March 9, 2004

MS-SCO analysis: Questions about the mysterious middle man

Author: Chris Preimesberger

We continue to follow up on the story of BayStar Capital and S2 and their involvement with SCO. S2 Strategic Consulting, formerly located at 56 East Broadway, Salt Lake City, Utah, is the firm hired by SCO Group to help it stay alive. Since SCO hired S2 in August 2003, the little Unix software company that was in danger of failing received a $50 million venture capital cash infusion -- and perhaps much more -- in its bank account.

That $50 million pile of cash has been described as a litigation "war chest" by more than one business publication during the last few months.

Is S2 simply a very good technology company developer? If so, perhaps it can explain -- general terms would be fine -- how it was able to raise so much money for a company that has had serious trouble selling its bread-and-butter products for months. (SCO Group's sales problem is no secret; CEO Darl McBride confirmed it only a few days ago at the company's quarterly "numbers" press conference.)

We tried to ask S2 some of our questions, but the S2 office telephone give callers a busy signal hour after hour -- curious, we thought, for a business whose stock in trade is, in fact, networking and communication? Bob Mims of the Salt Lake Tribune found out through the company's phone provider that the S2 office phone has been out of order for several days.)

That leaves us, for now, with a couple of major unanswered questions:

Why does the consulting firm have a useless one-page Web site with no links -- just some large background type that states: "Accelerating Growth in Technology Companies"? (And why does domain registration information for give the obviously false phone number 123-456-7890?)Why does Mike Anderer, the CEO of S2, a longtime personal friend of McBride, a man with an unlisted home phone number and far-ranging connections in Redmond, Wash. (he and McBride used to work together at IKON Office Solutions, a major Microsoft partner), not make himself available to explain his "misunderstanding" in the deal he allegedly brokered between Microsoft and SCO to bring SCO $50 million last October? Mr. Anderer, if you're reading this, please email us at, and we'll give you all the time you require.

We tried to reach Chris Sontag, the SCO vice president who has worked closely with Anderer, if he knew where Anderer was, but Sontag was working "off-site" and couldn't be reached. We left a number. Joanie, the administrative assistant who works for Sontag and Darl McBride, told us that not many staff people were in the office Monday.

A lot of interested folks believe Anderer was hired by McBride and Sontag to connect the Microsoft Development Corp., an investment arm of Microsoft Corp., with the SCO Group, and that it succeeded with the $50 million VC transaction. If this was all on the up-and-up, there shouldn't be any reason for anyone to get defensive; a deal of that nature is perfectly legal.

But if such a straight investment deal were consummated, it would appear to be an obvious Microsoft ploy to attack, via litigation, the Linux business -- which would certainly be a tad self-serving.

Of course, there are other ways to move funds from Point A to Point B in order to satisfy the giver, taker, and all those in between, especially when the figure ($50 million) is so high. We're trying to contact Anderer to ask him about this money trail, but even people he works with don't know how to reach him.

More background on Anderer

No question Anderer is a busy fellow. Maybe that's why he's hard to find. While at IKON, he was a key member of the management team responsible for developing a new $550 million technology services division at IKON Office Solutions. Most of IKON's products, including printers, fax machines, copiers, and other tools, work with Microsoft Office software. Imagine all the partnering that was done at that time.

For a time, Anderer also served as chairman of the board and CEO of a Bellevue, Wash.-based technology consulting firm called Entirenet. An Entirenet source Monday said Anderer left Entirenet "about a year ago," but his Microsoft connection was deep there, too. Microsoft is the first client listed on Entirenet's Web site, and the company conducts workshops in Windows XP, Exchange 2000, Microsoft Advanced Deployment, and Microsoft Management Solutions.

In the late 1990s, Anderer was a co-founder of another tech development company based near Philadelphia called Silicon Stemcell, which is the predecessor of S2 and root of the S2 name.
Anderer and five other Silicon Stemcell founders met at IKON. They were entrepreneurs who sold their businesses to what eventually would become IKON. The company's mission was to find promising Internet businesses, then take an equity stake in them in exchange for providing them with the expertise they need to grow as rapidly as possible.

This is a good and noble business, helping out young companies. That background and experience fits the "middleman" requirement for Microsoft and SCO to a proverbial "T." And note this quote from the story cited above: "'Our goal is to protect, extend, and acquire intellectual property,' said Anderer, who's Silicon Stemcell's president and chief executive officer."

Since that article was written in 1999, Silicon Stemcell seems to have moved to Salt Lake City, but may have moved again or gone out of business; when we tried to call the listed phone number, we got a "this number has been disconnected or is no longer in service" recording.

But even if Silicon Stemcell has gone to the corporate graveyard, its original corporate goal sounds a lot like the mission statement that seems to be guiding SCO Group today.

Anderer appears to be the perfect person to "broker" the SCO Group's finance deals. He has the experience, the know-how, the contacts, the business acumen, and the credibility within this circle of friends to carry out the transaction. In a deal this big, you don't work with strangers you cannot trust.

One more time: Why?

Why would Microsoft bother to help keep the little SCO Group afloat through particularly trying times? Look at the big picture:

Which business entity, in all the world, would benefit most by SCO Group staying in business? SCO is in business, ostensibly, to sell Unix products and services -- but in reality, it spends most of its time and money filing enforcement litigation to protect intellectual property contracts that are widely considered questionable in nature.

Which business entity could most easily afford to fund a company like SCO Group directly -- and would also have the power and influence to fund it indirectly?

The answer to both: Microsoft.

Microsoft, however, officially denies it has any financial relationship with SCO Group other than a licensing agreement, and appears -- in recent months -- to be backing completely away from the little Utah company as the heat in the kitchen gets hotter.

That leaves us with some very questionable appearances. Perception isn't always reality, but it comes awfully close to it a high percentage of the time.

Remember: What you smell cooking in the kitchen is usually what is served.

NewsForge reported yesterday that the U.S. Securities and Exchange Commission "may have begun investigating the relationship between the two companies" due to a large number of complaints filed by telephone and through complaint forms on the SEC Web site. SCO Group spokesman Blake Stowell told NewsForge that, according to the company's CFO, Robert Bench, "if the SEC were to be investigating the company, SCO Group would be required to make the investigation public immediately."

"As you can imagine, SCO Group has no announcement of that kind to make," Stowell said.

Of course, SCO Group needs only to make public the investigations that it knows about. The SEC is known to be quite thorough in its preliminary fact-gathering before starting a formal investigation.

Stay tuned -- there's more to come.


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