Editor's Note: A Few Questions for SCO From a Hypothetical Investor
Oct 17, 2003, 23:30 (19 Talkback[s])
(Other stories by Brian Proffitt)
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By Brian Proffitt
So SCO got $50 million in private investment this week. Good for
them, maybe not so good for the investors.
If I were a potential investor in SCOX stock, I would be asking
them a fairly harsh set of questions.
For instance, why would I, as an investor, want to put my money
into a company that has changed its tactics on IP enforcement at
least twice that the public knows about? After all, initially, end
users were not to be targeted for Linux license fees, and now the
larger, commercial ones are. Until this week, when SCO President
and CEO Darl McBride declared that they would not invoice
commercial Linux users.
Instead, SCOSource, the SCO Group's IP enforcement division,
would focus its efforts on obtaining Linux licensing fees from
customers who already hold existing UNIX licenses from SCO.
According to McBride at this afternoon's press conference, the
theory is that pre-existing SCO UNIX customers who were also using
Linux in their organizations would be easier to enforce Linux
So, as a potential investor, where is the payoff from dropping
IP enforcement from a potential base of tens of thousands of
commercial Linux users to a smaller base of no more than 8,000
licensed UNIX users (according to McBride). I mean, if you actually
own IP that's in Linux, why shift to a group of people that you
think is more easily charged for fees? I mean, c;'mon, if you owned
a piece of Linux, you'd want to cash in on that for as much as you
Here's another question: SCO just extended your half-price
licensing fee structure for a couple more weeks. If I'm an
investor, why would I see that move as anything other than an
enticement to pull in more clients? I have never seen a business
extend a discount sale for any other reason than to bring more
bodies into the store. Yet during the press conference SCO
indicated that this extension was a positive sign; really just a
chance to give potential customers until the end of the calendar
But what about actual customers? SCOSource is reputedly involved
with many companies who are interested in the Linux licensing
model. Well, it's been six months, and we've only heard about two
(who shall, it appears, remain nameless). Are there more, and if
there are why have we not heard about them? I could not imagine any
company sitting on this kind of information, especially if this
were their stock and trade.
And who's investing in SCO anyway? Certainly the recent Buy
upgrade from Deutsche Bank has encouraged all the little daytraders
out there to jump in and try to score on the SCO lottery. But who
drops $50 million on a small cap company with no history of a
commercial viable product line?
BayStar Capital II, LP is a venture capital firm that
specializes in what's known as Private Investing in Public
Entities, otherwise known as PIPE. There's nothing wrong with PIPE
per se, it's a common way of investors to spread their
money around without advertising where and when their money is
going. But Pamela Jones, the ever-talented editor of Groklaw,
discovered that one major PIPE investor (for any venture capital
firm, not necessarily just with BayStar) has been Microsoft. Could
there be a Microsoft connection now?
According to SCO and BayStar, none of the $50 million originated
at Microsoft. The investment funds came from BayStar and the Royal
Bank of Canada, of all places. Why the RBC is investing in SCO is
beyond me. Though one wonders where Microsoft Canada deposits its
Regardless of where the money came from, SCO's acceptance of
this money represents yet another about-face, since last May SCO
stated that they were generating enough revenue from licensing that
they did not need such a major investment then. Besides, McBride
explained, $50 million in May would have been far less diluted of
an investment five months ago, when SCOX was priced in the "sub
Then's there's this whole backing away from SGI. You have a
company that publicly admitted that there was inadvertant IP
violations in the Linux source, while at the same time detailing
how they corrected the problem. You can certainly charge them,
right? Yet now you're backing away from royalty enforcement. Hello?
As a potential investor, shouldn't I expect the company to do as
much as it can to make money?
Of course, I would have preferred to ask these questions to
McBride, but for the second SCO press conference in a row, I did
not get my place in the question queue in time, despite punching
the code two seconds after the call for questions. I'm sure that's
just a technical thing--I never could dial in fast enough to win
any thing from a radio show, either.
As a hypothetical potential investor, I would really question
all these changes in tactics. And these are not trivial changes,
adapting to changing circumstances--these are, in my opinion,
outright reversals. Why would I put my money in such a company?
Oh, wait, I forgot one minor point: this whole IP thing about
Linux? Not proven in any court nor by any publicly available
I'm sure that's just another one of those technical things.