Business Technology: For SCO, Value Is In The Eye Of The Litigator

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity . . ."
-- Charles Dickens, A Tale of Two Cities

Last week, SCO Group , a litigation company that is best known for suing big-time customers but that also happens to be in the software business, reported some financial results. Prominent within the company's remarks about its rapidly declining fortunes was this comment from CEO Darl "The Snarl" McBride: "Finally, we remain committed to pursuing our legal strategy in the courtroom and look forward to presenting our case in February 2007." Well, maybe -- but a glance at the downward spiral of SCO's financial results might present us with an interesting subtext: What kind of shape will this tort-loving company, whose revenue continues shrinking and whose losses are substantial, be in by February 2007 ?

For contrast -- and boy oh boyzee, when Darl McBride is one of the factors in the equation, you can measure contrasting perspectives in light years -- here's what the chairman of another software company told InformationWeek last week: "The idea that you just go to that one search box and type something in becomes more obvious as a way of navigating into the applications and getting application data. In one place, I can type in a product, and see what the schedule for that is; I can type in an employee name, see who they work for, what they do; I can type in a customer name and get that information. We're talking business search, and far beyond just the classic document search."

Back to SCO -- here are some of the scintillating financial results the company has racked up under Darl's leadership for the quarter ended July 31 of this year contrasted with the same quarter last year (btw, Darl's compensation for fiscal 2003 was $1,064,564): product revenue for the three months ended July 31 last year, $8.929 million; this year, $7.953 million, or a decline of 12%; SCOsource licensing revenue for the three months last year, $678,000; this year, $32,000, down about 95%; services revenue for the three months last year, $1.598 million; this year, $1.368 million, down 14%; stock price about two years ago when it received outside investments of $50,000,000 to build new products (read that: lawsuits), $17 per share; last week, $4.34.

That other company's chairman on a new strategic direction his company and its developers are taking to deliver more value to customers: "But the [search] approach that works for the Web works very, very poorly inside a company, it turns out, so you don't want to try to take everything across. The Web has lots of these links, so weighting things according to the number of links works quite well. In a corporation, documents don't have those links, and you really have to go into the structured data."

Darl McBride on product strategy: "Our Unix business operated profitably for the third consecutive quarter and we launched SCO OpenServer 6 which has received many favorable reviews and is showing traction with customers. We also recently concluded our annual SCO Forum event in Las Vegas and received positive feedback on our Unix business from the partners, resellers and customers who attended the event." Right after this comment, he added the "legal strategy" comment, in case anyone was unsure about the company's future direction.

That other company's chairman on where his company's investing some of its money: "For us that means we do some of our work outside the U.S., but because the vast majority is done here, we want to reinvest with the top universities in this country and get those student pools up .... If the trends don't start going the other direction, though, it will make it tough for anyone like us whose plan is to do the vast majority of their work here in this country. That's looking out more like on the 5- to 10-year horizon."

And from SCO's latest financial results, here's where it's socking some money away: "In addition, $3,579,000 is held in an escrow account and is classified as a component of restricted cash as of July 31, 2005, to be used to pay for certain expenses associated with our litigation."

Well, freedom of choice is what America's all about, right? Some software companies and executives want to develop and deploy technology that helps businesses deliver greater value to customers and those customers' customers; others want to sue customers and deliver value to investors via lawsuits (another BTW: while SCO has shown a remarkable consistency in its ability to lose money on operations quarter after quarter after quarter, it was able to scrape together enough nickels to pay its law firm $1,000,000 in cash plus 400,000 shares of stock valued at about $8,000,000 at the time but now reduced to about $1,700,000, plus 20% of all awards or settlements).

No doubt, the approach embodied by Darl McBride and his "legal strategy" appeals to some people. But in an era when the business value and strategic significance of business technology are coming under considerable scrutiny, I find the whole approach embraced by McBride and SCO to be increasingly without merit and counterproductive for you and your peers. This isn't about a rigorous defense of carefully engineered intellectual property; it's about naked opportunism and an apparent disregard for customer value. But you've got to hand it to McBride -- he makes no bones about pretending to be something he's not: he runs a litigation company, and he's proud of it.

For myself, I think most of you who are searching for software solutions would prefer to do business with companies whose primary concern is developing, supporting, and enhancing great software that creates business value.

Oh, yeah -- that other company's chairman? He was interviewed by our Aaron Ricadela [[email protected]] last week, and his name is Bill Gates.

Bob Evans
Editorial Director
[email protected]

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