From PC Week:
zdnet.com
Slashdot opens itself up for Wall Street
The famous open-source site is going public, via parent Andover.net's IPO. Will CmdrTaco be able to handle the fame and fortune?
By Scott Berinato, PC Week
September 21, 1999 11:06 AM PT
Touting itself as the "leading Linux/Open Source destination on the Internet," open-source portal site Andover.net and its properties, including Slashdot.org, have entered the pre-initial public offering "quiet period" mandated by the Securities & Exchange Commission.
Sometime later this year, Andover.net will offer 4 million shares of common stock (leaving 15 million shares outstanding) to the public at $12 to $15 per share in hopes of raising about $50 million.
But the legal machinations that shush Andover.net's notoriously opinionated and community-minded Linux site have also given the Linux community a peek at Andover.net's plans for Slashdot and its open-source future via the company's financial prospectus.
The prospectus is 105 pages of standard Wall Street fare, including about 15 pages devoted to the risks associated with going public. After those risks are laid out, the company's business plan, including an e-commerce strategy, dominates the text. (Financial performance charts -- which demonstrate how little founder Rob Malda, aka CmdrTaco, worked to keep Slashdot.org running -- fill the remaining pages.)
Like the mightily successful IPO of Red Hat Inc. (NYSE:RHAT) before it, Andover.net, of Acton, Mass., presents unique challenges to Wall Street in part because it deals with open-source software and the Linux community.
"Through our network of Web sites, we provide a solution designed to meet the needs of the Linux/Open Source community and its developing markets," the prospectus reads under the section titled "The Andover.net Solution."
"As an extensive provider of cross-platform content, Andover.Net is a natural place to begin the transition to Linux/Open Source from other operating systems. As the Internet's leading Linux/Open Source destination, we also furnish an environment for Linux/Open Source information exchange, downloadable resources and business transactions."
The emphasis, it appears, will be on the latter: "business transactions." Andover.net wants to significantly increase its online e-commerce presence, according to the prospectus.
In outline, Andover.net wants to become the Amazon.com of the open-source world, but with editorial content and community forums to boot.
"We intend to expand our e-commerce offerings by selling various Linux products such as computer hardware, books or CDs, and services such as installation or support," the filing states.
The business plan also calls for continued acquisitions of open-source Web sites. A couple of targets could include Linuxtoday.com and Linux.com, the latter operated by hardware vendor VA Linux Inc. The prospectus does not mention selling Linux software.
But the prospectus makes clear that the company is counting on the e-commerce portion of its business for revenue.
"If our e-commerce strategy does not generate a significant amount of revenue, then we expect to depend primarily on advertising revenues for the foreseeable future," Andover.net states.
Those advertising revenues are neither huge nor widely diversified. Andover.net's top 10 advertisers accounted for 65 percent of its revenue in the first half of this year. During that same period, its top advertiser, IBM Corp. (NYSE:IBM), accounted for 17 percent of its revenue. Andover.net's top five advertisers are IBM, Compaq Computer Corp. (NYSE:CPQ), SGI (NYSE:SGI), Hewlett-Packard Co. (NYSE:HWP) and Intel Corp. (Nasdaq:INTC).
In addition, 40 percent of Andover.net pages included barter advertisements during the nine months ending June 30. (Barter advertisements are banner ads placed on a page in exchange for another party placing a corresponding ad on its page. They create no cash revenue.)
In the nine months ending June 30, advertising revenues totaled about $1.1 million, according to the document.
For all the uniqueness of a Linux IPO, it resembles other Internet IPOs in one sense: Profit, for now, doesn't seem to be an imperative.
For example, as of June 30, Andover.net's accumulated deficit was $4.8 million. In order to grow, Andover.net will have to sink cash into infrastructure. The collected sites currently run on 16 Intel-based servers running Linux and connected to RAID storage, according to the filing.
"We anticipate incurring additional expenses to increase our product development and sales and marketing efforts, to pursue additional strategic acquisitions and to support the growth of the organization. As a result, we believe that we will incur additional losses in the foreseeable future," the prospectus states.
Andover.net paid $1.5 million to acquire Slashdot.org and $367,000 to acquire another Linux/open-source site, Freshmeat.net. Both will receive further cash and stock considerations if the founders, notably Malda and a couple of others, remain with Andover.net for two years. Malda will receive an additional $3.5 million plus stock over the next two years should he remain with Andover.net.
That's a far cry from the out-of-his-house operation Malda was running before Slashdot was acquired. Slashdot had revenues of $18,000 and a net loss of $10,000 in 1998, according to the prospectus. Malda's salary is now $90,000.
But Andover.net clearly thinks Malda is worth the price. E-commerce may become the revenue generator, but the content at Slashdot, mostly chosen and moderated by Malda and his partner Jeff "Hemos" Bates, is what Andover.net is counting on to bring visitors to the site in the first place.
The prospectus plays up Slashdot more as a news source than a community site that caters to its audience's interests -- a slant that "Slashdotters" themselves might argue.
"We provide an independent, unbiased source for content," the prospectus states, "much of which comes from the candid Linux/Open Source community itself . . . Through broad, unbiased coverage in editorials, community comments and comprehensive software listings, Andover.net is the largest independent intermediary for Linux/Open Source."
But many Slashdotters, Malda himself included, celebrate the biases of Slashdot.org and contend they are integral to the site's success.
In a recent Wired News story about online journalism, Malda was quoted as saying, "We're just not journalists." Later in the article he said, "Sometimes Slashdot is reporting. . . . Sometimes we're news. But mostly it's more like, 'There's something cool over here, what do you guys think?' and then the gang . . . tries to have a rational -- or not so rational -- discussion."
Andover.net also did its homework for Wall Street by showing that the people reading Slashdot will buy from Andover.net.
A study cited in the prospectus outlines who visits the Andover.net sites. The study, by the Laredo Group, was commissioned by Andover.net.
The average Andover.net user spends 15.8 hours online per week, not including e-mail, according to the study. Of that, two hours are spent at Andover.net sites. The average household income of visitors is $61,000, and 60 percent of visitors come to Andover.net sites at least once a week.
The study goes on to say 68 percent of visitors are responsible for buying computer products for an average of 150 clients; 74 percent have made online purchases (nationally, the average is 22 percent, according to Jupiter Communications); and 77 percent say they will make an online purchase in the next year.
All's quiet at Slashdot, sort of
The pieces for an IPO have been put in place, and now it's "hurry up and wait" for the Slashdotters. Except for one posting by Malda that stated he could no longer comment on matters pertaining to Andover.net and the IPO, those who run Slashdot.org have been silent on the IPO issue.
Not surprisingly, the story has generated a long and winding discussion thread typical of the site, with Linux users, so-called "Anonymous Cowards" and other Slashdot regulars chipping in.
"I have to say that I feel safer putting money into Andover than Red Hat," wrote "8ballcane" under the posted Andover.net press release announcing the IPO. "Andover owns two parts of the glue that holds the Linux community together, and, barring any screwups, can forge into new paths using the money. They seem to have a good collective head on their shoulders, and I wait to see what will happen in the months ahead."
One of the many Anonymous Cowards posting in response to the news wrote, "You're better puttin' your $$ into solid long term investments vs. short term flighty investments. Go Cisco!"
One Slashdotter posting as "meersan" had real questions about IPO's effect.
"It is with feelings of profound ambivalence that I read this press release...What happens if traffic on Slashdot decreases? Will shareholders insist on a format change to drive ad impressions up? If stock price plummets, shareholders will eventually hold the company accountable. I do not see any way to avoid ramifications to [Slashdot] itself. Moreover, neo-fascistic legislation has yet to run its course on the Net. What happens when a 12-year-old's mother sees him reading Anonymous Coward flame-drivel, and sues Andover for child endangerment? (Could this bring even more moderation changes?)"
Many readers noted the irony in Andover.net's claim that it would use "WR Hambrecht & Co.'s proprietary OpenIPO system" for the filing.
Another venture capitalist's press release announcing an investment in Andover.net quotes Andover.net CEO Bruce Twickler. "Our proprietary database-driven site creation tools, data collection tools, Web tracking and reporting systems, and other technologies allow us to get to a breakeven point on a new site quickly."
Under the heading "Intellectual Property," the prospectus states, "We generally seek to control access to and distribution of our technology, documentation and other proprietary information. . . . Content created or acquired by us is protected by copyright. The proprietary software that we use to run our business is protected generally by restricting third-party access, entering into confidentiality agreements with third parties who do have access and relying on copyright law."
When Andover.net acquired Slashdot, Malda said he wanted no part of the business aspect, and he is often quoted as saying he just wants to run a Web site.
"I have no problem trying to make money, but my concern is not to convert visitors into dollars," the 23-year old Internet millionaire and Andover.net board member told PC Week Online at the time of the acquisition. "My job is to make visitors happy. I have no intention of going down that path of the techie turned businessman. That's not what I'm going to do."
The question is, does he have a choice? |
