More than a year ago, SCO Group president and CEO Darl McBride promised at his company's annual conference in Las Vegas that SCO would start focusing more on technology development and less on suing Linux vendors and users. SCO already had legal battles with AutoZone, IBM, Novell, and Red Hat on its plate, so the statement seemed logical. Now comes the hard part: Remaking a once-relevant Unix provider with mounting legal fees and shrinking revenue into a software company with a future.
SCO believes it has found a way to do this with the launch of its new Me Inc. division and a set of Web services designed to let companies tie "smart" handheld devices that act as both cell phones and mobile desktop devices to back-end applications and data.
At the core of Me Inc. technology is something SCO calls an "edge processor," actually a Web-services engine that runs on any Linux, Unix, or Windows server. The other main part of the package is a set of templates to help companies create mobile applications and services. These include: Shout, which already is being used by beta clients to push voice and data messages out to widely distributed mobile users; Vote, used to poll mobile users on a particular topic and then tabulate the results; Action, a tool for remotely managing assignments and employees; and People, used to create personnel directories with multimedia profiles.
Musco Food Corp., a distributor of Italian food that's steeped in old-school ways of doing business, recently tapped SCO and reseller Ask Technologies Inc. to upgrade the company's paper-based methods of order processing. Musco now is using Me Inc.'s Shout capability to, among other things, push pricing and promotional information out to salespeople in the field while they're visiting with customers. SCO says that Utah State University also recently used the Shout capability to send voice mails to the school's sports boosters to let them know that a football game with Thibodaux, La.-based Nicholls State University was canceled because of Hurricane Katrina.
Future Me Inc. applications will let users turn their Treos, RIM BlackBerrys, and devices running Microsoft Windows Mobile and the Symbian operating system into remote controls for their IT infrastructures, McBride said Wednesday at SCO's Me Inc. press conference in New York. "We want to be the iTunes of software and make digital services available to businesses," he said.
The strategy is a far cry from SCO's position a few years ago, when it brought in McBride to prop up a sagging Unix business that was being killed in the market by the open-source Linux operating system. McBride's most audacious move was to sue IBM for several billion dollars in March 2003, claiming that IBM had broken a contract with SCO and its predecessors and contributed SCO-owned Unix source code to the Linux kernel. SCO went on to sue Novell for claiming it still owned a portion of the Unix source code, thus hurting SCO's claims against IBM, and sue AutoZone for using Linux and potentially infringing on SCO's rights as Unix's owner. SCO was also sued by Red Hat, which claimed SCO was interfering with its Linux business through its threats and lawsuits.
SCO legal moves created a tangled web, and the slow pace of the judicial process helped the company burn through cash without much to show for its efforts. Recognizing SCO might not be around to collect even if its case against IBM succeeds, the company capped the legal fees it will pay at $40 million and offered lead legal counsel Boies, Schiller & Flexner LLP a share of any favorable court settlement. The company also launched Project Phoenix, an attempt to identify areas where it could grow. "The legal bills were out of control and were an overhang on our core business," McBride acknowledged.
Largely overshadowed by the IBM lawsuit was SCO's July 2003 acquisition of Vultus Inc., a company with tools for developing Web services that small and midsize businesses could build atop their SCO Unix infrastructures. At the time, SCO called its Web-services initiative SCOx and envisioned that Vultus' WebFace Web-application development environment would let customers transform archaic green screens into more dynamic browser-based interfaces. "There wasn't a lot of interest in that, though," McBride admitted. This forced SCO to find some other way to make use of its investment in Vultus and led to the emergence of the Me Inc. Web services for mobile applications.
SCO will account for Me Inc. revenue as a service offering. The company still relies on its Unix licenses to bring in most of its revenue. For the third fiscal 2005 quarter, ended July 31, Unix licenses and product revenue was a just less than $8 million, with services accounting for about $1.4 million. Total revenue was down from $11.2 million from the same period a year ago. The greatest drop for the quarter was in SCO's SCOsource licensing business, whose primarily mission is to sell Linux users licenses to use the SCO Unix intellectual property SCO claims is contained in Linux. SCOsource recorded $32,000 in revenue for the quarter, compared with $678,000 a year earlier.
McBride bristles at criticism that SCO is using its resources to pick legal fights rather than develop technology. He points to the June launch of UnixWare 6 and this week's unveiling of Me Inc. as proof that his company has been addressing not only the needs of longtime customers but looking at new opportunities as well. He says SCO purposely eschewed building lots of hype around Me Inc. until the technology was ready. "We could have spent a lot of time talking about these technologies, but words fall flat," he said. "We've had to do the rope-a-dope, taking punches while saving our energy."
Me Inc. does represent a high-growth opportunity for SCO, says Tony Iams, VP and lead analyst for systems software and virtualization for D.H. Brown Associates. "What SCO described here today is clearly something people are interested in," he adds. "It's a little bit of a long shot, although the company has a solid technology foundation with its Vultus acquisition."
One of SCO's challenges will be pushing a Web-services platform up against those offered by Microsoft through .Net and Sun Microsystems through its Java development environment. SCO also has to contend with the ill will its legal actions have created. Whether or not they use Linux, many companies have been put off by SCO's decision to take its fight to users such as AutoZone. "It's a huge challenge for them, since they're seen as the company that's trying to kill Linux," Iams says.
It's a fight that SCO can't afford to lose. While Microsoft battles Linux for supremacy on x86 and emerging 64-bit platforms being developed by Advanced Micro Devices Inc. and Intel, SCO's Unix-on-commodity server operating system has to wait on the sidelines, at least until SCO's case with IBM is resolved. That case is scheduled for February 2007, with preliminary courtroom skirmishes scheduled along the way as the two companies prepare for high noon in Utah. That's too long from now for SCO to hope that its UnixWare and OpenServer operating systems will ever be able to gain ground on Windows or Linux.