From:	 Gael Duval <gduval@mandrakesoft.com>
To:	 lwn@lwn.net
Subject: The Future of Mandrake Linux? The Answers!
Date:	 Fri, 05 Apr 2002 00:40:27 +0200

Did you become concerned after reading the "Future of MandrakeSoft" message 
that was released on March 11th? Do you feel that MandrakeClub is not an ideal 
solution for a "for-profit" company? Do you support the idea of the Club, but 
have been unable to pay? Would you prefer to become a shareholder? Here are 
the answers to many of these questions and more.

We've been impressed by the response to our latest message regarding the 
MandrakeClub. Our recent appeal to the community has generated many reactions, 
but also many questions. We'd like to take this opportunity to provide the 
appropriate response.

1. What are the results of the Mandrake Club?

More than 5600 people have subscribed to the Mandrake Club, including 3500 new 
subscriptions since March 11th. The membership consists of:

* 67% Standard members
* 24% Silver members
* 0.2% Gold members
* 0.1% Platinum and Corporate members.

Of the remaining members, 8% are previous donators (those who contributed 
money before the Club was created and were given free membership) and 0.8% are 
VIP members (these are important contributors to the Mandrake community who 
were provided free membership). The Club has generated more than 440,000 
Euros/$390,000 since it was first created on November 28th, 2001.

The members originate from 84 countries:

* 60% from North America (Canada, USA, Mexico)
* 30% from Europe
* 10% from the rest of the world.

We believe the over-representation of North America is due to that region's 
familiarity with shopping online with credit cards.

2. How has Club membership affected the company's finances?

Since we delivered our message on March 11th, the company has become 
"cash-flow positive". This means that during the past three weeks, more money 
has come into the company than went out. This is the first time since fiscal 
year 1998/1999 that MandrakeSoft has been a profitable company. However, 
please keep in mind that Club memberships are not immediately counted as 
revenue. Each yearly subscription is recorded each month at 1/12th of its 
value, so new memberships secure not the current revenue but the next year's 
revenue. The Club results are extremely encouraging, but still not entirely 
sufficient. To balance MandrakeSoft's accounts, the cycle of new subscriptions 
needs to continue at a high level. This leads to the question: how many new 
subscriptions are needed?

In order to calculate the minimal number of Club subscriptions needed each 
year, we can use two different factors: the operating results or the operating 
expenses. We are not allowed to disclose the current numbers until it is 
audited, so we will use the recent numbers.

In the case of operating results, the latest quarter (October/December 2001) 
saw a net loss of 1.9ME/$1.68M to result in, with unchanged structure, a net 
loss of 7.6ME/$6.89M per year. To offset this loss with Club memberships, we 
would need approximately 89,000 members at an average subscription fee of 85 
Euros/$75 per member.

In the case of monthly operating expenses, the latest letter to shareholders 
announced monthly operating expenses of 700KE/$620K which results in 
8.4ME/$7.4M per year. As stated in the MandrakeClub Q&A page, 56% of our 
employees work directly on the Open Source side of MandrakeSoft (development, 
internet websites, etc.). This means 4.7ME/$4.16M per year, which would 
require 55,000 members at 85 Euros/$75 per membership.

Please keep in mind the two simulations above are based on figures from the 
previous quarter which are likely to be different in the future. It doesn't 
take into consideration a projected growth in revenue (from product sales, 
services, e-services, etc.) nor does it consider the cost reductions which the 
company has been conducting for more than a year due to re-focusing our 
efforts on Linux-centric activities. Also, the average membership level is 
likely to increase with the introduction of new privileges for the highest 
level memberships.

So, is a target of 55,000 members reachable? If we look at the Linux Counter 
figures (http://counter.li.org), Mandrake Linux represents 3.6 million users. 
This means that only 0.15% of our users are current Club members; therefore, a 
target of 1.15% certainly doesn't appear to be unreachable. Many people have 
not yet been convinced to join, and many others are waiting for the 
opportunity to pay other than by credit card. The Corporate Club is also very 
promising since we have yet only recruited a small fraction of the companies 
who are currently using Mandrake Linux in their businesses.

Many Mandrake users are simply not yet aware of the Club and what it offers. 
Does your Mandrake-using neighbor know about the Club yet? Is your company 
aware of the benefits and advantages of a strong MandrakeClub? It's very 
important to talk to friends and peers about the Club and how to join. It's 
also important to understand that in the end, the real benefits of 
MandrakeClub come back to all Mandrake users.

3. Are there any payment methods other than by credit card in US Dollars?

Many people couldn't subscribe because of the payment mode. Following numerous 
demands, we now accept payment in Euros as well as wire transfers (worldwide) 
and checks (USA, Canada, France only). Additionally, we're currently exploring 
the possibility of payment with an automatic monthly debit for those who 
cannot afford a yearly payment.

If you have any other ideas on this topic, please let us know at MandrakeForum:
http://mandrakeforum.com/article.php?sid=2040?=en

4. The Club is not a serious business model.

Some people see the Club as a donation or public charity system. Several 
others have commented that MandrakeSoft should concentrate on the "real" 
business of selling products and services. We believe these perceptions arise 
from not fully understanding the Club concept.

The Mandrake Club provides two interests:

* Many people use our products every day, either at a personal level or in a 
business environment. These people benefit from the services that we provide 
-- for free -- centered around Mandrake Linux, such as immediate availability 
of the download version, security advisories and updates, online technical 
support, discussion forums, etc. These people are satisfied with what we 
offer, yet they also want to compensate MandrakeSoft so that we can maintain 
and increase our offers in the future. In comparison to the "shareware" model 
-- where the user is forced to buy software after using it for a certain 
period of time -- one could call the MandrakeClub concept "Opensourceware": a 
new concept of financially contributing to software and services with the goal 
of keeping it in the Open Source spirit. Before we created the Club, many 
users purchased our boxed products, even without really needing them, as a way 
to support the company and the distribution. MandrakeClub offers a much better 
solution to this dilemma which is better for the user (who receives real 
benefits) and better for MandrakeSoft (a yearly subscription fee is more 
reliable because it enables us to secure one year of revenue).

* Some people are attracted to special benefits and privileges such as the 
ability to download "proprietary" software and drivers which are usually only 
available in the boxed products. More than 60 commercial applications are 
currently available to Club members from the 8.2 retail packs -- one month 
before the commercial launch of Mandrake 8.2! And the Club will continue to 
offer more and more special privileges and benefits to its members. This is a 
very powerful concept because the prospect of new privileges are without 
limits. For instance, we recently negotiated with Sun Microsystems Inc. the 
ability to offer the Final version of StarOffice 6.0, complete with an OEM 
license, to all "Silver" Club members even before the application has been 
"officially" released. As far as we know, MandrakeClub is still the only place 
in the world where it's possible to get StarOffice 6.0.

Several people have suggested that we should make certain services, such as 
MandrakeForum or MandrakeUser.org, a "Club only" service, or even temporarily 
restrict the 8.2 download to Club members. We believe it is more beneficial to 
offer new features to Club members than it is to remove services from others. 
If we should ever decide to change this policy, it would only be due to 
absolute necessity (such as not enough Club subscribers).

5. The "traditional" revenue model is not always the best answer

The traditional revenue model of the Open Source world is based upon selling 
packaged commercial goods and value-added services (support, training, 
consulting). Nethertheless, it's clear that this model doesn't always benefit 
the majority of users.

In the case of packaged versions of Mandrake, we add commercial software, 
documentation, and support to our Linux products which are made available in 
stores. These products are very useful to many people, but on the other hand, 
a more experienced Linux user with a high-speed Internet connection wouldn't 
be attracted to such an offer. So a Linux producer whose development depends 
on box sales will tend to restrict the free distribution of its products by 
several means:

* by adding components with a proprietary license that forbids redistribution 
of the product
* by not providing easy-to-download ISO images from the Internet
* by delaying the online availability of a new release until the boxed 
versions become available in stores.

These activities do increase sales, but they don't help the vast majority of 
users. From the beginning, MandrakeSoft has always chosen to avoid such 
business practices.

Also, in the case of service offerings, a Linux producer could, theoretically, 
be tempted to provide a system that is not very easy to use in order to sell 
more services.

To summarize, it's better for everyone if, for each user's particular need, 
there is an attractive offer with an associated revenue model:

* Those who need a packaged product can buy a retail box.
* Those who need services, support or training can buy a professional services 
offering.
* Those who wish to have free access to our products directly on the Internet 
will find that the Club is the best answer for them.

6. Why isn't it possible to sell company shares directly to Mandrake Linux users?

Several people have suggested a "fund-raising" model that could be offered 
directly to Mandrake Linux users.

A temporary increase in capital by selling shares doesn't solve a company's 
financial needs. All businesses need to adjust their expenses relative to 
income -- this depends on having a sustainable long-term revenue model. A 
shareholder expects a financial return on investment. A customer pays for a 
service.

Also, a special stock offering is very difficult to organize due to the 
multitude of regulations in various countries. It is much easier for people to 
become MandrakeSoft shareholders by purchasing shares on the public markets 
(US OTC or Euronext Marché Libre). While it is true that new shareholders 
don't inject new cash into a company, shareholders do make fund-raising easier 
because if the demand for MandrakeSoft shares is large, someone who already 
own many shares can sell them on the market and then subscribe to a dedicated 
increase in capital.

7. Conclusion

MandrakeSoft is a company whose goal is to provide a modern, powerful, and 
popular operating system. The current Free Software revolution provides an 
incredible opportunity to provide a "standard" software platform to a 
technology-based world that is getting more complex every day. The widespread 
adoption of Linux is creating an ever-increasing demand for value-added 
products and services that will progressively turn MandrakeSoft into a very 
profitable company. Nevertheless, it is important to also explore and 
implement new revenue models which are in harmony with the principles of Free 
Software. The MandrakeClub is, so far, the best vehicle to reach this goal -- 
but its success depends on the help and support of Mandrake users everywhere.

Subscribe now to the Mandrake Linux Users Club:
http://www.mandrakelinux.com/en/club/

Subscribe now to the Mandrake Corporate Club:
http://www.mandrakelinux.com/en/club/corpo.php3

Most frequent Questions/Answers are available at:
http://www.mandrakelinux.com/en/club/club-qa.php3