By R. Scott Raynovich
Redherring.com
September 9, 1999

As share prices of the publicly traded Linux-related companies continue to burn up the charts, they appear to be lending a new credibility to the open-source movement and providing more ammunition for the anti-Microsoft camp.

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On Wednesday, Red Hat Software (Nasdaq: RHAT) popped 8.75 points to $116.75, reaching a new high and giving the company a market cap of slightly more than $7 billion.

Other Linux-related companies followed the leader. Applix (Nasdaq: APLX) added 1.88 to close at $19.00, and Corel's (Nasdaq: CORL) Nasdaq shares added .25 to close at $5.81, pointing to a rising tide for the Linux market as a whole.

	Kleiner Perkins funds Linux startup.   Applix shares feed on the Linux fad.   Bob Young and Marc Ewing are taking Linux mainstream and giving Microsoft a run for the money.

RED HOT RED HAT
Such success in the public markets continues to stoke the interest in Linux startups, as Red Hat serves as a sort of marketing vehicle for the entire open-source movement. Red Hat may have been fortuitous in receiving the bulk of financial reward as one of the first high-profile open-source IPOs, but many see the company's good fortune as fodder for the prospects of open source as a whole.

"What Red Hat has done on Wall Street has added an amazing amount of credibility to Linux," says Rob Malda, founder and "cojockey" of Slashdot.org, the software developer community. "The geeks in the big corporations have been using Linux for years. But they weren't the kind of guys who were going to tell their president about it. Big companies like to have things that make investors feel warm and fuzzy -- they like to say things like, 'We use Oracle.'"

With Red Hat's share price rising into the hundreds and the brand equity being built with daily mentions on CNBC and in the Wall Street Journal, those same executives may now get that "warm and fuzzy" feeling when they hear that Linux is driving their corporate Web server. Red Hat's success means that Linux could now be safe for corporate America, and Linux products will no longer be whispered about in wired closets but openly discussed in corporate boardrooms.

LINUX IN A BOTTLE
"Red Hat is really a marketing company," says Mr. Malda. "They took that Linux thing and put their name on it. They did a very good job of making their brand name very pervasive. And that's good -- it's made Linux a lot bigger."

So what's next for Linux and open source? Venture capital activity continues to feed the area, as companies look for new ways to build business models that fit into the thriving open-source community. This, also, could present new challenges for Microsoft (Nasdaq: MSFT) -- and for other open-source players -- as the Linux application development finds its corporate customers.

"As companies like Rat Hat are able to raise more money, that money in turn will fund more and more support applications," says Kevin Harvey, a partner with Benchmark Capital. Benchmark was one of Red Hat's investors and recently funded SourceXchange, an open-source community that will organize open-source developers.

Mr. Harvey says the challenge in the open-source market is to come up with business models that can use open source to create products for corporate America -- and make money. He believes that SourceXchange, which brings together corporations and engineers looking to complete specific projects, is one such approach. The site "allows for the community to request financing for a project and allows the engineers to get paid for their development," says Mr. Harvey. Benchmark will also make another open-source funding announcement in the next few weeks, he adds.

Other VCs have been busy in this area, as well. Kleiner Perkins Caufield & Byers, CMEA Ventures, the Sand Hill Group (a private investor group including SAP CEO Hasso Plattner), and angel investors have invested first-round funding in Linuxcare, a San Francisco-based Linux startup. Other Linux software companies include Caldera Systems, Pacific HiTech, and SuSE.

TO THE MOON, ALICE
But how far can the Wall Street hype carry Linux? Discussing Kleiner Perkins's funding of LinuxCare with Redherring.com a few weeks ago, Steve Kleynhans, vice president of the Meta Group, remarked that the Linux market reminded him of the PC market in 1978, when "the market was really, really not there." He added that the names of the top PC producers of that era would be unrecognized today.

Mr. Kleynhans says the anti-Microsoft camp continues to root for Linux, but he doesn't foresee that Linux will have any impact on Microsoft in the next two to three years.

For those fighting for more open-applications markets, at least, the Red Hat craze has certainly sparked optimism. Rick Ross, president of the Java Lobby and a frequent critic of Microsoft's efforts to shut down alternative applications platforms, believes that Linux's newfound fame is indeed broadening its threat to Microsoft as it becomes a more legitimate platform for developers.

"You see the traditional players like Sybase [Nasdaq: SYBS] and IBM [NYSE: IBM] already in the Linux market. Informix [Nasdaq: IFMX] has either gotten there or is going there," says Mr. Ross. "When all the major databases are moving in that direction, their corporate customers must be saying that they want Linux."

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