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Turbolinux and Linuxcare call it off. The word went out on May 1 that the planned merger between Turbolinux and Linuxcare had been cancelled. The full story may never come out, but it seems to have come down to a disagreement over the relative value of the two companies. Neither company, of course, is worth what people once thought it was, and it was not possible to come to an agreement over what the valuations should be at this time.
This breakdown is going to be hard on Linuxcare. The company has lost important staff in the merger process, and the support business is proving rather harder than many had originally thought. Linuxcare will find itself short of staff, short of funds, and short of business. Not much fun.
Life may not be all that easy for Turbolinux either. The North American market has been a hard one to crack, and several companies have set their sights on Asia, Turbolinux's stronghold. There has been a distinct lack of press releases hyping high-profile Turbolinux cluster deployments. The "we're a software company" strategy appears to be having some difficulties.
And, in fact, it appears that Turbolinux is considering moving away from the distribution business and toward a more service-oriented model. LWN actually predicted this move back when the merger was announced. (Of course, we've predicted a lot of other things too, but we don't remind you of those...) Turbolinux is going to have to come up with a compelling strategy and set of products in a hurry, or life could get more difficult.
Why is the support business so hard? Not that long ago, the prevailing FUD was that Linux needed credible support options to succeed. After all, nobody was going to bet their job on the system without 24x7 support and toll-free numbers.
Linux has taken off, and the support options exist. So why are so few companies buying those support services? Perhaps there are far fewer important Linux deployments than people think. Without deployments, there is little need for support contracts. We don't believe it, though.
What if the truth were something else: what if Linux users simply do not need support? One of the nice things about Linux, after all, is that it simply works. It is also true that setting up Linux and making it work in a specific role requires a certain amount of Linux expertise. By the time you've figured out how to make it do what you need it to do, you know enough to keep it working.
And, for the times when external help is needed, it's still true that the best source of that help is the net. Searching out an answer or asking in the right forum can be faster and more effective than talking to a technical support call center employee - and cheaper.
Could it be that, in the end, technical support services are only needed for proprietary, black-box systems? When the source is free, the development directions are known, the bug lists are public, and anybody with the requisite skills can fix a problem, there is little need to buy expensive support services. Free software empowers its users to take responsibility for keeping their own systems going.
Another bad quarter at VA Linux. Last December, VA Linux Systems reported $56.0 million in quarterly revenue. Thereafter, with great disappointment, it produced its January, 2001 revenue figure: $42.5 million. At that time, the company suggested that revenues would fall further, perhaps even "under $30 million."
Did they ever. VA has just put out a press release stating that revenues for the quarter just completed would be in the range of $18 to $20 million. Under $30 million indeed. In other words, the money flowing into VA is one-third of its peak, and is back at levels last seen in 1999.
It looks bad; one might well wonder if we are seeing the death spiral of one of the oldest and most successful Linux companies.
Probably not. VA has gotten hammered, but the company is not necessarily doomed. Now is not a good time to be trying to sell technical infrastructure; nobody is buying. Even Cisco has seen a 30% fall in revenues. The dotcoms are no longer spending money like drunken sailors (they rather resemble badly hungover sailors these days), and the tighter economy has caused a lot of companies to stop spending. Companies like VA are highly exposed to this market; they benefitted from that exposure over the last few years, and it is hurting them now.
In other words, VA's problems are not inherent in its business model or Linux. It could have benefitted from a more diversified customer base, but the simple fact is that these are hard times.
VA remains a company with a strong brand, good products, and a staff full of top-tier Linux hackers. It also has money in the bank to keep it going for a little while yet. It will never have an easy life, the market is far too competitive for that. VA may also find itself to be an acquisition target as long as its stock price remains low. But, when the economy begins to pick up again, VA should be well positioned to come back.
S/390 Linux to power Banco Mercantil. Not all the news from the Linux business world is bad. IBM is expected to announce on Thursday, May 3, that Banco Mercantil, one of Venezuela's largest banks, will be deploying Linux on an S/390 mainframe. This installation thus becomes one of the first high-profile financial institution deployments for Linux.
Initially, the S/390 (running SuSE Linux) will be replacing some 30 NT boxes and handling fairly mundane tasks: file serving, domain name service, firewalling, and web serving. It will also take on some simple financial functions, such as allowing customers to check their account balances; this capability is helped by the "two cryptographic processors" in the S/390 system.
This step was a fairly easy one for Banco Mercantil to take - it already had the IBM mainframe in house. So it was just a matter of setting up the Linux partition and installing the SuSE distribution. The cleverness of IBM's strategy can be seen here: many banks and other large institutions have these mainframes. The S/390 port allows these institutions to dip their toes into Linux easily, and to experiment with moving their tasks and software over. It wouldn't be surprising to see more announcements of this variety in the near future.
SDMI followup. Last week's LWN Weekly Edition discussed the threats against professor Edward Felten, who was planning to present his paper on how he cracked the SDMI watermarking scheme. Prof. Felten, of course, decided not to present that paper, citing the expense and uncertainty of litigation as the reason.
Many people have pointed out that this development isn't quite the defeat that it seems (see, for example, this Salon article). The paper, of course, has already been published on the net, so the information is out there. Meanwhile Prof. Felton has shown the world, in a graphic way, that the Digitial Millennium Copyright Act is a serious threat to freedom of speech in the U.S. That demonstration may prove to be far more valuable than a presentation of his SDMI paper.
The DeCSS case reopens. One place where the withdrawal of the SDMI paper may have an effect is in the DeCSS appeal, for which testimony began on May 1. This case, of course, is based on the DMCA, so demonstrations of the DMCA's effect on freedom of speech are relevant. For coverage of how the testimony went, see this Wired News article, or this highly detailed Slashdot article. Predicting the outcome of these cases is always perilous, but this looks like it is going to be a tough battle.
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May 3, 2001