The New SCO: Lessons for Linux in Business

by Doc Searls

On Monday, August 26th, Caldera, now SCO Group, rolled out its new (actually, old) name at the company's GEOForum show in Las Vegas, Nevada. (Jeff Gerhardt gave us two reports from the show itself. This is kind of a sidebar to those reports.) Like SCO itself, GEOForum goes back a long way. (Until recently it was SCOForum and was held in Santa Cruz, California.) When CEO Darl McBride asked how many people had been coming X number of years, the percentage of longtime veterans was huge. He stopped when the field narrowed down one guy who had been coming for sixteen years straight.

The message: SCO is older than Linux by a long shot (the company was founded in 1979), and UNIX is senior to both. UNIX businesses have been around for eras in Linux and Internet prehistory. Some of those businesses involve extremely deep and abiding relationships between vendors and customers. The dependencies are often extreme to the degree that the customers can't live without them. SCO had a bunch of those relationships, long before Linux came along, and many of those relationships are still alive and well. In fact, they're saving the former "Linux company's" butt. What's more, those relationships give SCO a big advantage over Red Hat, SuSE and other Linux companies that still have nothing comparable to offer SCO's traditional kinds of customers--for now.

The pure Linux companies probably will catch up eventually. Meanwhile, SCO can't lead with Linux. They have to sell a UNIX family that includes Linux as one of three platforms: United Linux, SCO UNIX and UnixWare (the original AT&T UNIX, which SCO bought from Novell for a small fraction of what Novell paid to buy it from AT&T).

Like many of us in the Linux world, I never took an optimistic view of SCO. It seemed to me that Linux was doing much more market damage to the old mainstream UNIX vendors than to Microsoft. SCO was among the smallest of those UNIX vendors and had no hardware business to sustain it. That meant SCO was the UNIX company likely to get hurt the most by the Linux onslaught.

And, maybe SCO did get hurt to some degree. It certainly got devalued to the point where it could be bought by Caldera. But it also maintained a core base of customers, including Eckerd Drugs, McDonald's, NASDAQ and Egghead, and it had a sales channel with 16,000 partners. Since Caldera also had a strong channel focus, the merger of the two companies made sense to me. While others knocked the sale, I remained cautiously optimistic.

That's why I thought it was a terrific idea when I heard the company was going to change its name from Caldera to SCO. Let's face it, SCO had a lot more business than Caldera ever did and a better brand, too.

SCO might not be IBM or HP, but it's a very serious business that is certainly competitive with Red Hat. Revenues through the last four quarters are past $40 million. In his presentation on Monday, SCO Group CEO Darl McBride projected revenues at more than $60 million. Meanwhile, Red Hat's current revenues are just over $70 million. SCO Group has 545 employees, compared to Red Hat's 634. SCO Group's gross profit margins are nearly identical to Red Hat's, at 73.17%. And, SCO is ahead of Red Hat on turnover of inventory, assets and net receivables flow. It also has no debt. (Most of these numbers are from Hoovers).

SCO Group's 12-month revenue growth is also very positive at 1,324%, while Red Hat's is down 35.6%--in a market (8,000 public companies) that's only growing at 0.5%. (To be fair, Red Hat's 36-month revenue growth is 71.4%.)

Other reports (e.g., Maureen O'Gara in LinuxBusinessWeek.com) say Caldera's revenues in the past year were $71 million, compared to Red Hat's $77 million, and that 90% of the company's revenues had been coming from the old SCO side of the business. ZDNet and Infoworld both cite IDC, which puts the figure at 95%. In other words, SCO's UNIXes were doing a lot more for Caldera than Caldera's Linux.

The name change does much to remove those distinctions, though it remains to be seen how much the Linux and UNIX sides of SCO can leverage their apparent synergies. In this respect, SCO is now in the same boat as Sun, HP and IBM, but without a hardware business to support it. But I think they have a good chance of making it--very good, in fact. If big customers have stuck it out this long, why not longer? Those are significant birds in hand. Many of the Linux equivalents are still in the bush.

Again, nobody doubts that the number of new enterprise applications running on Linux will increase, and that the Linux share of UNIX vendor businesses will go up, but that's not the issue. The issue is whether or not those increases will be in compliance with the prevailing beliefs of the traditional Free Software and Open Source communities.

That's what stood out for me when I looked at Slashdot and Linux Today for reactions to Monday's news. There were maybe three or four positive responses out of the hundreds posted. To varying degrees, both SCO and Caldera were despised: "Caldera sucked", "Worst distribution I've ever seen", "good riddance", "unpleasant", "dead horse" and so on.

But the setup question comes from vluther of LinuxPowered.com under his post "The business plan smells fishy":

...can anyone tell me what the benefits of SCO are in today's world ? What does SCO provide that Linux already doesn't...or is not in the works? just curious...

It's a good question that's best answered by SCO's customers. They're paying millions of dollars for something, and 90+% of it isn't Linux.

Should the Linux community write SCO off because too much of what it's about is non-Linux? No. It means we need to learn from the continued success of what isn't Linux but is still in the same UNIX family. That includes Solaris, AIX, HP-UX, SCO, BSD and Darwin.

Linux is the leading member of the UNIX family in countless ways. By many measures, World Domination has been achieved. But it's a different kind of domination than the sort the software world is used to. Linux is a dominant choice, but its not the only choice. And that's not a bad thing.

Doc Searls is senior editor of Linux Journal.

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