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The Caldera/SCO deal completes. Caldera Systems - now Caldera International - announced on May 7 that its acquisition of much of SCO had finally been completed. It has been a long process - the deal was originally announced last August. With this [Caldera/SCO] acquisition, Caldera now claims to be "the largest Linux company in the world." Certainly it will be a change for the company, and perhaps for the Linux industry in general.

Caldera is getting SCO's Server Software and Professional Services divisions, along with UnixWare and OpenServer. This all brings:

  • A vast increase in headcount, quadrupling Caldera's staff to over 700 people.

  • A major increase in cash flow. Caldera's revenue for the quarter ending January 31 was just over $1 million. Throw in the SCO divisions and that number jumps to almost $25 million. Similarly, revenue for the year 2000 goes from $4.3 million to $143.5 million.

  • SCO's massive sales channels and marketing organization. Caldera now claims over 15,000 resellers worldwide.

  • And, of course, the proprietary UnixWare and OpenServer products.

None of this comes for free, of course. SCO gets $23 million in cash now, another $8 million in installments after a year, and 16 million shares in Caldera. If Caldera manages to make more than expected from OpenServer, SCO gets a 45% cut of the excess as well.

All that revenue looks nice, but it's best not to lose sight of the overall picture, as found in the registration statement (warning: 2MB of legalese) filed in March:

Caldera has not been profitable. The server and professional services groups have not been profitable and their revenue has been declining.

Somehow Caldera is going to have to find a way to arrest the fall in SCO's revenues while cutting enough costs to actually make a profit. As an added little challenge, Caldera gets the costs of the SCO groups immediately, but none of their accounts receivable or bank balances, meaning that those groups will be a dead weight until the new invoices go out and get paid. Caldera has money in the bank, even after handing $23 million to SCO, but it may well see those reserves shrink quickly in the near future.

Caldera's hopes, of course, are to work the company firmly into the enterprise market by way of SCO's existing extensive customer base and deployments. The current UnixWare and OpenServer business can be extended by improving those products' interoperability with Linux. Meanwhile, as SCO customers begin to think about transitioning over to Linux, Caldera will be very nicely positioned to help them out. With luck, SCO's customers will drive Caldera's Unix and Linux business for years to come.

It might just work, if Caldera can manage to keep the attention and loyalty of SCO's customer base, and if it can get revenue and expenses a little better in line. Those are big ifs, but nobody said that the business world was easy. This is a new phase in the development of the Linux business community, we're most curious to see how it will turn out.

No profitable businesses? That said, give us a moment to gripe about one sentence buried deep within the Caldera/SCO registration statement:

Caldera knows of no company that has built a profitable business based in whole or in part on open source software.

Is it really true that no open source company has been profitable? How about:

  • Sleepycat Software has been doing nicely with the Berkeley DB for years.

  • Digital Creations has built a solid business on Zope, and was briefly profitable before taking a new investment and launching into another expansion phase.

  • Prosa srl was doing well before its acquisition by Linuxcare, and is now reborn from the ashes of that mess.

  • Cygnus Software was an open source company way back before most people had heard of free software, and did very well.

  • Red Hat, which bought Cygnus, is closing in on profitability.

  • Cybersource has been doing well in the support business for years (see this week's Letters to the Editor Page).

  • It is not much of a stretch to include O'Reilly & Associates on this list.

  • Let us express our apologies right now to all of the profitable companies that we left out.

Business is hard, and free software business may yet prove to be harder than many others. But it should not be said that nobody has succeeded.

PriorArt.org enters the software patent fray. A new site called PriorArt.org has announced its existence. This site is positioned as a way for free software developers to avoid having their techniques patented out from underneath them.

The idea is this: patents can be invalidated by a demonstration of "prior art" - proof that somebody else had already invented the technology of interest. Prior art must be documented, however; it's not enough for somebody to say that they were using a technique years ago. It is also highly preferable that the prior art be available to patent examiners when a patent is applied for. When the information is easily available, the patent should be denied at that stage. Otherwise a court case may be required to bust a patent that has been issued, and that is an expensive proposition.

So PriorArt.org is inviting free software developers to disclose their innovations through their site. Disclosures go into a large database, which may be searched by anybody. It is claimed that this database, which is maintained by IP.com, is consulted by patent examiners. Disclosures are timestamped and notarized (somehow) so that there is no doubt as to the timing of any particular discovery.

This approach thus differs from BountyQuest, which focuses on digging up prior art to break patents which have already been granted.

The service is not truly free. The normal charge for this sort of disclosure through IP.com is $19.95. This charge is not being waived for free software disclosures; instead, donations are being solicited to purchase "publication vouchers" for free software inventions. IP.com thus hopes to make money from this operation - and an extensive database full of inventions could prove useful as well.

Any effort which helps defeat software patents is helpful, certainly. There are some problems with this approach, though, that could affect its long-term success.

For example, consider the problem of who will actually disclose inventions through this system. Free software developers are busy people who are unlikely to find the time to write up every "invention" and feed it to a web site - especially a web site for a proprietary database which requires a credit card number even to submit a "free" disclosure. Remember also that the most obnoxious software patents cover techniques that seem obvious to developers. Reasonable hackers don't tend to think that a little function they just put together might be patentable.

Disclosures will also be limited, of course, by the number of donations received to pay for them. At $20 per disclosure, the bill could get high fairly quickly.

But, more to the point, free software developers already disclose everything they invent, in the clearest possible form: working code. Source repositories on SourceForge and many other sites contain a detailed, time-stamped history of free software development. Rather than try to convince developers to write up their techniques, it would be preferable to find a way to mine the incredible database of prior art that already exists. A detailed of the kernel, gcc, emacs, PostgreSQL, or any other significant free software project would probably yield more prior art than will ever find its way into PriorArt.org.

In the end, however, this is all defensive action, based on the idea that the patent system is really OK, the only problem is that insufficient information is available to patent examiners. If you believe that the real problem is in the concept of software patents to begin with, these approaches will seem inadequate. Wouldn't it be better if we could fix the patent laws, and prevent software patents from being implemented where they do not yet exist?

Bruce Perens: Software Patents vs. Free Software. For a different approach to software patents, consider this lengthy piece by Bruce Perens:

Ironically, some of the biggest patent holders are the Free Software Community's own partners, companies like IBM and HP that have aggressively incorporated GNU/Linux into their business plans and expect significant revenue from it before long. IBM is said to hold 10% of software patents, and HP is one of the largest patent holders in general. It's important for us to start a dialogue with these and other partners. That's why I am calling a summit meeting on Free Software and The Law.

This meeting will have some specific goals, including getting a formal promise from the companies involved that they will not sue free software developers for patent infringement. Even better would be a promise to defend developers from patent suits brought by others. The companies involved in the meeting are, after all, benefitting from the work of these developers.

It will be interesting to see what comes of this summit, but patience will be required - it's happening at the end of August, after the LinuxWorld conference.

Inside this week's Linux Weekly News:

  • Security: Immunix 7.0 released with licensing changes, Turbolinux "spring cleaning", OpenSSH 2.9, new vulnerabilities in cron, Samba, minicom, and man-db.
  • Kernel: Buffer cache, page cache, and block I/O; ReiserFS: ready for prime time; ESR confronts brutality and heuristics.
  • Distributions: Yellow Dog Linux 2.0, an introduction to the development team behind it, the Debian Weekly News returns and Slackware moves up to Gnome 1.4.
  • On the Desktop: Desktop speed, Gtk+ 1.3.5, Mozilla 0.9, Multimedia with Fer de Lance.
  • Development: LinuxFund grants awarded, LSB 0.9, Cal3D, OpenSSH 2.9, Apocalypse 2.
  • Commerce: Craig Mundie's speech, Playstation Linux update.
  • History: The Wang patent lawsuit, AFUL founded, Ken Thompson trashes Linux, Free Standards Group formed.
  • Letters: The Linux support business; responses to Mundie; the trouble with packaging systems.
...plus the usual array of reports, updates, and announcements.

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May 10, 2001


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