LNUX......VA Linux takes over Andover.net
By Gracian Mack
Redherring.com, February 07, 2000
More than a cosmic communion around Linux, hardware maker VA Linux
Systems (Nasdaq: LNUX)'s acquisition of Andover.net (Nasdaq: ANDN) is a
customer grab that may drive open-source programmers away from their
favorite Web haunts.
Cash and business models are still new concepts to the Linux set, but the
announcement on Thursday that VA Linux Systems would buy Andover.net
for a mixture of stock and cash valued at approximately $1 billion points
out rising pressure in the Linux market to turn grassroots interest into
bottom-line profits.
"This could end up one of two ways," says Rob Enderle, industry analyst
for the Giga Information Group (Nasdaq: GIGX). "Either it could end up as
a coup for VA Linux, or it could be the death of Andover.net."
Mr. Enderle points out that given the free, almost socialist nature of the
open-source community, an information forum such as Andover.net, which
hosts such prominent open-source community sites as Slashdot.org,
Freshmeat.org, and ThinkGeek, might now be viewed as tainted, biased
toward VA Linux over other vendors in the space.
"Think back to when America Online (NYSE: AOL) bought ICQ. There was a
horrible uproar by ICQ users, who thought that the purchase was by a
company that was philosophically 180 degrees in the other direction of
what they had been used to," says Mr. Enderle.
COMMERCE TO THE FORE
For many, it was inevitable. As Linux became the most fashionable tech
term to attach to a Wall Street ticker symbol, it seemed natural that
commercial interests would rise above the needs of pure Linux
communities.
"Everybody is hedging their business model," says John Hansen,
president of the Linux integrator Newlix, based in Ottawa, Ontario. "Other
than in IPOs, there's not much money being made in this business yet."
VA Linux officials naturally played the deal as a good thing for the Linux
community. "We're creating a Yahoo (Nasdaq: YHOO) for developers,"
Larry Augustin, president and CEO of VA Linux, told a crowd of reporters
at LinuxWorld in New York on Thursday. "With our purchase of
Andover.net, we can offer the developer community better infrastructure
for open-source development and expand the range and effectiveness of
solutions available to our customers."
But one VA Linux official notes that Andover.net provides an attractive
marketing channel for a company trying to sell Linux products. "Our
business model is focused on connecting the open-source community,"
says Brian Biles, vice president of marketing for VA Linux. "With this deal,
we will be able to provide the hardware driven by Linux, plus a full array
of software applications for Linux, plus a direct link to the open-source
community. And that's how the community grows, through connectivity."
Mr. Biles maintains that his company won't stifle any of the open links to
other vendors on Andover.net. "We remain in a neutral position when it
comes to the advocacy of other vendors, so it doesn't matter whether it's
Red Hat (Nasdaq: RHAT) or Caldera Systems or whoever else, our
business model is focused on connecting to the open source."
But Mr. Enderle remains skeptical about the perception of Andover.net's
integrity among Linux developers. "Look, this isn't IBM (NYSE: IBM) buying
a computer magazine. This community is unique in that its basic tenet is to
openly share and develop code, and … Linux users have been connected
user to user. To wrap that all up in a single source from a vendor, well, I
don't know."
Newlix's Mr. Hansen was more optimistic. "CNet (Nasdaq: CNET) seems
unbiased, even though Intel (Nasdaq: INTC) owns a big chunk of them. I
think people are good at understanding what they are about and
maintaining the editorial [integrity]."
DUELING WITH DELL
VA Linux has a list of Internet customers that includes niche darlings such
as Akamai Technologies (Nasdaq: AKAM), eToys (Nasdaq: ETYS), CNet,
and 24/7 Media (Nasdaq: TFSM). Its total customer count more than
doubled during fiscal 1999, breaking the 1,100 mark from around 550 in
the previous year.
VA Linux astounded Wall Street veterans when its December 9 IPO broke
existing records with a 698 percent first-day gain, climbing to $239.25
from $30. Since then, the company has watched its market value drop
considerably, with shares closing at $128 on Thursday afternoon, already
reflecting a 2-for-1 split.
VA Linux now faces substantial pressure in the Linux server market from
the likes of Dell Computer (Nasdaq: DELL), Compaq Computer (NYSE:
CPQ), and Gateway (NYSE: GTW).
While Dell has emerged as the clear leader in efficiently building and
distributing its products, VA Linux hopes to differentiate itself through
support and services based on its Linux expertise, offering a single point
of contact for virtually every Linux-related need.
THE TERMS
According to the terms of the deal, Andover.net shareholders would get
$3.81 in cash per share and 0.397 of VA Linux stock. The deal values
Andover.net at just above $54 a share. Andover.net shareholders will
own 13 percent of VA Linux. The acquisition is subject to the approval of
Andover.net stockholders, many of whom are Linux community members
who got in on the December 8 Andover.net IPO through the W.R.
Hambrecht Open-IPO model.
The market whacked VA Linux's stock in Thursday's trading, knocking it
down $8.88 (6.5 percent) to $128. Andover.net shareholders were surely
happy with the deal, as their shares rose $9.13 (25.4 percent) to $45.13.
Dubbed the "worst performing Linux-related company on the market" by
some industry analysts, Andover.net's stock had shed more than 70
percent of its value since its IPO, bottoming out at $25 last week after
posting a high of $90 on the same day as the VA Linux IPO.
Both stocks were down in Friday trading, with VA Linux closing down $3 to
$125 and Andover.net closing at $42.63, down $2.50. |
