November 22, 2000

Bad News Bears at Comdex

Author: JT Smith

-By Jack Bryar -
Open Source business -
One of the biggest of the Linux shows is over with and all the news is
bad?
Well, not all of the news. But Comdex is over. So is the Linux
Business Expo. And instead of puff pieces about a guy as colorful as
Jon "maddog" Hall, or lots of features about the Linux-powered
robot,
the press was full of pessimistic Linux business stories that would
make any rational investor panic.

I track news stories as part of my day job. Over the last couple
of weeks, the Linux news hasn't been fun to read. Despite a flurry of
press releases generated by Linux vendors and by Comdex promoter

Key3 Media Events
, only two Linux stories caught the attention of
anybody in the business press. Those involved the stock price melt down
over at VA Linux (owner of NewsForge), which followed its warning about future revenues,
and the accumulating evidence that Corel's new management team is
completely adrift.

In part, the bad news was due to the lack of any competing stories
generated at the show.

There should have been news. After all, Comdex and affiliate shows
like
Linux Business Expo usually produce a mother lode of techno-buzz each
year. This year's Expo was, if not huge, a pretty decent event. Last
year, the show took up a modest 18,000 square feet at the Las
Vegas Hilton. This
year the show bumped up to 40,000 square feet, and it moved to the
Sands. There were lots of new exhibitors, more than 70 companies in all. The
only thing lacking was much excitement. And that lack of excitement
produced a news vacuum, which was filled with negative stories.

Part of the problem was that the news last year was so good.

Last year was a coming out party for Linux. The buzz was hot. Last year
Linus Torvalds
was a star
.

So was Red Hat's Robert Young. He had just bought Cygnus Solutions. His
stock was trading at over $100 a share. Over at VA Linux, the investor
fever was building. We all know what happened there.

This year, Linux was so... last year. The buzz in Las
Vegas had moved on to wireless technology and web tablets. Meanwhile,
over at the Linux Expo, traffic was pretty decent. The big OEMs were
all showing off Linux products. But they were back at Comdex. And so
was most of the
press.

The reporters that stuck around at the Expo were looking for bad news. More than one
scribe observed that Bob Young was invisible, as if to imply he might
not want to be around to answer questions about his stock price. The
fact was that Young had been up in Toronto to address Linux Expo there.
But only National Post's Bob
Thompson noted that, and Thompson made a point of observing that Young
attracted fewer
than 100 people. Back in Las Vegas, the press picked at Red
Hat's
booth. They said it was boring, and more appropriate for last year,
when no one knew what Linux was. A reporter I talked to dismissed it
as
"remedial training for the technology challenged." Carlene Hempel and
Christina Dyrness of
the Raleigh News & Observer said the booth looked like "an
educational exhibit in a museum." You don't get comments like that
when you're hot.

As one commentator said on Wall Street Radio last week, "Linux is not
special anymore." He said he "saw Linux throughout the main show,"
mostly in the booths of traditional vendors, who had added Linux to
their line cards and had moved on.

The question I heard over and over again was, "Is there a market for
Linux specialists?" Most marketing types warn that it is terribly
hard for niche specialists to compete with vendors providing a full
array of products and services. Given that VA Linux is almost alone
among vendors in providing
a pure, Linux-only solution, that concern may account for the
over-reaction when the company cautioned the investment community.
Compared to Sun, Dell, HP, Compaq and IBM, VA Linux may rank higher in
terms of value add. It may have a far better reputation among the
Linux community -- but will that help the company wean system integrators away from the traditional
box vendors? Can VA continue to score big wins among networking
specialists, especially if that market goes flat? The stock price
tells you how the investor community is betting.

Actually they are betting hard against the entire sector. Think I'm
being pessimistic? Check out ePredict.com's Web site. ePredict
is a stock analysis system that uses knowledge management principles
roughly similar to those used by Google, only ePredict uses them to
determine likely market directions. It's a fairly primitive system, but
it works. Over the last several months it has out-performed any other
indicator that I follow. And it is indicating nothing but bad news
for
Linux investors. Currently Red Hat and VA Linux show "sell," and Corel
shows strong sell.

After last week, I decided they certainly got Corel right. CEO Derek
Burney sure found out how to pickle press coverage of the entire
sector
and blow any positive Linux news off the business pages when he
decided
to pick this moment to suggest that he was re-thinking his company's
commitment to Linux.

Even investment pros who have noticed that the company is doing less
than a third of the Linux business the firm had earlier projected
were shocked. Duncan Stewart, who tracks the company for Tera Capital
Corp. in Toronto, said, "If you get rid of Linux, you have a company
that is absolutely, unequivocally not interesting." Although the
corporate spin-meisters insisted that re-focusing meant re-positioning
Linux rather than abandoning it, the overall effect was to make
industry
wise guys wonder if the new management team at Corel has a clue as to
where to focus its priorities. Despite the protestations by Corel
execs, the news from the Ottawa valley is that the company wants to focus back
on its graphics products.

And that has been just one more signal to fuel speculation about the
larger Linux marketplace that is just as out of control this year as it
was last year.

Only this year, instead of irrational exuberance, we're dealing with
irrational pessimism.

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