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Red Hat Software Businesses

Red Hat Closes SF, Office, Lays Off Staff 147

Posted by timothy from the best-of-luck-to-the-newly-employable dept.
pmccallick writes: "Wired is reporting that Red Hat just closed its SF office. The article goes beyond stating the facts to suggest that RH's business model is flawed." To be fair, the article also quotes an analyst who points out that Red Hat "has $320 million in cash on hand, that it consistently meets quarterly revenue expectations, and that its gross margins are improving."
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Red Hat S.F. Office, Lays Off Some Staffers More

Red Hat S.F. Office, Lays Off Some Staffers

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  • Wasn't their SF office made up almost entirely of web designers that they hired right after their IPO, to flesh out redhat.com as a portal site?

    I forget the name of the company they hired most of them away from, but it was covered here.

    --
  • The stock had been way overvalued, he said, thanks to overly enthusiastic investors who "believed Red Hat was going to overtake Microsoft. They don't believe that now."

    It seems to me that the word was loud and clear at the time of their IPO. "We don't want another Microsoft!" Didn't this ring in the ears of everyone with a spare 10$M under their pillow as not overtaking?

    Too much ego power. *tsk-tsk*

  • I was thinking of it more in terms of quashing competition rather than a solid investment by Microsoft. I realize that most of RHATs value is based on people and goodwill, and that as soon as the purchase was completed, there would be little value left. However, Microsoft sets back Linux distribution (via Red Hat) and advocacy (Slashdot) pretty significantly with just a smidgen of its cash.

    Of course, its all hypothetical, and I don't believe it would ever happen. But its fun to say 'what if'.

  • Yeah, but if you look at this graph [quicken.com], you see that they went from $30 to $6 in less than a year and a half. That's a lot smaller drop. The skyrocketing value a month or so after IPO was insane, and probably due more to speculation (gambling), rather than any correlation between stock price and reality.
  • Wow. My kneejerk reaction is that ideas 1-4 are AWESOME. Do it, RedHat! (Would someone submit this to bugzilla under "feature request"?) 1) Drop the dumb subscriber model -- have a free login that is as good as Debian's Apt (you could learn a lot about packaging by watching "apt-get update; apt-get dist-upgrade" run on a debian box!) 2) Have a "silver/gold/platinum" tiered subscription model, in addition to the free one, w/ guaranteed response time/login (higher level == better performance/response). Be willing to sell "one time" tickets as well as annual subscriptions. 3) Somehow, someway, accelerate the various Gnome/Nautilus/Glade and other development tools such that its easier to manage and handle projects, create docs, etc. I know there are people out there working on "javadoc" like things for c/C++ -- hire them and make it nice. 4) Consider starting/sponsoring a project to CLEAN UP /etc and /var make a GUI to handle them.

  • Don't forget people who like to reward good work. I've purchased a boxed version of RedHat's 6.0-6.2(notice 7 isn't in there...). In each case I already had an ISO of RedHat burned and installed on my system, but wanted to reward RedHat for putting together a distribution that served me well. Just because the software is offered for free doesnt mean consumers won't still voluntarily compensate them for their work.
    treke

  • When Red Hat opened that office, RH had not made some of the acquisitions it has now. That's what these layoff are about: aquisitions have created some redundancies. They have (at least) two other offices in CA, how many offices do you feel they should have in a single state??

  • Yes, their stock was seriously overvalued during what turned into a .com-IPO-blitz. Fortunately, they're one of the few ".com"s (I hesitate to call them that because of this) that had a (semi-)solid business model and product. Yes, its untested - but its still solid. They're making money and growing slowly, even if they aren't growing to match that initial stock price.


    -RickHunter
  • That is among the reasons (the other being my wedding last summer to a Newfoundland woman) that I moved my consulting business [goingware.com] to St. John's, Newfoundland [www.fma.nl] and then bought a house in mid-coast Maine, near Rockland.

    In Santa Cruz, California [cruzio.com] I was paying $1275 a month to rent a two bedroom half of a duplex. In St. John's, I rented a three bedroom two-story house for $500, and in Maine I'll be owning a four-bedroom home for a house payment of $799 - with an oversized two-car garage.


    Michael D. Crawford
    GoingWare Inc

  • Being from the midwest I read the short and had NO idea what an "SF office" is till I click on the article. Can the editors please expand acronyms that people who submit articles use that don't make sense to the rest of us?

    For a minute I though Red Hat had closed their "sexual fetish" office and I was getting ready to send them an email demanding it back!
  • If they have so much cash on hand, then why are they closing offices and firing employees? Really, what's happening is that they're looking into the future, and they see that cash drying up, soon. The business model isn't working out as well as they had hoped. If they were growing like they say they will be, then they wouldn't be closing offices. This is bad news for Red Hat.

  • How do you know they make money? Last I checked, SUSE is a private company, and they don't disclose their financials.

  • 1. OEM's such as VA Linux, Penguin, and hopefuls Dell and Gateway.

    2. Small - Mid-Size Business Networks. Admins don't want to mess with all of the rpms and want the auto update feature, plus support.

  • The idea is consultancy. RedHat, being one of the biggest developers of Linux, is probably one of the best places to go to get developers for a Linux system. For example, anyone who buys Oracle Applications is free to modify the system themselves, yet Oracle has a huge business contracting out consultants for $500/hour to do modifications. The reason? Oracle built it, and they know best how to modify it. RedHat recently got a $1 million dollar contract to port the GCC/binutils/etc to a new platform. Why did they get the contract? Because they are _the_ people to go to. Its not about buying licenses, its about expanding technology, and noone can do it better than the ones who made it. I'm not saying that RedHat is the only one making Linux technology, but the more development time a company puts in, the better position they are in to say that they can handle extensions.
  • Most dotcoms start on the VC they make in the IPO.
    VC is typically raised _before_ the IPO. Rarely will VCs invest in publically held companies. It was, however, typical of the so-called DotComs to make an IPO a year or so after the first (or second) round of VC financing and sell at irrationally high prices. In fact, the primary reason the venture capital industry has done well on the aggregate recently is because the market has been willing to float these companies rapidly and at astronomical prices. Now that the market is starting to come back to its senses expect VC to start hurting again and expect them, ironically, to start making sounder investments (but probably mediocre returns).

  • I find it interesting that they didn't say what sort of jobs these people held at the off who were getting laid off. My guess is that the company is losing some dead weight, so 25 marketoids loose their job, it's not the end of the world!.

    Could also be slacker coders and other people who are pretty much useless. We all know that every company has them, those people who bullshit so much and don't do any work, they were hired during a blitz to get more staff and the HR were so impressed by all the buzz words that they were hired. Most companies need to do this from time to time

    -b

  • Comment removed based on user account deletion
  • I've worked at A Big Fruit Company [apple.com] during layoffs and saw that there were lots of approved, open reqs for staff going around, and although hiring may have slowed during the layoffs it definitely didn't stop.


    Michael D. Crawford
    GoingWare Inc

  • So something, once designated 'critical' will be critical for eternity? When I decide to drive to the store, my car is 'critical' to my 'plan.' Then, I notice the time, and the store is closed. My car is no longer 'critical' to my plans, because the plans have changed. Oh, look, a grocery store has opened in the bottom floor of my apartment building. Now I can sell off my car. Doesn't mean my finances are down the toilet. :-) A poor analogy, but an analogy none the less.
  • Exactly! RedHat is basically a bunch of hackers that are getting paid to implement and write yet-to-exist implementations. It's not about selling anything other than service. The old paradigm of selling software *products* is dead. Now (as always) service is all that's left after the industry gets crowded and the margins decrease to nothing.

    The only weakness RedHat has is having to wait until business gets enough brains to realize that the 25% it spends on software product is always followed by another 75% of support. (Which achieves only about 50% effectiveness on the initial 25%.) RedHat *starts* with, "Where do you want to go today?" and finishes with something like, "Now that we got you here, where do you want to go tomorrow?" and so on.

    This means cash flow for sure even though the margins won't ever touch Microsoft's. But someday, this model eventually takes over, and then nobody's will.

  • Actually investors love layoffs. Bill Anders multiplied General Dynamics stock over 5x while he whittled the company down to nothing. I just saw a news item that Covad stock jumped up when they announced a 13% layoff. It's not too fun for employees, but Wall Street loves it.
  • If RedHat continues on its current path, they will self-destruct the same way pets.com did. Either that or they will just become a penny-stock company.

    Here's why... Most people that use Linux are computer literate and proficient. Agreed?

    Well, computer-proficient geeks like us want and need dsl or other broadband services in our homes. And as dsl ramps up more and more of us will be downloading the iso's directly and burning them ourselves.

    So how's RedHat going to turn up a dime given this kind of situation?

    But then RedHat already knows this, that's why they're looking everywhere else for new strategies.

    Their idea of embedded systems is great, although, like vrml, who knows when it's gonna "really" make an impact...

    The other is perhaps to sell a security service whereby customers can get instant emails as to when updates are available, and then, with a command or two, have it ALL updated rather than having the admin manually go in and update each individual piece.

    Yes, security flaws are very very common with Linux, even more common than with Windows. Why? Because this thing is open-sourced, and there are tons of readily available cracks on the net. Sigh... I see a flame already...
  • They're operating, they're releasing products, despite taking a beating on Wall Street and not making a penny of profit. Since I don't have their financials on hand, and no analysts inside or outside of Red Hat seem to be freaking out yet, I think these type of the-sky-is-falling are mostly from reactionaries, or people who wish to see Red Hat fail.

    Note that it can take several years for a company to make a profit after starting up, private or public. Hell, Red Hat might still fail in the end - but you can't fault them for making the attempt to succeed, and the company shows no signs of closing its doors.

    They're not dead yet, not by a long shot.
  • Let me correct myself. Security flaws are not more common than Windows. Rather, it's the readily-downloadable EXPLOITS that are common.
  • I believe highly skilled management meant no management at all. Hey read between the lines or add some lines in between :)
  • just what IS redhat's business model? who are they selling to? i used to work in a computer store and it was only the people that had a vague idea about computers but were trying to pose as expert users that considered commercially packaged linux.

    who are they marketing to, exactly?
  • I never truely believed that it was possible to make money from Open Source software - something about the idea just didn't make sense, but that was never the point. Open Source is great for users, but that doesn't automatically make it a good thing for the creators of the software. Redhat is now learning that.

    --

  • It is commong practice for businesses to rationalize their departments and "cut the fat" so to speak.
    In my last job I was "re-orged" about 5 times...
    Big companies do this all the time..

  • Picking Holes (Score:3)

    by thegrommit ( 13025 ) on Monday December 04, 2000 @01:17PM (#582444)
    1) The cost of running an office is fairly significant - especially in a costly city such as SF. With the other two CA offices, I can see why they might chose to close it. Sucks for those staffers who want to live in SF though.

    2) The comments on RH management are from a former RH executive. Salt. Pinch.

    3) The web strategy has been constantly "evolving". Can you say Yahoo! ? From search engine to portal to AOL-wannabe.

    4) They're meeting their forecasts - generally a sign of management that understands what they're doing.

  • That's sorta hypocritical... (Score:2)

    by Anonymous Coward
    /. fails to mention that OSDN (formerly andover.net) laid off 20% of it's staff a month or two ago. And they say they don't pander to VA.

  • Good Business, Bad Hype (Score:4)

    by Syllepsis ( 196919 ) on Monday December 04, 2000 @01:19PM (#582446) Homepage

    IMO, Redhat is a good $500M operation. They have lots of cash, are doing well with expectations, and are slimming down operations in the post-dotcom-internet-irrationalstockblitz era.

    Investors tend to hate on redhat now because they paid an irrational amount of money for the stock. However, the stock was good but just far to expensive. It is like paying $1000 for a sack of idaho potatoes. They will be great mashed with some roast garlic...Mmmmm. They were not worth the $1000, but they were worth a buck or two.

    The IPO was raised and raised and raised because everyone wanted redhat, and it went through the roof, and it was always an interesting model worth some attention, but a 25B market cap was insane! That is close to GM right now! I think redhat can sell to a small audience, but it won't ever be a 25B dollar operation.

    Target price: $3, and then it gets an ACCUMULATE rating.

  • Their biz model is not as bad as most of the dotcoms, but that's not to say it's exactly a healthy one for the long term, IMO. While one might be tempted to subscribe to its Linux update service, I can't see too many people scrambling to sign up for their nebulous "services".

    We have seen this scenario before.
    • Talking head Melissa London says "This is not a material event" and an unnamed staffer quickly replies "They're closing a whole office. That seems material to me".
    • Stock price dives from $151 to $6 - that's a drop of over 90%.


    One of the things that IS similar to your average dotcom that once attracted investors is their cash reserve. Their most recent burn rate is apparently $1.9 million per quarter. At that rate, their reserves will last perhaps 20 years. If their management is to blame, as opposed to a faulty business model, look for them to start bailing out. Quickly. The downturn in the U.S. economy couldn't have come at a worse time for Red Hat. I wouldn't go near these guys with a 10-foot pole.
  • Actually they opened up their finacials to the press in June 1999. Just do a search on google about it.
  • Not really... I would have done the same thing. My company X takes over your company Y. My company already has developers in the area. My new division, Y, has developers doing the same thing in the same area. Is it increasing my productivity? Probably not. Do they communicate with each other? Maybe. Does it make business sense to have a secondary team? No. Time to cut some overhead. Do I close my established, larger division or the smaller division? You close the small office and their jobs will either transfer to the larger location, or be deleted. Not exactly fair, but when was life ever fair?

    What is one way to lower your competition? Make a better product? Sometimes. Better yet, buy your competition, then close their operations! Most major companies have done it at least once. Look at the auto market for example, or Microsoft.

    ----------------
    Life isn't fair...

  • Yeah, thanks for the support. I figured that would happen, though. There are a lot of kids running around Slashdot who have nothing better to do then to mod down things they don't like.

  • I have a solution and will reveal it only if Red Hat hires me at an hourly rate of $666.
  • Exactly! RedHat is basically a bunch of hackers that are getting paid to implement and write yet-to-exist implementations.

    No, they are not. They are a distributer who repackage other peoples applications. Almost all of the stuff they sell was written by others. They build, configure, integrate and package it. This is primarily what a distributor does.

    The old paradigm of selling software *products* is dead.

    On what do you base this claim ?

    Now (as always) service is all that's left after the industry gets crowded and the margins decrease to nothing.

    On the contrary, if you can create a software product that is valuable to your customers, there's no reason why the margins should decrease.

    The only weakness RedHat has is having to wait until business gets enough brains to realize that the 25% it spends on software product is always followed by another 75% of support.

    If it is indeed support that is more expensive, then that would seem to be more reason why the product is worth spending on (for example, if you spend 40% more on the product, and save 30% on support, you are making money.)

    This means cash flow for sure even though the margins won't ever touch Microsoft's. But someday, this model eventually takes over, and then nobody's will.

    Socialism is good for socialist economies.

  • The idea is consultancy. RedHat, being one of the biggest developers of Linux, is probably one of the best places to go to get developers for a Linux system.

    This is not entirely true. Redhat primarily repackage and integrate. They do not develop an enormous amount of software (there is not one major software project that has been initiated and completed at Redhat).

    For example, anyone who buys Oracle Applications is free to modify the system themselves, yet Oracle has a huge business contracting out consultants for $500/hour to do modifications. The reason? Oracle built it,

    But Redhat didn't "build" Linux (well, they compiled it, but they didn't write it).

  • Easy, they aren't trying to make money selling the software. Their business plan is to make money selling support, both to end-users and corporations.

    So why waste resources on development, and distribution packaging ? Why not just sell support ? would it not be more profitable ? THat's the problem with the "write-free-software-and-sell-support" "business" model. You're running two operations, one profitable (selling support) and one unprofitable (writing free software). So why maintain the unprofitable operation ? For example, why is it in Redhat's interests to allow their distribution to be downloaded for free, and why is it in their interests to fund software development >

  • This company is the very def. of a dotcom.

    No, unlike most dotcoms, redhat was in existence and growing with revinue before they went IPO. Most dotcoms start on the VC they make in the IPO. By having hundreds of millions of cash they can affoard to massively upscale operations and take some hits for a few years. Now they are slimming with lots of cash in hand, and it looks like they may have a 50-50 chance of actually making it. In the world of small cap investment, those are very good odds (if they were actually small cap like they should be).

    Just because you don't like linux does not mean that there isnt a market. Investment in companies on the basis of whether you enjoy their products is a horrible mistake that many people make. This includes the people who love linux and bought redhat at $100 a share. It includes people who love windows and bought MS at $100 a share.

  • 2) Have a "silver/gold/platinum" tiered subscription model, in addition to the free one, w/ guaranteed response time/login (higher level == better performance/response). Be willing to sell "one time" tickets as well as annual subscriptions.

    I believe that is what Red Hat Network [redhat.com] tryes to accomplish.

    5) Consider dropping your distro and adopting Debian. I know you are proud of RH, but the realeases appear to have significant flaws...7.0, 6.0, 5.0 were all disasters.

    Eh.. pardon me, but why on earth should Red Hat become Debian? Personally, I see no advantages in Debian except maybe apt (which is basically just aconvinient frontend to a package system and can be adapted to rpm).
    I also think that RH7 is the best Red Hat I have ever used. I don't see what the "disaster" should be about.

  • I can't believe how short a memory or how clueless people on this board are.

    Remember, guys, RedHat bought Cygnus. Does that ring a bell?

    Cygnus made plenty of money supporting custom ports of GCC and other tools for big computer vendors, especially embedded processors (intel960 anyone?).

    The money from developing custom ports of the tools to new systems can be quite respectable. And Redhat having bought Cygnus gives them about
    half of all the developers of the core GNU toolkit.

    So I think people are just out to lunch when they say that RedHat is just a packager of Linux
    distros. They are in fact an extremely high powered software development and consulting house.

    Sheesh. Who do you think maintains GCC?

  • they have basicly no overhead, other then the cost of cd production and paying a handfull of programmers to create install scripts. as for support costs, the end user has to pay for it.
    the only real flaw is that anyone can download a redhat iso and sell it cheaper, and sometimes better then redhat (mandrake) they are there own rival.
  • well.... I'm on dialup.... I have no cd-burner.... so that basically settles it for me (and after sending in any mail in rebates generally all you seem to pay is a buck or two of two and a stamp.... so I can't even understand them making any money off that either)
  • Why does coke put nice red packaging on what is essentially the same thing as generic plain-old effervescent sugar-water. It's an image thing. Throw some money at some godblessed coders, let them hack at some piddly apps and front-ends, and be a PR whore about the entire affair.

    You know, it's not like RedHat is sitting around doing fuck all.

    Dell, IBM, and NUMEROUS Fortune 500s suck on RedHat's TEAT to get the linux cred they so desperately want. What better way to spit in BillG.'s face than to get in bed with the enemy? Believe me, I live in the Triangle where RedHat is based. They're not exactly hurting. Ericsson, OTOH, just CLOSED DOWN their whole RTP prescence. So much for companies with physical product trumping a software "services" company.

    When it all comes down to it, the jewelcase and box means shit in this day and age. Anyone trying to sell a linux distro that is not freely available will fall below the radar, PERIOD. And RedHat reaps the profit.

  • I'm with you on this one. I had a downloaded ISO of 6.2, but when I needed a copy to load onto a server here at work, I got them to shell out for a full copy of 6.2 Pro - damn cheaper than the NT and 10 CAL's that would be required otherwise!

  • I would do the same (Score:1)

    by Anonymous Coward
    Before all you guys raise the ".COMs are doomed" flag, have you seen the prices in San Francisco? In the Internet age, It doesn't make sense for a .COM to keep its root in expensive places.
  • I never truely believed that it was possible to make money from Open Source software

    Maybe that is why they make money from support. Companies still want support, and they pay for it. A major support contract is big money.
    And of course the occasional home user that wants to not have to download all of it, and wants printed manuals. And support, of course.

  • Redhat's "business" model. (Score:3)

    by Matt2000 ( 29624 ) on Monday December 04, 2000 @01:23PM (#582464) Homepage

    Just what is Redhat's business model? Long term, how are you ever going to build a business as successful as people were predicting Redhat was going to be, selling something that is free?

    Sure, they can sell some CDs and some training, that's could amount to a pretty successful business, but not a software empire like Microsoft or anything of that magnitude. This is the reason that RH's share price [yahoo.com] is tanking hard.

    I personally think Redhat is a good thing to have around because they employr programmers that work on things I use, but as a business they reek.

  • And the P/E is *what*?! (Score:4)

    by Tackhead ( 54550 ) on Monday December 04, 2000 @01:24PM (#582465)
    > [an analyst writes that] Red Hat "has $320 million in cash on hand, that it consistently meets quarterly revenue expectations, and that its gross margins are improving."

    All of which are true. But until RHAT starts making money, it's still not necessarily a good investment.

    It's a better buy at $6.50 than at $150. But that doesn't make it a good buy.

    With $42M in revenue, you're still paying about 25 years' worth of revenue for every dollar's worth of stock you buy.

    The comparables for the rest of the sector are 12 years, and for the rest of the market, two years.

    Just 'cuz a stock is inexpensive doesn't mean it's cheap. Don't confuse your feel for the future of the technology (Linux) with the future of the stock price (RHAT). The market's littered with the corpses of people who've made that mistake.

    The stock market's about making money, not about boosting technology. It's neither good nor bad - it just is.

  • To be fair, the article also quotes an analyst who points out that Red Hat "has $320 million in cash on hand, that it consistently meets quarterly revenue expectations, and that its gross margins are improving."

    Please, analysts can twist words to make anything seem under or overvalued.

    If this is the case, why doesn't this analyst buy all of the $6.00 stock he/she can get their hands on?

  • You sir, can happily sniff my odious emanations.

    Idealists != Airheads

    Examples of organizations who rely on almost nothing but their brand to make them gigantically profitable and/or powerful:

    • Dell Computer (Name a component they actually manufacture; no, rebranding doesn't count)
    • Coca-Cola (sugar water, what a powerful IP)
    • Heinz Ketchup (ditto, tomatoes are tomatoes)
    • Roto-Rooter (AAAA Plumbing should work fine, but...)
    • UPS (why NOT use the Postal Service or some alternative courier?)
    • Amazon.com (why not just buy from a physical store? Because they simply don't have the selection)
    • The United States of America (there ARE other countries in this world; why is the US the most powerful? Could it be our Intellectual Property?)
  • Who is this one disgruntled mail clerk you talked to? Red Hat is centered around North Carolina BECAUSE THAT IS WHERE IT IS HQ'ed! What kind of flat statement is that? Red Hat Management is Bob Young, Matt Szulik and a bunch of YesMen. Yeah, let's see another clueless manager get a stock price up to >250 bucks/shr. Management will always be clueless to a geek because the geek only acknowledges those who can read obfuscated Perl and compile without menuconfig.

    Every mid-to-large business who uses linux buys the box version, buys the support, and hires RHCEs to maintain the internal servers. Don't think they implement things just because they had some money to burn. Everything is strategic considering they are only a seven-year old company.
  • Mass market productivity software is dead (altho it still has a fair amount of life support) simply because there is a limited number of features that has some use in such software. Office software has been pretty much dead since Office 95, and no significant development has been made in half a decade. Bug fixes and changing file formats is just life support and an artifical market.

    Productivity software in the windows market is dead. You cannot create a mass market productivity application in that market. It will be either a give-away product tagging on to a few corporate sales for survival, or it will be a short cash-in until Microsoft takes over the niche and integrates it into Windows if its popular enough. On the GNU/Linux side the dynamic is a bit different, but basically the same; the needed features will make it into free office productivity suites, and the unneeded features arent a strong enough selling point to have any market.

    There are only two real markets for software that have some long-term viability and that is entertainment software and vertical markets. And support, but that isnt a product.
  • OK, let's crunch the numbers, then.

    First, having expensive real estate office space in SF with expensive duplicate staff is a waste. Due to job market, not a bad deal to be cut loose, especially if they let you keep your options.

    Second, Open Source does not mean it's good business automatically. You can do Open Source in Spokane, WA, for a lot less per employee than in San Francisco, CA. Price, about a fourth, counting office space and employee costs. Or do it in other parts of the country.

    Third, pricing of their stock means little at this point. My personal evaluation is they're worth about $20/share, since I priced them at $40/share at IPO. When it got nuts ($140) I sold, and bought back in at 105 (25 shares), 28 (75 shares), and 22 (200 shares). Sold the 105 shares to declare technical loss and wash out the gains from the original 14 shares I sold at 140. I still think most tech stocks are overpriced by about twice their current market pricing. I will probably buy some more RHAT this month.

    Fourth, just because Red Hat is acting like a business doesn't change anything for Corel or VA Linux Systems. The latter is just a box maker, and margins are always slim in that sector. Wake me when all the IPO shares are sold out from expired lockups ...

  • Few of the bell-weathers are off by more than 50% of their 52-week high (and Nasdaq itself is off by about as much). LNUX and RHAT are off by more than 95%. They have performed MUCH worse than the market, and other tech stocks.

    I guess the concept of an IPO rush escapes you? The companies continue to putt along just fine, whatever else the market thinks.

    The stock market never has been, and never will be, the be-all and end-all of Linux or other Free/OSS software.
  • Redhat is in a commodity market. Their buisness model is to sell support and their distribution. Their idea is to be the Heinz of the Linux buisness. Their method is to increase the linux market by leaps and bounds until it can support such a buisness, because they want to be a brand-name vendor in a mass commodity market.

    Are they successful? Does it work? Well, you see about as many people equating Linux with Redhat as you see people equating Ketchup with Heinz. In my opinion that is hugely successful.

    Will it be hugely profitable? Not likely. The very idea of Opensource and Redhats buisness model is to create the ultimate commodity market where Linux is as prevalent as water. Still, Evian makes money from water, dont they?

    If some dot-com investor weenies didnt read the actual buisness model or the large amount of information and interviews available on just these very things and paid software-monopoly worth for a commodity buisness then that's their problem, not Redhats.
  • Given the choice between no-commute and SF, and an hours commute and a glorified suburb ;)

    Guess which I'd choose.
  • Just what is Redhat's business model? Long term, how are you ever going to build a business as successful as people were predicting Redhat was going to be, selling something that is free?

    Easy, they aren't trying to make money selling the software. Their business plan is to make money selling support, both to end-users and corporations.
    Support is an important issue for corporations right now, due to the fact that PHBs love buzzwords, but hate spending money on clueful admins.
  • I'm watching this whole process happen right now. A big company is officially adopting Linux to add to its list of desktop and server OS choices. They're currently hunting for a support contract and RedHat is amoung those being considered.

    Support is expensive and time consuming. Outsourcing makes sense.

  • Re:who is buying redhat? (Score:4)

    by Fisics ( 82038 ) on Monday December 04, 2000 @01:30PM (#582482)
    >who are they marketing to, exactly?

    A few months ago I had the opportunity to meet Redhat COO Tim Buckley at Penn State. I am a marketing major and I asked him about Redhat and marketing. Basically I asked him, what Redhat is doing to market to people who don't have a very strong idea about computing. I said that if someone perceives Linux as being too complicated to use, it is too complicated for them because a fundamental concept of marketing is the customer's perception is their reality. Ie. you can say Linux is easy to use until you are blue in the face but if people disagree, then you are wrong.

    He said that is a major concern of Redhat's and they are working with Eazel and Gnome to make a better user interface, to ultimately make Linux easier to use.

    He also went on to say that they want to agressively go after the pda market.

    Pretty interesting stuff. He was a really positive guy who said he liked working for Redhat because he truly believed in the philosphies behind Linux.

    Ben
  • Just what is Redhat's business model?

    I sometimes think that Redhat et al is somewhat like shareware without the obligation to pay. You can get it for free, but if you have any self-respect, you get the commercial box to support the makers (and bill it to your client, of course :-)

    ------------------
  • Redhat has found it's hard to be profitable selling tech support to a commody OS on commody hardware. As to be expected, especially given the amount of tech support available in a $50 book, or the LDP, or UseNET. I've always felt that the current model used to sell Linux was inadequet.

    Anyone can sell tech support, sell me something I can't get anywhere else. How about web based applications like McAfee [mcafee.com] is offering their customers now? Or better software bundles on you distrib CD's? (I saw some Linux shipping with ViaVoice just a few days ago for $60, same price as ViaVoice without an OS is).

  • redundant office (Score:5)

    by Lumpish Scholar ( 17107 ) on Monday December 04, 2000 @01:49PM (#582486) Homepage Journal
    They still have an office in Oakland (and another in Sunnyvale). The San Francisco office is related to the acquisition of a Web development company (Atomic Vision) there. Maybe they decided they didn't need to be on both sides of the bay?
  • It's a myth that SuSE doesn't target server boxes: they do and they
    say so (and they won `best server solution' earlier this year from
    some linux conference or another). What they don't do is try to make
    support their core revenue stream, and they try to follow organic
    growth (ie. build on your profits) rather than the IPO lottery.

    Today that's looking like a smart strategy, though I think Red
    Hat's troubles are overstated (one learns as little about the
    fundamentals of a business from share prices in the middle of a run on
    tech stocks as one does from them in the middle of an IPO gold rush).

  • "Red Hat laid off personnel doing duplicate work, said spokeswoman Melissa London. "Nine acquisitions in the past year created a lot of redundancies," she said."

    Regardless of the financial health of RedHat, that's a perfectly valid statement. They did a lot of buying, and now they're streamlining. This bunch of closures and layoffs isn't spelling the end of anything.

  • Re:Half sounds like so much (Score:3)

    by selectspec ( 74651 ) on Monday December 04, 2000 @01:32PM (#582501)
    Sun Microsystems Lays of Third of Solar Robotic Lab!

    Sun Microsystems today announced their intention to lay off a third of their Marketting staff in their Solor Robotic Lab which employess three people.

  • Comment removed based on user account deletion
  • Some of you are missing the point....

    Redhat only lost 1.8 million, on close to 20 million in revenue. They are close to profitablity! They are proving the model.... sure they're not going to over take microsoft any time soon, but they are not going away. So what if they closed a office of 25 people... The story just had quotes from a bunch of laid off, disgruntled employee's....

    -Tripp
  • You say Suse "does make money at this".

    Yes, Suse makes money, but their business model is very different from Red Hat's.

    • Suse targets the desktop market, Red Hat the server market
    • Suse CD's as sold in the boxed version can't be copied legally. Red Hat CDs _can_.
    • Suse's emphasis is on selling boxes. Red Hat wants to play with the Dells and Ericcsons to brand themselves into the Enterprise markets.

    I hesitate to say whether all Suse code qualifies as Free Software or open Source, because I'm not sure. I think their installer isn't, and I'm not sure about YAST (their configuration tool). I know for sure that all Red Hat code _is_ GPL.


    Anyway, I don't want to start a distro-war here, but I'm merely saying Suse doesn't have the same business model as Red Hat.
    --

  • Not a bad deal for the former employees (Score:2)

    by Anonymous Coward
    Being an ex-employee of Red Hat (Europe), I've
    experienced that Red Hat is a much better ex-employer than "current-employer":

    the article is right when it says that they can't follow a strategy: their marketing strategy in Europe was very unclear and constantly changing. Result: SuSE is still very much the market leader in Germary (~80% of market share), and Mandrake which hardly existed 2 years ago, has more than 50% of market share in France.
    Working at Red Hat was not a good experience for me (although you like to see plans changed on a weekly basis, but I don't)

    On the other hand, Red Hat is a GREAT ex-employer.
    Just add "Worked for Red Hat for X years" at the top of your resume, and post it on Internet.
    I had up to 5 offers a day, and finally was offered a job that paid 50% more that Red Hat...
    (and RHAT stock-options won't be worth anything before quite a while. Hopefully I'm not one of
    the employees that used the offered 15% discount to buy stock at $150... that are now only worth $6.)
  • While I certianly don't believe that to be successful in the tech world one must base their company in the Bay Area, I do seem some advantages to locating in a place where the resources you need are avaliable. This is why the movie industry in the US is largely based around LA. LA has the resources that movie producers need to make movies. SF has the resources that .coms need to throw away large quantities of cash in a hurry.

    Can you imagine this scenerio:

    airplanetickets.com and onlinediplomas.com are pleased to announce their joint relocation to a shack in rural Montana. "We believe that our purchase of this shack from convicted mail bomber Theodore Kaczynski (aka The Unabomber) will allow us the space that we need to grow our operation at a minimal cost" said Ima Dumass CEO of onlinediplomas.com.
    Obviously this would not be a very good idea. Rural Montana doesn't have the connectivity and workforce that is necessary for a .com business.
    _____________
  • But still, I think the ratio of buyers is quite high here. Probably mostly because downloading is more expensive and less convenient over here. Still, the morale is high, too. I enjoyed ordering Suse boxes for the companies that I worked for, because I knew it supported a product, a company and a distribution scheme I like.


    Andrew Tannenbaum allegedly said, "Never underestimate the bandwidth of a stationwagon loaded with tapes." The point is that the bandwidth you can get online can't rival the bandwidth you can get via physical media for large volumes of data. My installs from CD take around 20-25 minutes typically. And that it predictable. Downloading is more variable. If I had a CD burner, I would probably burn my own, but I don't.

  • Simple, Redhat expects to lose money every quarter. When they add up their earnings/costs at te end of each quarter, they find that they did, in fact, lose money. Therefore, Redhat has met their quarterly expectations.

  • Good news? Bad news? (Score:3)

    by jd ( 1658 ) <imipak@yahoGINSBERGo.com minus poet> on Monday December 04, 2000 @01:06PM (#582514) Homepage Journal
    Well, I guess it's bad news for the guys laid off. On the other hand, if it's a case of Red Hat streamlining and discovering that SF is not essential to life, the Universe, and everything, then it might actually be GOOD news.

    The day that businesses, big and small, are judged by the quality of their work, rather than the $/acre of their site will be the day that economic Russian Roulette and ecological suicide are placed in the museum alongside Roman ruins, Egyptian mummies and other relics of failed experiments in society.

  • will be the day that economic Russian Roulette and ecological suicide are placed in the museum

    I agree with most of your post, but...

    Egyptian mummies and other relics of failed experiments in society.

    I sure wouldn't call Egyptian mummies failed experiments. The reason that we all know about them is because of their relatively sophisticated embalming methods.

  • They didn't just compile it. The have internal versions of just about every package they ship. They keep track of patches for every package. If you look at the source RPMS, you will notice that there are several patches in there - certain ones are from the devel mailing lists, certain ones are from RH themselves. This is an _enormous_ job. They patch everything from the kernel to the C library, to the compiler, to X, to GNOME - EVERYTHING. So, its more than just packaging. They have to know how the whole thing works - every linker flag that could bite you in the butt, every bug for every package, all that stuff. And that makes them _very_ valuable.
  • Don't underestimate it. Bob Young has used that analogy to describe what Red Hat does - they're a marketing company, focused on a brand. RH's stock in trade is credibility. This looks nonsensical to techies, but if you've watched the "suit" reaction to Linux over the last few years, it's evolved quite a bit from "we'll never a use a free OS at this company!"
    RH gets their logo stuck on as many things as possible, forges alliances with existing players, and generally enters the PHB's field of vision. All but the most myopic PHB's are now aware of them.

  • Not necessarily a bad thing (Score:3)

    by tshak ( 173364 ) on Monday December 04, 2000 @01:07PM (#582522) Homepage
    Many businesses either over-expand or have to re-strategize their spending. Unfortunatly, investors and the like tend to react and think that the company is going down when it does something like this. I think RH is stepping up to the plate by aggressively consilidating their resources. This is not a bad thing IMHO.

    On another note, I'm sure many of the employees that where part of the "review" in SF where quoting Office Space frequently :).
  • My main point was how they get money for licensing linux to embedded manufactures, as stated in the article. I know about their revenue stream from the GCC support (which I think is very sound).

  • I never bought a copy of redhat commercially (although a friend did). I just (legally) downloaded the ISO's and burnt copies.

    Now that I'm more familiar with LINUX (2.5 years now), I'm experimenting with Debian.

  • Link? (Score:2)

    by luge ( 4808 )
    Given that I wouldn't count on /. to report it, but I read just about every other Linux-related news site in existence and hadn't heard anything about this. Care to back it up?
  • VA Linux, Slashdot's parent, isn't doing well either. The stock has dropped from 320 to 9. [stockmaster.com] And they're still not making money.
  • When it all comes down to it, the jewelcase and box means shit in this day and age. Anyone trying to sell a linux distro that is not freely available will fall below the radar, PERIOD. And RedHat reaps the profit.

    Last I checked, they weren't reaping anything resembling a profit ... Their model is a nice idea, but there;'s no evidence that it's viable.

  • [an analyst writes that] Red Hat "has $320 million in cash on hand, that it consistently meets quarterly revenue expectations, and that its gross margins are improving."

    All of which are true. But until RHAT starts making money, it's still not necessarily a good investment.

    Well, I both agree and disagree with your statement. In actuality, you should have said "when RHAT resumes making money". People tend to forget this, but RedHat *did* earn $.04 per share one quarter last year, and *did* earn money from time to time before their IPO. If you look at all the quarterly data, it does appear that they're far closer to having actual earnings in 2001 than many other (fallen) IPO littermates. Now, having said that, I think the last quarterly earnings report, due out any day now, is *really* important. If they beat the analyst estimates, possibly by breaking even last quarter, then people will feel much better about their prospects again.

    It's a better buy at $6.50 than at $150. But that doesn't make it a good buy.

    With $42M in revenue, you're still paying about 25 years' worth of revenue for every dollar's worth of stock you buy.

    The comparables for the rest of the sector are 12 years, and for the rest of the market, two years.

    The other day I tried to figure out what price I'd buy Red Hat at, and the answer was about $4 per share until I knew what the last quarter was really like. Given the lack of earnings warnings, I suspect they finished somewhere between -.02 per share to break even. But now I *suspect* there will be some charge against earnings in the next quarter for the consolidation of offices (3 offices and 20 people got trimmed). However, this should be put into perspective: I think Red Hat should be making about $5 million in interest on their cash this last quarter, and next year they could make about $20 million. That alone is enough to paper over a lot of sins, so if their sales revenue grows at anything like the rate I would expect, they will be well into the black by this time next year.

    Annoyingly, I suspect their stock will remain just a tad over-priced for the foreseeable future. :-(

  • Nonsense article. (Score:5)

    by small_dick ( 127697 ) on Monday December 04, 2000 @01:37PM (#582531)
    What a crap article.

    How many other dot coms have plunged steeper over the same period, and have no product on the shelves at all? Quite a few. At least RH has real labs, real contracts, real projects and a real product.

    Half a staff of 25 in a closed San Francisco office gets job offers in Oakland and Sunnyvale. Not to be insensitive, but out of 550 employees, this is hardly "a crisis" for RedHat.

    I'll be the first to admit that RedHat has made/is making/shall make serious mistakes, but this closure is very mild (unless you're part of the half with no offer, that would/does suck, I've been there)

    My advice to RH is the same as it has always been:

    1) Drop the dumb subscriber model -- have a free login that is as good as Debian's Apt (you could learn a lot about packaging by watching "apt-get update; apt-get dist-upgrade" run on a debian box!)

    2) Have a "silver/gold/platinum" tiered subscription model, in addition to the free one, w/ guaranteed response time/login (higher level == better performance/response). Be willing to sell "one time" tickets as well as annual subscriptions.

    3) Somehow, someway, accelerate the various Gnome/Nautilus/Glade and other development tools such that its easier to manage and handle projects, create docs, etc. I know there are people out there working on "javadoc" like things for c/C++ -- hire them and make it nice.

    4) Consider starting/sponsoring a project to CLEAN UP /etc and /var make a GUI to handle them.

    5) Consider dropping your distro and adopting Debian. I know you are proud of RH, but the realeases appear to have significant flaws...7.0, 6.0, 5.0 were all disasters.

  • <sarcasm>this is good journalism. i have often wondered why "journalists" don't take it upon themselves to ask more disgruntled employees what's wrong with a company.

    It seems to me that the way to figure out how to run your company is to shit-can a whole slew of people, and then ask them how the company should be run. Obviously wired news knows a reliable source when it sees one.</sarcasm>

    bottom line - RH laid off ~10 people. This is headline news?


    FluX
    After 16 years, MTV has finally completed its deevolution into the shiny things network

  • Re:Half sounds like so much (Score:3)

    by UnanimousCoward ( 9841 ) on Monday December 04, 2000 @02:14PM (#582535) Homepage Journal
    The headline makes it sound so bad, when it really isn't.

    You're missing the point. RH had claimed that the SF office was critical when it opened, and now they are closing it? And what about that business model? It's hard to plan long-term when you base your plan on a certain market cap, and then that market cap gets slashed by 1/10th and more...

  • Different in Europe (Re:who is buying redhat?) (Score:3)

    by Hanno ( 11981 ) on Monday December 04, 2000 @01:37PM (#582536) Homepage
    i used to work in a computer store and it was only the people that had a vague idea about computers but were trying to pose as expert users that considered commercially packaged linux.

    I'm a student of cs in Germany. All of my fellow students use Linux one way or the other and all of them have bought pre-packaged commercial Linuces in the past.

    (Of course, one of them would buy Suse 5.1 and give it to the rest, then the next gets 5.2 and gives it to the rest etc., but there is no systematic borrowing going on. I had four boxes of consecutive Suse editions lying around here before I switched to Debian recently.)

    But still, I think the ratio of buyers is quite high here. Probably mostly because downloading is more expensive and less convenient over here. Still, the morale is high, too. I enjoyed ordering Suse boxes for the companies that I worked for, because I knew it supported a product, a company and a distribution scheme I like.

    ------------------
  • ... And if Microsoft bought them, what would it really have?

    It wouldn't have total control over distribution of GCC, or Red Hat Linux, or any such stuff, after all, Mandrake was originally based essentially on RHAT's distribution.

    The source of market value for these companies is indeed rather "vaprous;" it is mainly in the possibility of future cash flows, and with the way that free software is "like herding cats," it won't be the Iron Fist Of Bill that would pull in the money, but rather a rather more subtle, less rigid Waiting Carefully For The Money To Perhaps Come In.

  • Half sounds like so much (Score:5)

    by Chacham ( 981 ) on Monday December 04, 2000 @01:08PM (#582542) Homepage Journal

    Half sounds like a lot until you realize its only about ten people. The headline makes it sound so bad, when it really isn't.

  • Besides the Red Hat Network, which Patel said could prove highly successful, he noted Red Hat's entry into the embedded-systems market. RedHat is licensing Linux distribution to firms such as Hitachi, Ericsson and Motorola for use in handheld devices, mobile phones, and pagers. "This is a stable revenue stream that's not going away, Patel said.

    How do they license Linux for use in the embedded devices. Aside from the obvious alternatives (pocketlinux [pocketlinux.com],ucLinux [uclinux.org]) why would a manufacturer rely on Red Hat to provide something that is already in existence, in which Red Hat really has no claims to 'license' a kernel that they don't own. As far as the distribution goes, if they are licensing it to commercial vendors for embedded systems is there any packages for the at-home hackers on this system?

    I think that Red Hat does have a sound product, the company does seem somewhat strange. I still do not understand their primary source of long term revenue, perhaps I never will.

    The stock had been way overvalued, he said, thanks to overly enthusiastic investors who "believed Red Hat was going to overtake Microsoft. They don't believe that now." Thankfully he at least said that. Best part of the article summed up right there.

  • People who have to install on multiple machines.
    People who have slow(modem) network connections.
    People who want the documentation or support.
    People who need people(how did that get in there?)
    People who don't want to spend 3000 hours downloading all th rpms.etc....

    If I were to install at work I would do a network
    install(one machine no frills). But at home I buy
    prepackaged versions. Just because it's worth $30.00 not to have to download all the programs
    that come with red-hat.

    Plus I would think a lot of developers would want
    the packaged version because that's what most
    people will probably use and if there are any
    bugs in the distribution that will affect their
    code they will probably want to know.

  • It's in a place called Owl's Head, near Rockland in mid-coast Maine.

    Rockland is the site of the Maine Lobster Festival and the Farnsworth Museum, where much of the Wyeth family's paintings are kept. I think it's a pretty cool place. Owl's head is pretty sparsely populated.

    We had the house pretty thoroughly inspected. Some things were fixed up by the previous owners. It is indeed on a septic system.


    Michael D. Crawford
    GoingWare Inc



  • From the Wired articlue: "But its stock has taken a breathtaking fall, dropping from $151 to around $6 in less than a year."

    Seriously, just look at this graph [quicken.com]! If the stock prices, along with the firing of employees are any sign, then this is not merely due to "created by acquisitions, and said the move has nothing to do with any troubles at Red Hat."

  • Interview with RedHat CEO Matthew Szulik on Motley Fool. [fool.com] Anytime you want to know about a publicly held company www.fool.com is a good place to start.

    --

  • I'll be honest with you -- I consider myself to be a low-to-mid level programmer, and a proud linux enthusiast.

    As far as the subscription model, most everything that they charge for is free on the Debian website, and is actually accessible as well (I've never been able to upgrade my system on the free side of RH).

    I know of no tiered model of RHN as I described.

    When I first used Linux, it was slackware, around 1995. Maybe every 4-6 months I had to redo the system due to tarball drift.

    RH 7.0 was a nightmare to me. The kernel wouldn't compile, PIs DRM/XFree 4.0 wouldn't compile, netscape seemed to go bonkers (even worse than usual) We tried oracle on it at work, and had to revert to 6.2...the queries would just hang the GUI.

    I like being able to use newer stuff, but I want it stable. I switched over to Debian, and it just seems very rock solid. XFree 4.0, helix-gnome, accerated openGL and quake3 -- all work great on my Debian boxes. I've never had this consistently on RH.

    Debian has a major learning curve, but I believe it is a better, more stable distro. magicfilterconfig is not as nice as the RH utilities.

    My only point is...if RH is so good at big projects and doing the GUI interfaces...and in many cases this is true...why not leave the distro integration and testing to Debian? When I read the Debian bug database and compare it to RedHats...some of the people at Debian really, really shine.

    There are great people at RH, too....obviously. Maybe they should pool their talents...that's all I'm trying to say.

  • I live in San Francisco, and the best computing/technology job I could find (no pretty papers, but I can learn) was at RadioShack. I finaly found a MIS posision for a payroll company in Pleasanton. (for those of you who don't know the area, Pleasanton is 1 hour away on bart, in the boonies) I tried everywhere I could think of in San Francisco, posted my resume on all of the web sites that I could find. I think that the dream that silicon is in silicon valley is dying out. At least at the entry-level posistions. :'-(

  • Preemptive Strike. (Score:5)

    by evilned ( 146392 ) on Monday December 04, 2000 @01:10PM (#582560) Homepage
    Before we all start saying that the open source business model doesnt work, simply because redhat is laying off people, there is a company that does make money at this. Its called Suse. The open source model for a software business can work, now whether redhat can make it work or not remains to be seen. I think redhat's problems have more to do with overextending itself with acquisitions, and the fact that there are so many other linux distros that are better. I dont want this to be distro flame war, so if redhat works for you, great, I'm happy for. I just prefer debian or mandrake.
  • If this were the Reagan era, someone would buy them up, take the cash, spin off pieces and sell off other assets.

    Despite their minor woes, 3 offices in the bay area is rather much. With Oakland and Sunnyvale they pretty much cover the ends of the bay. SF must have been a money pit.

    --

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