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NewsForge.com: Let's start off, just talk a little bit about Lulu.com and what kind of made you decide to go in that direction?

Bob Young: Well, it's interesting enough. There is actually a connection between Lulu and my open source Red Hat days and it's simply this: Lulu was really started to -- well let me give you the full background. When I left Red Hat or was sort of easing my way out, Mark Ewing and I started a thing called the Center for the Public Domain. Because what we're doing is in '99 when, you know, Red Hat had that big public offering, we had a debate of what can we do -- Mark and I -- for the open source community that had done so much for us. And we looked at, you know, all the software projects we might have supported and we realized then every open source software project you could name was getting support at that time.

So we took a look at it from the opposite point of view of "If the open source movement failed, why would it fail?" And our conclusion there was that our legislators, literally around the world, in Brussels and Washington and Tokyo, had all come to the conclusion that, you know, obviously technology is an important industry and they come to a big conclusion that intellectual property, more intellectual property, meant a healthier technology industry. And while I'm a big fan of both copyrights and patents, the problem was that our legislators didn't recognize the fundamental rule, which is: too much of a good thing no longer is. And so we're seeing things like the DMCA, like the idea that you could patent ideas, not just inventions, like the idea of taking copyright from 20 years to a hundred years with very little public debate on the topic and you sort of realize that it's a little bit like vitamin D -- you know, too little vitamin D and you get a variety of health problems. Too much vitamin D will actually kill you, I don't know if you know that one. It's actually a poison when taken in large quantities.

And you know, that's what all this intellectual -- this rush to expand intellectual property rules without any serious public debate looked like to us. And it was, without a doubt, the biggest single threat to the open source movement. There were legislations -- legislative initiatives -- that would have materially harmed the open source community's ability to work collaboratively on software.

So that's what the Center for the Public Domain was, and you know, after running a non-profit for two years, I learned everything I didn't want to know about the not-for-profit business, which is that it's very hard to define what success is so when I was looking at this whole issue from a business point of view, you know, an Adam Smith capitalist's view of the idea that enlightened entrepreneurs working on their own self-interests will create as much value to society as the most enlightened monarch. And going, "You know, there's got to be -- there really is a problem associated with the expansion of intellectual property and if in a free market democracy, the citizen and the consumer are the same person, well then there's got to be a way of solving the problem in the marketplace. And that's really what led to Lulu, was our conclusion was the expansion of intellectual property with what -- we thought there was a correlation between the consolidation we're seeing in publishing everywhere with the expansion of these intellectual property rules and so we said, "If you're seeing all these consolidation in publishing, who's being harmed?"

The people being harmed are the authors because with fewer publishers, then there's fewer books being published. And the consumers, with fewer books being published, there's less choice. So at this point, Economics 101 textbooks, there's pretty much exactly six because there are six major textbook publishers. Each of them has an Economics 101 textbook and none of them need a second Economics 101 textbook. So there's six Economics 101 textbooks and there's got to be 5,000 people -- professors of economics in North America alone who could've written a perfectly good Economics 101 textbook. So from a consumer point of view, why are there only six if there's 5,000 people capable of writing one and the answer is, because of the consolidation in the publishing industries and this is happening, of course, across the publishing spectrum.

NF: Now, one of the arguments kind of like when Red Hat and other Linux vendors started getting into the business, Microsoft and other companies objected on, 'Oh, it's open source so it won't be as good a quality.' You hear professional publishers claiming that without that filter, you're going to get a bunch of crap, basically.

BY: Yup. It's sort of the, I don't know, irony or perhaps the -- I guess it's sort of an irony. Here you have business people who don't seem to have any confidence in the power of the marketplace. You know, so the logic that you have to have someone in control of the content and to ensure quality leads you back to a very Marxist dictatorship-type approach. We really should have a government deciding what is good for us because we're not capable of deciding for ourselves. And so the publishing industry, to say that, you know, sort of having -- empowering -- a whole new generation of authors to bring their work directly to the marketplace, is somehow not in the interest of consumers, is very similar to the logic that the old Russian Stalinists used to use on why, you know, the state should run the economy.

NF: How's Lulu doing so far?

BY: It's doing remarkably well, which is actually what led to my stepping away from my final responsibilities at Red Hat because as a director of a public company these days -- with Sarbanes-Oxley and everything else -- the bulk of your time is spent on the minutiae of dealing with SEC regulations and you're not really spending that much time helping the executive team fashion strategy; you're spending most of your time doing defensive things for the company, making sure that the company stays on side of all these arcane rules.

And so I was just looking at it, saying, "That's it; this is really high value work but it's not work that I personally bring a lot of value to." And so Lulu, on the other hand is booming and I needed to find some more hours to devote to helping Lulu get to the next stage. So it's sort of an easy decision of saying, "Look, I'm doing role value work for Red Hat that they can find many more other talented directors to do for them. And I need to apply more hours to Lulu."

So, Lulu at this point, we've been for more than a year, 14, 15 months now, we've been growing at faster than 10% per month, month over month. And we only have to look at that trend line and even while Bill Keiser, a fellow board member at Red Hat and a leading VC, one of the guys who helped Red Hat go public back in '98, '99. When I pointed this to him, he, you know, he chuckled and said, "Bob, I think you're benefiting from the law of small numbers." Meaning, you know, you start with a dollar worth of sales and it isn't actually that difficult to take it to a $1.10 worth of sales.

NF: (Laughs) Right!

BY: And it's not that difficult to take that to, you know, a $1.21 worth of sales. You know, this sort of thing. Having said that, John Maynard Keynes would say the miracle of compound interest implies that, you know, with the volumes that we are now doing and we're still seeing this growth rate carry on. We're selling in excess of 35,000 books a month. I believe we sold 40,000 in September. We have well over 30,000 books in our library, so to speak, of books. Gives you an idea that if you grow those numbers 10% a month, it doesn't take too many years before this is a very big business.

NF: How extensively is Lulu using open source?

BY: We would not -- Lulu would not be possible without open source software. So the two sort of connections back to, you know, my training in the open source world, is one understanding that if you see an industry that is, you know, whose economics are all about advancing the profits for the industry and who are not as focused on the consumer -- and the software industry looked very much like that, the proprietary software industry where all the engineers wanted source code, but none of the suppliers of software would give their customers the source code. And you just go, "Hold on, that's not right." That's not how, you know, a free market's industries are supposed to work. You're supposed to do what their customers want them to do, not they want to do.

So in publishing, the same phenomenon is occurring where the publishers are going up, instead of coming up with new and better books and new and better services. Look at the music publishing space, where the music publishers instead of innovating, they wait for Apple to do the innovations and their contribution is to hire a bunch of lawyers and go around and sue their customers. And any time you see an industry start react to change by suing customers, you go, "Holy cow, there's got to be an opportunity there." So that's kind of where we're going with Lulu, is really to try and address that, so the two connections are: one is we're trying to empower consumers to be able to get their hands on the books they want as opposed to the books that a narrow leash of established suppliers are willing to offer them. But the other one is open source software.

Lulu would not be possible without all the open source tools we used. It is safe to say it would have cost well in excess of twice the investment and it's cost several million dollars' worth of investment to get to Lulu where it is today. And it would have cost twice as much as that if we'd had to use proprietary software to do all of that. Because when you're a startup, innovation is everything. Whatever you decide to do on day one is not going to work -- I mean, that's just a given. So therefore you have to be able to adapt your offering very quickly, going forward in response to your customers. And you can't do that if you're using Oracle databases and proprietary Web servers and proprietary programming tools.

Because at the end of the day, your vendor has control over what you can and cannot offer your customers. Because you don't have source code, you can't add functionality to those pieces of software. So it has done two things for us. One, it has dramatically, and as I say that a minimum of 50% savings on the cost of the software in terms of investment cost; but secondly, it has enabled us to innovate, to evolve our application forward dramatically faster than we could have done had we not access to the source code and had we not had a license that allowed us to modify the tools that we are using. Lulu's primarily based, it's a PostgreSQL database-based tool. We use the Apache Web servers. We started with Fedora but we are now on RHEL 4. We became a customer of Red Hat not because I told anyone to, in fact I was encouraging them to stay on Fedora. We became a customer for all the reasons that Red Hat insists that you should become a customer, which is that it's reduced our sys admin cost dramatically by using the Red Hat tools.

NF: Looking back on the time that you spent with Red Hat, with the benefit of 20-20 hindsight, is there anything you would have done differently in running the company or decisions you would have made differently?

BY: No. (Laughs) It stems from the very big picture issue of, you know, you don't look gift horses in the mouth, you know. It's sort of when you have a success of that scale, to go around second guessing the success and say, "Wow, instead of creating a billion dollar company, we really should have created a $2 billion company." Actually, I think Red Hat is valued right now in excess of $3 billion.

The point being as an entrepreneur, to start a business in your wife's sewing closet and to have it be valued by the international financial market at over $3 billion ten years later, you kind of go, "No." That's one of those size of success, quantity of success that you simply can't second guess. But even more than that, actually even at the time when we were still working early in this thing and for that matter, still to today, sometimes you just follow the stars and the sky, you know, there's this path that you just keep doing what seems obvious. And it turns out that the obvious thing is exactly the right thing to do.

So one of the bizarre things of the whole project was just how -- but of course this is true for, you know, I'm sure the guys at eBay would, you know, tell their story the same way as the guys at Google; but that once you understand whether you're lucky and you stumble into it or whether you're really smart and you engineered the opportunity, once you find an opportunity that other people don't see, you really drive towards that opportunity.

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