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[P]
Eric Raymond Wealth Clock is down!

By streetlawyer in Op-Ed
Thu Apr 12, 2001 at 08:42:49 AM EST
Tags: etc (all tags)
/etc

The Eric Raymond Wealth Clock was too tall for its shelf
So it stood eighteen months on the Net
And while Eric Raymond exalted himself
The clock counted how much he'd get

Every minute of the day, it would count his wealth away
As the jealous masses sighed
But it stopped
Short
Never to go again
When the NASDAQ died .....

Yes, it appears that the Eric Raymond Wealth Clock, that web resource beloved of sniping ESR detractors, has gone the way of all flesh, and now simply consists of a long list of PHP error messages. My guess is that the stock ticker site has simply changed its interface rather than anything else, but it has to be regarded as symbolic. Read on for some musings on the seeming death of the Open Source Business Model


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Well, it's extremely easy to deride Eric Raymond, and to draw sarcastic contrasts between his he-man boasting of "Surprised by Wealth" and today's somewhat less exalted levels of the VA Linux stock price. Not only is it easy, it's also fun, and that's why I do it. But while I was checking out the LNUX ticker to try and calculate ESR's wealth in the absence of the clock (c. $300,000, for what it's worth), I took the opportunity to look through some of the analysis available on the Yahoo finance boards. And what a story it tells ....

Disclaimer: Although this anonymous website post discusses newsflow related to a publicly traded security, it does so in a purely journalistic manner and no opinion on the advisability of buying, selling or holding any traded security is given or implied. A certain amount of care has been taken to ensure accuracy of figures, but not anything approaching the level which might be expected of a paid professional and no statement of fact below should be relied upon for any decision purpose whatever unless independently verified.

The first point of interest is that not only is it trading below book value (the net value of assets minus liabilities, but at its current share price (US$2.18), VA is trading at a discount to its last announced net cash. Or to put it another way, in principle, you could buy up 100% of VA today, sack the staff, torch the computer hardware, forget about the software, forget about everything other than the balance in the VA bank account and still come away with a profit of 20 cents a share. (Source)

Isn't this an obvious market inefficiency? Well, maybe, but maybe not. It could be that LNUX is just a hated stock, and that there is a real killing to be made here. Lots of companies traded below cash value for extended periods during the 1970s, and corporate raiders like Lord Hanson, Kirk Kerkorian and Kerry Packer made reputations by carrying out exactly that sort of deal. However, there are are a raft of alternative explanations:

  1. Has the cash already been spent? The cash per share figure is given as of the 27 Jan 01 SEC filing, and a lot can happen to the cash position of a company with a quarterly loss of $50mn.
  2. Do the books tell the whole story? While the figure of $2.36 cash per share represents someone's best guess at the net position, there can be all sorts of deferred compensation, vendor financing, long-tailed warranties and other off-balance sheet liabilities which might mean that there could be a number of claims on that cash which senior to those of equity shareholders.
  3. Is a raid practical? Only 43% of VA Linux is held by insiders these days, so one could potentially gain enough control to break up the company by buying up the entire free float. But to do this would certainly move the price against you, and erase most if not all of that 20 cent profit. Any break-up would need the support of one or more insiders.
So it looks as if VA Linux is safe from raiders for the moment. But what the hell is happening to the Open Source Business Model?

The Street certainly doesn't believe in it. These estimates are pretty grisly. The average of analysts' earnings per share (EPS) estimates has been savagely revised down -- 90 days ago, VA was expected to lose 10c a share for this quarter, now the expectation is 30c (Oh dear -- remember that 20c profit?). The consensus view has also changed on whether VA will be profitable by 2002; they now think it won't. Of the 5 analysts who cover the stock, all 5 have "Hold" recommendations, which given the incredible rarity of "Sell" calls, gives us a pretty unambiguous indication of the view of professional financial analysts. OTOH, these analysts have proved pretty disastrously wrong on the way up, so we have no guarantee that they know what they're talking about on the way down.

So, VA's stock price is telling us that Open Source doesn't make money, and the financial analysts are telling us the same thing. What's probably worse is that industry insiders appear to be doing the same thing. Ars Digita albeit now sans Phil Greenspun, used to be in the forefront of open everything. Now they're backing away from that, and future modules for their open e-commerce product will be proprietary software, sold for money.

Not only that, but arguably, the company itself is shying away from the ideas by which Raymond thought he would revolutionise the economy. The latest hope for VA's profitability is to get away from hardware, get away from consulting and to sell copies of the intranet version of Sourceforge. It's hard to see how "Harnessing the Power of Open Source ... Behind Closed Doors", to quote the advertising screed for Sourceforge Onsite is following the Open Source Business Model in anything but name. It's also hard to avoid the suspicion that if it weren't for that pesky GPL, SFOS would be a proprietary product too.

It's not all bleak. As I write, Red Hat and VA are bouncing a bit, on news from the Journal that Linux is gaining market share, albeit that Windows NT is also gaining, so the market for Unix-related services may not be exactly booming. And the worry about how this market share growth is going to turn into profits for the "story stocks" remain.

In a recent interview, Larry Augustin remained upbeat. He still sees the company reaching profitability by October 2002. But whatever the long run prospects for VA, they apparently weren't quite good enough to prevent him selling a cool million and a half worth of stock, three weeks before that very interview.

Next in this series ..... what is the future for the story stocks?

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Poll
VA Linux -- what next?
o Survival? 35%
o Bankruptcy? 37%
o Takeover? 27%

Votes: 51
Results | Other Polls

Related Links
o Yahoo
o Eric Raymond Wealth Clock
o Business Model
o Surprised by Wealth
o VA Linux stock price
o Source
o The Street certainly doesn't believe in it
o Ars Digita
o Sourceforg e Onsite
o Linux is gaining market share
o interview
o selling
o Also by streetlawyer


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Eric Raymond Wealth Clock is down! | 41 comments (10 topical, 31 editorial, 0 hidden)
Missing Poll Option (4.00 / 1) (#2)
by jabber on Mon Apr 09, 2001 at 01:56:27 PM EST

I'm voting a reluctant +1, even though I think that "Sudden cash infusion from Microsoft" ought to be a poll option.

[TINK5C] |"Is K5 my kapusta intellectual teddy bear?"| "Yes"

A la Caldera? (3.00 / 1) (#3)
by streetlawyer on Mon Apr 09, 2001 at 02:02:16 PM EST

Interesting thought. But I think that MS would stay well clear. They've had enough run-ins with Slashdot in the past to not want to get involved with that site. And the media arm of VA is both too important to its profile and (I understand) too well protected legally for it to be subdued.

--
Just because things have been nonergodic so far, doesn't mean that they'll be nonergodic forever
[ Parent ]
Why not? (3.00 / 1) (#6)
by jabber on Mon Apr 09, 2001 at 02:14:01 PM EST

It certainly would hurt /.'s cerdibility if it were to be suddenly funded by 'the enemy', but it would not be a bad idea for MS to cover all the bases. I'm sure that if MS were to earmark funds for something other than /. then the legal issue would go away. And if a wholy-owned subsidiary of MS, and not MS itself, provided the funds to say, keep ThinkGeek or SourceForge in the black...

Although, if MS funded /. directly, then after the immediate backlash of the drones, equilibrium would be re-established. If MS turned a blind eye to all the MS bashing at the hands of the /. editors, they (MS) could establish the reputation of 'benevolent dictator' among the geek masses. It would be a great bit of strategy, and a good precursor to the development of either an MS distro of Linux (for the desktop, sans source, talking paper-clip included) for the MS market, or of a port of MS products to an already existing distribution in a non-source format.

In the long run, I think it would do wonders for /. and MS to partner up. So long as /. was allowed to maintain the appearance of independence, it would draw many many people into the MS camp to talk with the other dissenters. Much like the Gnutella effort within AOL before the suits prevailed.

[TINK5C] |"Is K5 my kapusta intellectual teddy bear?"| "Yes"
[ Parent ]

Question for the masses. (3.50 / 2) (#21)
by Faulty Dreamer on Mon Apr 09, 2001 at 03:12:59 PM EST

Did anyone else hear crickets chirping as they read this?

--------
Faulty Dreams - Barking at the moon 24/7...

If you think I'm an asshole, it's only because you haven't realized what a fucking idiot I am. - Faulty Dreamer

Just the dishwasher (5.00 / 1) (#22)
by Komodo321 on Mon Apr 09, 2001 at 03:39:48 PM EST

and Talk of the Nation.

[ Parent ]
Alrighty then (3.00 / 1) (#24)
by Bob Abooey on Mon Apr 09, 2001 at 05:01:38 PM EST

While it's certainly not uncommom for the CEO of any company to sell off some shares of his stock I found the fact that Intel was selling off a god bit of their shares rather interesting. I remember all the hype when they invested into VA, I have to wonder if they lost money on those.. a good bit of money at that.

But ESR was not on that list... He should have sold a nice chunk of those shares the day he was eligible to do so. I guess hackers aren't always real saavy WRT money.

Honestly I think if you are selling now you are either

  • Just plain stupid.. usually it's the idiots who panic and sell at or near the bottom
  • In dire need of cash
  • Jumping off a sinking ship...

    Anyways, even though the "bash VA Linux" subject is a bit overdone at the moment, it's a well put together post.


    -------
    Comments on politics from a man whose life seems to revolve around his lunch menu just do not hold weight. - Casioitan
  • Intel (none / 0) (#41)
    by tjb on Thu Apr 12, 2001 at 08:09:28 PM EST

    I wouldn't read too much into an Intel sell-off. They've been doing the same with shares of my company, and we're, ya know, profitable and stuff.

    Unfortunately, it does have a tendency to drive your share price into the ground when Intel announces they are selling 3 million shares, but Intel really doesn't have a choice.

    I had a conversation with the CFO of my company about this, and, apparently, Intel in Jan 2000 had a stock portfolio worth $8 billion. In Jan 2001, that number was $600 million. Oops. Intel had begun making capital expenditures under the assumption that their stock holdings would cover them, and now are left in a position where if they want to avoid showing a loss on the balance sheet, they need to sell quite a bit of stock.

    Tim

    [ Parent ]
    Life ain't so depressing after all (4.25 / 4) (#28)
    by slaytanic killer on Mon Apr 09, 2001 at 06:00:46 PM EST

    This article raises important points. Anyone who really does care about Free Software/Open Source should look at reality and see clearly the decisions Open Source entities must face.
    It's also hard to avoid the suspicion that if it weren't for that pesky GPL, SFOS would be a proprietary product too. ...

    The latest hope for VA's profitability is to get away from hardware, get away from consulting and to sell copies of the intranet version of Sourceforge.
    Fortunately, the page linked to by streetlawyer contradicts this. If you want to pay for things such as:

  • Internal Evangelism
  • Classroom Training / Instruction
  • Remote System Administration (periodic, scheduled)

    then you can. We had always known that VA Linux would make money by evangelizing and infantilizing companies to learn important things they can't easily learn on their own.

    Of course, if you're willing to meet them halfway, you can jaunt over to the public forum on installing SourceForge for free on your own private intranet, where you can ask to your heart's content if MySQL plays nicely with v2.5.

    Now, this entire article also ignores RedHat's recent fortunes, as well as SuSe's status in Europe and IBM's deadly Open-Source tactics. Should we expect that companies give away things like "internal evangelism" away for free? No, Open Source is really for developers foremost, people who don't need this brand of evangelism; and the theory is that giving developers Free tools they like will lead overall to better and more inspired software for the end user.

    Is it easy? Nothing ambitious is ever easy, by definition. On one site I'm currently typing a message to, the maintainers of must constantly worry about things like the wisdom of depending on advertising money, and how to pay for two developers working on the site full-time. But if we look closely, most of our lives have been changed irrevocably by Free and Open products. With infrastructure like SourceForge, developers can experiment with the bleeding edge in corporate software management. With Scoop & Slash, people can finally insult each other from behind the safety of their computers.

    So, perhaps it is good to be reminded occasionally that reality still puts interesting obstacles in our way. Life ain't always easy. But that is the most exhilarating thing, since never in history have we been at a point where our mistakes could affect the world so strongly. That truly is empowering.

  • Class action lawsuit (none / 0) (#30)
    by pig bodine on Mon Apr 09, 2001 at 09:07:00 PM EST

    How would a lawsuit on behalf of everyone who bought shares between Dec 9 1999 and Dec 6 2000 affect the company's attractiveness to corporate raiders? Depending on the result of the trial, I wonder if this could send the company into bankruptcy.

    the same is true for RedHat (none / 0) (#32)
    by mami on Tue Apr 10, 2001 at 12:57:24 AM EST

    I think Robert Young will answer that question one day at /., because it was asked there recently in the "Ask Robert Young" story.

    [ Parent ]
    Eric Raymond Wealth Clock is down! | 41 comments (10 topical, 31 editorial, 0 hidden)
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