Growth Strategy

PC Forum + Open Source & Linux

PC Forum is the premier schmooze event in all of technology. The top venture capital and investment banking firms all show up, as do the honchos of many hot companies. John Doerr of Kleiner Perkins, Giles McNamee of Hambrecht & Quist, Jeff Bezos of Amazon.com, Jerry Yang of Yahoo, Jay Walker of Priceline, Peter Neupert of Drugstore.com, Barry Diller of USA Networks (and perhaps soon also of Lycos) Mark Cuban of Broadcast.com...

The official topic of this year's conference was "Where's the ROI?" But interest was split evenly between that subject and open source. A couple dozen companies represented the first subject. Eric Raymond represented the second one.

Linux is so hot that twice I was propositioned by CEOs who wanted to buy Linux Journal outright. They just walked up to me while I was grabbing a coffee or a sticky bun and laid it out there. John Doerr and other VCs said "we have to talk."

Linux and open source are simply THE hottest topics out there right now. The word "Linux" alone is probably worth millions to SSC. For this and more substantial reasons (e.g. it exists, makes money and has a following), Linux Journal — and perhaps the whole SSC apparatus — is in a seller's market for itself. Big time.

Valuations

There seemed to be two different points of view on the value of Linux Journal, publications and other publishing properties.

The second POV seems to prevail. But it is clear in either case that Web sites are enormous added values. Nearly all discussions in the halls moved to the ubiquitous IBM flat-screen terminals, where Web sites could be viewed and on-line presentations given.

The Building Metaphor

It is clear that Linux and open source code provide building materials for business, and that programmers are architectural and building trade professionals. They like Linux because they can work with it. This has profound implications for development itself, and (more importantly) for its effects: better, faster, more efficient business. (The toughest question Eric Raymond faced from the stage came from Dan Bricklin, who began with, "There is a difference between building Levittown and building Manhattan.")

Much of Microsoft's success owes to its developer support, which involves supplying an endless variety of tools and help with using those tools. Microsoft tools, however, are limited by the closed nature of their source code, and the complete absence of any conversation around the development of the tools themselves (though not of their use). This is key. Programmers like to tinker with tools (as do builders). With Microsoft's tools, they can't. Worse, they have to cope with Microsoft’s other agendas, which mostly have nothing to do with tool utility. Worst of all, help comes only from one vendor, and from other code builders who also rely on that same vendor. Open source tools, on the other hand, have no agendas other than to be the best possible tools. Big difference.

The implications here are huge. They may be more huge than the Internet itself, because open source offers a completely different approach to building business infrastructure — one that promises to break Microsoft's lock-in strategies for applications, operating systems and business development tools. This is extremely appealing to VCs, whose business it is to fund world-changing companies and create the markets that surround them.

Changing the world is really the subject here. It could be that open source's much faster, more reliable and ultimately more widespread development model can do for application (and business) development what the Internet did for both already – but can do it in an even bigger way.

In fact, it might be best to understand the Internet itself as the first major open source project. Many more will follow, once this new development model is legitimized and institutionalized — either by existing company like Red Hat, VA Research and AOL, or by a new company arising from the open source conversation itself. It has to start there. And SSC has been there since Day 0.

Supporting open source – in other words, supporting a whole new development model based on relatively free and openly modifiable tools and building materials – will do to all of Microsoft's businesses what Microsoft did to Netscape's browser business alone. For John Doerr, the VC who has been putting together an anti-Microsoft cartel for many years (and orchestrated both the creation and sale of Netscape), open source finally promises payback time.

The Raymond Factor:

  1. Eric Raymond is huge. He moves worlds. To put this in perspective...
  2. Getting Eric involved at any level in any funding effort for SSC will add enormous $ value.
  3. Eric right now is weighing an offer from VA Research to become its director of development. He'll probably turn it down, because it would involve compromising his independence. But he would probably NOT turn down an offer to occupy the same kind of position with a new company the purpose of which is to husband and drive the whole open source movement.
  4. Eric preaches eight business cases for open source. All to some degree are predicated on this point: most software development is for use value rather than sale value, and open source is simply more useful than closed source. Open source development changes the world even more profoundly than closed source did, by providing eveybody with better ways to get rich doing whatever else they do — not by being in the software business.
  5. One can still get rich in the open source software business; but in the way (or to the degree) that Microsoft did. The monopoly game is over. A true story — Eric and I were talking to a VC who said he wasn't interested in funding open source projects because they probably don't promise nearly immediate 40X returns on investment. Eric said any strategy that expected sale-value software to return 40x on investment is working on a broken model.

Opportunity Review

We have three Basic choices:

  1. Funding (private, venture, investment bank, internet IPO...)
  2. Acquisition (two parties are very interested, right now)
  3. Partnering (in too many ways to describe)

The questions are:

  1. How much do we want to drive up the values of SSC properties before we sell, or even partner?
  2. What kind of prep do we want to do first, and how fast?

Potential Acquisitors

EarthWeb:

  • Jack Hidary ([email protected]) and his brother (Jacob?). Both young. Both Americans of Syrian descent. We bonded over talk about middle eastern soul food.
  • Best background page is here
  • Interested in several possibilities. Key choices:
    • Partnering to sell magazines and books
    • Acquiring the whole thing
  • Already have monster Web site(s) with many, many things for sale, including books. You can read parts of books, then buy the rest.
  • They just bought a library of nearly every mother board ever made
  • They are already public, with a current valuation $380 million
  • They say they will make $200 million in acquisitions this year; have already made $20-30 million
  • They just hired away IDG's guy who did the Linux World conference. He will run the new EarthWeb event, Open Source Bazaar.
  • Downside: Eric Raymond never heard of them

    • TechRepublic:

  • Tom Cottingham, [email protected]
  • Tom cofounded The Cobb Group, back in the 80s. Sold to Ziff-Davis. Very good at building circulation, building loyalty, knitting in with communities, he says. Good at getting maximum for each pub. Subscriptions run in the $X00s per year. Windows Support Professional is $178/yr. SAP Strategy Letter is $995.
  • Interested in immediate action. They plan an IPO – or something equally decisive – soon
  • A "narrowcasting" company. They believe in many narrow niche publications.
  • Tom sold me hard and repeatedly. They want LJ, bad.
  • Name used to be Narrowsomething.

    • Potential Funding Sources

    There are four serious ones:

    1. John Doerr, Kleiner Perkins. [email protected]
    2. Giles McNamee, Hambrecht & Quist
    3. Morgan C. Frank, Hollis Capital Management
    4. Dan Lynch, Lynch Enterprises

    Players and possibilities

    Kleiner Perkins

  • Kleiner is the alpha venture capital firm: the biggest of the big, the best of the best. They were (and still are) behind Sun, AOL, Netscape and many others. A small list of their investments:
  • @home
  • Excite
  • Ascend
  • Amazon.com
  • Audible
  • Intuit
  • iVillage
  • Macromedia
  • Marimba
  • OnSale
  • Preview Travel
  • Symantec
  • Visio
  • Electronic Arts
  • Shiva
  • VSI Logic
  • Rambus
  • Cypress Semiconductor
  • VLSI Technology
  • The top guy at Kleiner is John Doerr. Here is the Industry Standard profile of the guy. He is simply the most influential and important human being in technology investing (or technology itself) today. As he has been for the last decade. He's also a good guy.
  • John wants to talk to us, ASAP.
  • John clearly wants to do something with or about open source. In fact, I sense that he thinks nothing is more important and strategic than open source. It was the Kleiner Kieretsu that broke ground with open source when Netscape made the first major mainstream open source adoption move; and now Marc has big plans to do the same within AOL – something that, as far as I know, he has told few people (since there has been zero press on the issue). Significantly, Marc made this disclosure to me, and wants to talk more about it.
  • Quotes from John:

    "A network of relationships is important. Though it is easy to start a new venture, i is harder than ever to build an important, durable enterprise – particularly without allies."

    "To compete, you need strong alliances. No single company offers a complete solution."

    "Network effects are what really matter. They're everywhere, changing everything. Open Source is one example. eBay is another. viral marketing is another. Word of mouth matters."

    "Strategy is easy, but execution is everything. You need to create a resilient, pervasive, adaptable culture. You need lots of really smart people who 'get' the culture and can inspire, inculcate it in others. Jim Barksdale is a great example of an exceptional leader."

    "The new network economy is an attention economy. There is a worldwide time famine. We're all time-starved and competing for attention. So in cyberspace we rely more on brands for confidence and to save time. Think hard about the networks that really matter to you, the network of relationships that sustains your friendships, your family, he networks essential to growing your business."

    • I suggest we (Phil, Joyce, Doc, Noreen) get together with John Doerr. Here's a straw man plan:

    1. Pitch John first on a vision of open source that positions it as radically better building material for both businesses and markets — a tide that will lift all boats.
    2. Make the case that SSC and LJ are among the most indigenous, networked and therefore credible open source conversation and business drivers.
    3. Position us as pals and co-thinkers with Eric Raymond.
    4. Show how LJ and SSC have been at the heart of the Linux and open source conversations for many years, and how they serve already as a critical resource.
    5. Pitch him on funding SSC and Linux journal with a charter to drive the new post-monopoly-driven architecture and building conversations. Here are the key pieces of the venture:
      • An expanded Linux Journal, modeled on the Wall Street Journal and other publications that cover broad issues as well as core technical ones.
      • Secondary and spin-off publications, including free and subscription models.
      • Events
      • Deep resource web sites
    6. Test it first on Noreen.
    7. Suggest bringing in Marc Andreessen and Jim Barksdale as well, preferably for the second meeting. (And perhaps talk first with Marc.)

    Hambrecht & Quist

    TBD

    Hollis Capital

    TBD

    Dan Lynch

    TBD

    Other Action Items

      1. Contact Giles McNamee about two things: 1) following up on funding possibilities; and 2) getting his Meta Group numbers on Linux adoption
      2. Contact John Berard of Fleishman Hillard. [email protected] (he was at table with Giles, works with Giles and eTrust and Lori Fena)
      3. Send e-mail to Marc Andreessen to follow up on several items: what AOL will do with Open Source, what Marc will do at AOL, how to fuel the open source conversation.
      4. Send e-mail to emauel rosen: [email protected] (emanuel is about to publish a book about word of mouth. I gave him two cluetrain-related items)
      5. Send e-mail to John Mihalec of IBM. He will get a software person to call about IBM's Linux strategy. [email protected]
      6. Send email to Dennis Bennie of XDL Capital Group – [email protected].
      7. Contact James Wiebe of Newer about Linux story. [email protected]
      8. Contact Matthew Klapman of Motorola about Linux story. Matt is director of user interface tech for cell phones
      9. Contact/follow up with Ann Winblad of Hummer-Winblad.