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12/16/2003
02:45 PM
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SCO's House of Suits

SCO's strategy isn't based on products, technology and customer service. It's based on litigation.

Darl McBride is a man of many metaphors. In championing his company's claims to some of the source code behind Linux, the SCO Group chief fancies himself an environmentalist ("It's like cleaning up the Exxon Valdez!"), libertarian ("There's no such thing as a free lunch!"), besieged politician ("We're on the side of the silent majority!"), even Biblical hero ("This is a David and Goliath battle!"). But the more McBride talks, the more he sounds like a mere opportunist.

When McBride discusses SCO's three growth opportunities, only one of them--migrating the company's Unix customers to product upgrades--has anything to do with creating value. The other two prongs of SCO's strategy--dunning Linux users $1,399 per CPU in license fees for allegedly running morsels of its Unix code, and collecting on its $3 billion copyright-infringement lawsuit against Linux developer IBM--are based on litigation or the threat of litigation. Such tactics are a throwback to the Internet bubble economy, when it mattered little what a company made or sold as long as its clever business model kept Wall Street happy. What's important, evidently, is the potential to "monetize" customers rather than actually serve their needs.

While busy monetizing, however, SCO abandoned its only growth market--its Linux customer base. McBride may say that migrating its Unix customers to updated products is a multibillion-dollar opportunity, but SCO isn't focusing nearly as much on Unix as it is on harassing Linux partisans. Last month, SCO secured $50 million in private financing to do just that; the company then set aside millions of dollars in cash and stock to retain heavyweight litigants Boies, Schiller & Flexner.

McBride is unapologetic. "The last time I checked, the CEO was in charge of shareholder value," he said in a recent interview with CRN, "not standing around the campfire singing 'Kumbaya' with the Linux world."

Fair enough. Every company has the right to protect its intellectual property (though SCO hasn't provided much evidence to support its legal claims). Regardless, it seems a tad shallow to base two-thirds of your company's growth strategy on suing people--customers, potential customers, other vendors. Although you can't deny that this strategy has succeeded so far--SCO's market cap has soared more than tenfold in a year--you can't help but wonder when the house that McBride built will come tumbling down.

SCO reminds me of Walker Digital, the legal machine created by Priceline.com founder Jay Walker in the mid-'90s. You may recall that Walker Digital patented hundreds of digitally grounded "business processes" it claimed to have invented, like ways for magazines to bill subscribers automatically online for renewals or for airline passengers to log in seat upgrades. Walker insisted that his company would strike it rich by collecting royalty fees on those patents and, potentially, infringement damages. Like SCO's, its business model, assembled in the early commercial stages of a major technology movement, was based on heavy-duty lawyering. Today, having laid off most of its 130 or so "inventors," attorneys and support staff, Walker Digital is little more than a shell.

As for SCO, having failed to get any enterprise other than one phantom Fortune 500 user to sign up for its Linux licensing program, the company now plans to sue a high-profile Linux user within the next couple of months. And once Novell completes its acquisition of Linux distributor SuSE, SCO intends to sue Novell for alleged violation of a noncompete clause the two companies signed in 1995, when the former Santa Cruz Operation bought Novell's rights to Unix. SCO says other offending "industry consortia" and technology companies are fair game.

No one respects a bully, especially one who's not all that big and mean-looking. But no one respects an environmentally correct, libertarian David who pretends to be taking the high moral ground, either.

--Rob Preston, rpreston@cmp.com

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