousands of traders are sitting out there watching news reports and press releases, trying to get in before the flood on the smallest announcement.
I know I'll be watching Red Hat on IPO day. Hey Rob Y., you got a presidents list?
Now one thing is on my mind
If Redhat did file an IPO, i would assume the
current companies already investing in redhat would be the first to jump in the game..
but what if say Microsoft or IBM or Apple bought majority shares in the company.
wouldn't it be ironic for microsoft to own the baby company of the operating system thats trying to compete against its very own Windows platform?
hmm.. I would be happy to own a chunk of RedHat and i know redhat nor anyone owns "Linux" as we know it.. but filing for an IPO would enable a company with lots of money to direct the linux market in a goofy way..
i don't see the server side changing much, admins know and understand the product.. but if microsoft bought majority, slapped in some developers and put its interface on it, integrated it into its current os's and gave it out to the consumer.. wouldn't that kinda null and void the many reasons to support linux, or redhat for that matter? after all out hard work would in one fashion or another be owned by a bunch of investors and the last thing i want to see is more lawyers and licensing involved..
i should just start my own organization.. called As Is Software.. and have no licensing at all and just support truely free and truely open software.. that way if someone uses it, more power to em.. and that way technology will move quickly and rapidly because lawyers and biggots won't be there to slow me down.
Redhat going IPO has both good and (potentially) bad aspects:
It'll be good if Young and company honor the spirit and letter of the GNU GPL, but this could prove to be rather hard to do since the value from the GNU/Linux community's work is measured in quality while the value of a compay in measured in dollars. Stockholders want dollars, GNU/Linux folks want quality software, but dollar driven software is what lead to the formation of the GNU/Linux community in the first place. Can the two co-exist this closely without one killing the other?
It'll be bad if Redhat breaks with the spirit of the community and tries to impose de facto standards for Linux distributions. Redhat history suggests this is unlikely -- they've been great for the community thus far -- but then they've not felt the pressure from owners, either. Pressure from stockholders for bottomline return is, again, measured in dollars and they couldn't care less about quality (just look at MS stock values if you think this isn't valid.)
I wish Redhat the best, but can't help feeling this IPO idea is somewhat at odds with the whole idea of software with freedom. I hope my misgivings on this are unfounded, but the idea of a group of stockholders directing a Linux distribution makes me rather queasy.
Everything in the Universe sucks: It's the law!
>But... RedHat already has commercial investors that in turn have their investors.
>
Yes, you're very right. MS, by focusing on making money instead of making quality product, has in fact created a huge vacuum in the OS market -- apparently markets hate vacuums as much as nature. Are Redhat's investors acting in their own best interest by supporting Redhat with investment dollars? Yes, I agree that's true. MS has shown time and again how foolish it is to expect to do well working with MS in an MS-dominated marketplace. GNU/Linux is a more-than-adequate alternative to MS product and these companies see that most clearly.
> Going "Public", on the other hand, is a different animal altogether.
>
Again, you're very right -- it's a totally different game when and if Redhat goes public. I'm not so sure that would work. (See further comments in a separate reply message, same string, posted earlier.)
> On the flip side, look at Caldera.
>
Yes, Caldera may prove to be another great example of how to blend the profit motive into the GNU/Linux community providing Caldera feeds back into the community to keep it alive and growing. What does Caldera provide the community besides another for-profit distribution? I'm asking because I don't know.
> Money for Linux can't be a bad thing.
>
No, I don't think money is a bad thing at all, in fact it's very necessary (I'm not a socialist; my politics are Libertarian and have been for a many years now.) The problem arises when money in the form of profit takes precedence over quality and this happens to businesses _so_ often. MS makes up for quality with slick heavy-handed marketing and by driving (or buying) any competition out of business. I like to think of GNU/Linux, the DoJ suit and a ton of bad press as being white corpuscles attacking a bad germ (granted, a gooey metaphor, but a good one (Oy, that pun even makes me wince.))
Thus far Redhat has provided the best example of how a profit driven company might deal with the quality driven GNU/Linux community. They give back support for important development projects by funding those projects. The amount of goodwill Redhat has in this community is phenomenal and well earned at that. I can't think of any other business which, within the context of their potential-customer community, has the same amount of respect as Redhat has in the GNU/Linux community. Even people who don't use their distro and don't like the RPM package management format don't bad mouth Redhat the company. This works to generate even more profits for Redhat -- that's the way you do it.
Everything in the Universe sucks: It's the law!
1. A cool company does not necessarily make a wise investment. Good technology investments are companies with a unique product or service, and one that is in high demand and will continue to be in high demand. Niche companies are usually not wise investments, as they may not have the "staying power" of non-niche companies. Niche companies generally file for IPOs for two reasons: a. Majority shareholders get rich; and b. To increase available capital for expansion into new or larger markets. Option a. is a possibility here, obviously with the media paying attention to Linux and Red Hat in particular, uninformed investors (like many people here... "buy RH, it's cool") pour money into an RH IPO, increasing the equity net worth of majority shareholders. Option b. doesn't make a lot of sense, unless RH is planning some top-secret new market penetration move.
That said, I think this is only a rumor anyway... because:
2. The legal duty of the CEO of a publically-traded company is to make decisions based on the greatest profitability for company shareholders. (I could quote SEC regulations, but I can't think of the numbers at the moment). As has been shown time and time again, profits and OSS don't mix.
I for one hope things stay the way they are.
Oh, and by the way, a COO usually has nothing to do with an IPO... that falls under the duties of a CFO.
--globalnap.net, product of pure caffeine--
Historically, the pressure of pleasing stockholders has prevented more problems than have been created.
Look at Pfeiffer at Compaq, for example, or Amellio at Apple.
Both were duds that were ousted partially due to shareholder pressure.
Of course, in a perfect world, the perfect manager could work better without having to please the "masses". Unfortunately, many CEOs are incompetent. JWZ should have looked at his own company and realized this.