November 30, 1999

MandrakeSoft, here we go again

Author: JT Smith

- By Jack Bryar -

I love MandrakeSoft.
I love its product. I think its software team is great, but the
company's recent "strategy" of begging for money is ridiculous posture for any
for-profit company. It may be time for MandrakeSoft to return to its roots.

It must be that time of the year. My local National Public Radio affiliate is
begging for money. At least four times a year, the airwaves at the lower end of
the FM dial are clogged up with boring mid-level executives, whining
for dough and threatening to drive their Volvos over to CBS if I don't
fork over another $10 a month.

This means they have come begging only twice as often as
MandrakeSoft during the last year.

I have a problem with this. I don't mind being guilt-tripped into forking over a little dough to my local public radio station. After all, where else will you hear a music marathon featuring the
Portsmouth Symphonia
? Certainly not on commercial radio.

I do have a problem with making regular contributions to the folks
at MandrakeSoft, not that they have stopped asking. About a year ago,
they were warning everyone that they were having trouble making ends meet,
and were effectively soliciting contributions. Last summer the company put together a multimillion dollar IPO of sorts, selling off 20% of
the company for a little under $4 million dollars.

That was nearly $4 million raised despite the fact that MandrakeSoft had nothing in
the way of decent financial prospects, and no obvious business plan
that would ever turn the company into a promising investment.

I cheered them on. Last May, I suggested that there
was a good case to be made
for Mandrake, although not a
particularly good financial case. I did think the company might be able
to keep its burn rate under control until executives there figured out a way to run
the company as a business.

Apparently not.

the end of the year
, Mandrake was asking enthusiasts to chip in $5
dollars a month to join something called the Mandrake Club. By the
beginning of this week, the company was back louder than ever, stating that, the "Mandrake Linux distribution's short-term future is in jeopardy due to a simple factor:
money." The newest fund-raising gimmick? Corporate club memberships,
with fees ranging from $2,500 to $100,000. Among the perks: direct
downloads from Mandrake servers.

MandrakeSoft is assuring users that its current financial straits
are temporary. The company is about to release version 8.2 of Linux Mandrake. The company expects to be profitable in 90 days.

Of course, the company also planned to be profitable 90 days

This really wouldn't be a problem if MandrakeSoft was a little more
like National Public Radio. No one ever figured that NPR would
become self sufficient. Likewise, MandrakeSoft was originally set up as a
non-profit. It began its existence as a volunteer project to upgrade and localize
Red Hat's version of Linux, combined with the KDE user interface. Almost
from the day the company declared itself a profit-seeking corporation,
observers have had trouble figuring out how the firm expected to make money,
although MandrakeSoft leaders keep insisting they are going to try.

And that's silly. In some ways, the company is a lot like your local
public radio station. Public radio puts out a reasonably good product and
owns the top income demographics in most markets. However, it has no
means of forcing its user base to pay for its services. MandrakeSoft,
more than most Linux firms, has the same problem. There's a reason that
Linux firms like Red Hat walked away from the end-user, desktop business. Setting up and managing a massive server farm at companies like AOL requires plenty
of onsite support and more than a little custom development. There's a
potential revenue stream and an obvious market. By comparison, MandrakeSoft's
desktop Linux is a shrinkwrapped product. No matter how good it is, there's little
need for support and there's no reason that a company should ever
have to fork over cash for anything other than the minimum single
license to run an entire floor of workstations.

One important difference is that NPR is supposed to be a non-profit.
MandrakeSoft isn't. The company is backed by firms like AXA
and ABN Amro -- both gigantic financial service companies. Since when did you send a love offering to your local bank? In addition, the company has yet to float 80% of its stock. Last I checked, the current trading price was still trading at around $3.50. If MandrakeSoft needs to raise a little cash, it could always sell some of the remaining stock.

If selling stock or heading to the bank is not an option for
Mandrake, the firm may have to face the fact that it may not be viable as a
for-profit entity. It may be painful, but it's not the end of the world. Other
firms have restructured. Plenty of private schools, water and sewer
companies, hospitals and real-estate holding companies have made the
transition to becoming non-profit institutions. There's no reason a software
developer couldn't do the same thing.

And when MandrakeSoft does, I'll mail it a nice contribution.

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