Subject: Re: street performer protocol
From: Crispin Cowan <crispin@wirex.com>
Date: Sat, 20 May 2000 19:26:34 +0000

"Stephen J. Turnbull" wrote:

> The analogy is that Crispin is claiming that the Red Hat and other
> Linux distribution successes are innovation (in software) driven,

Where did I say that?


> and
> thus the stock market rewards them for investing in development.  But
> investors could sour on them just as fast as they did on biotech---how
> is Red Hat going to finance its development programs then?  Maybe a
> couple of firms can do it on their current revenue, but I bet (based
> on the analogous history) that most of them are paying developers out
> of venture capital, and when the venture capital dries up,

If you read the history of Red Hat, you discover that it was almost entirely
funded by revenue until late 1998 or early 1999.  It was only when Linux buzz
hit the dot.com treadmill that they went from the Ben & Jerry model to the
Amazon model.  Essentially, RH management realized that they had to adopt the
Amazon model to maintain dominance in the Linux market:  if they didn't do
it, someone else would.  In the face of a heavily-financed competitor , you
can't afford to fund development from revenue.

Now reverse the situation:  if capital for Linux startups dries up and blows
away, who will survive?  The companies with the biggest revenue streams.
Relatively new me-to Linux startups that have neither technology nor revenue
(because they invested the capital in marketing) will collapse.


> they'll
> have to cut costs.  The first thing that will have to go, when the
> bean counters take over, is basic development, because that doesn't
> directly move product and generate revenues.

How do you figure that?  Basic development is what makes a given Linux
product better than the next one.  A Linux vendor can't sit still on
technology, or they get bypassed and forgotten.  This is what happened to
Slackware and *BSD :-)


> This will lead to
> consolidation in the industry; I don't think that there will be more
> than two or three profitable (on the scale necessary to finance the
> kinds of development programs the major distributions run) Linux
> distributions after say three years.

Just about every industry except corner stores consolidates, and even the
corner stores are consolidating into francise brands like 7-11.  Of course
the Linux market will consolidate.


> And even they will be hard-pressed to keep up in many of the new
> fields: embedded OSes, clustering, etc.

I completely disagree.  Open source system ventors will find it easy (verging
on trivial) to crush closed-source competitors in these emerging markets,
precisely because they do not have to invest $millions in re-inventing the
wheel yet again.


>  These will be the province of
> specialists (often ex-members of big distribution development groups
> who are sick of the budgetary limitations and intergroup competition
> for support characteristic of maturing organizations).

Possibly, but that contradicts the trend towards consolidation.
Specialization is a small-company response to encroaching consolidation.

Crispin
-----
Crispin Cowan, CTO, WireX Communications, Inc.    http://wirex.com
Free Hardened Linux Distribution:                 http://immunix.org
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