The strange case of LinuxOne
Linux newcomer files for IPO
SummaryBy Rick Moen and Eileen Cohen
It's difficult to tell exactly what California startup and IPO candidate LinuxOne is up to, but it seems to involve a highly derivative Linux distribution and mysterious dealings in China. Many eyebrows have been raised by the firm's seemingly vaporous business plan, but at least it's now produced a product or two. Sort of. Rick Moen and Eileen Cohen report for LinuxWorld. (3,500 words)
There's a common saying: the Linux community is a small one. That's true in a way, but misleading. What we mean, when we say that, is that the community is gregarious. We tend to know one another.
With Linux's explosive growth, there are of course newcomers all the time, and we welcome and help them. But almost never do they arrive out of nowhere. In that sense, at least, the Linux world has indeed always been small.
A rare exception arrived, with a splash, on September 2, 1999: LinuxOne, a firm that nobody had ever heard of, formed a strategic partnership with France's MandrakeSoft. According to the announcement, LinuxOne would be assisting MandrakeSoft in opening development centers in Beijing and Shanghai to create Chinese-language versions of MandrakeSoft's distribution (Linux-Mandrake) and other software.
The plan seemed ambitious -- even if LinuxOne's role in it was a little unclear. It also seemed to tread down a path already blazed by others: California-based TurboLinux already has an entrenched presence in the Chinese market. But presumably a billion-plus customers can support any number of Linux companies. On November 3, LinuxWorld spoke with Daniel Morales, MandrakeSoft's CEO for US operations, who says it's "really premature to expect to see results on the original Asia agreement. We haven't seen any big results yet." He added that "LinuxOne has gone off into different directions" since the agreement was made.
In any event, my main concern was a bit closer to home: LinuxOne is based in Mountain View, California, practically in my backyard. It's the San Francisco Bay Area, one of the most active and concentrated Linux communities in the world -- a metropolitan region boasting nine active Linux user groups, none of whose members had ever heard of LinuxOne or its founder, Wun C. Chiou Sr., Ph.D. How was this possible?
Like any other self-respecting technofreak, I first checked the firm's Internet presence. LinuxOne's InterNIC registration contained all the characteristic errors of the network amateur: Dr. Chiou was listed as the sole contact, with all DNS e-mail contact routed through the firm's mail server (not very useful when you need to send mail about faulty name service). Web site, e-mail, and DNS were all on the same two Linux machines inside the same office, on the same power circuit. So much for redundancy.
That brought me to the Web site itself. The platform for www.linuxone.net proved, on examination, to be a very generic Red Hat 6.0 installation on an Intel box, parked on a home-grade (and low-bandwidth) Pacific Bell ADSL line. Numerous TCP ports had been left wide open to the Internet, including telnet access, finger, an RPC portmapper, the Berkeley r-commands, Samba, the Linuxconf facility (used for remote administration), and the X Window System. Security was definitely not high on the list of priorities.
The Web content also raised eyebrows: Numerous Microsoft Word artifacts pervade the site.
What's the firm all about? The About LinuxOne page tells this tale:
LinuxOne(TM), One Stop for Linux, provides world-class quality UNIX (Linux) software targeted to the server, workstation and home environments and is distinguished by the unchallenged availability of applications and platform support, ease of installation and use, support, and commitment to lead in the development of timely extensions that address the requirements of the market for new functionality that provides stability, security, and usability for the software. LinuxOne(TM) expects to become the highest rated supplier of Linux solutions based on packaging, support, and capability world-wide. LinuxOne is based in California.
The prime Linux solution was to be a new distribution called LinuxOpen, described on the Products page. The distribution was quickly renamed LinuxOne OS -- perhaps at the request of Caldera Systems, the publisher of OpenLinux). Caldera could not be reached for comment by the time that this story went to press. But LinuxOne's attorney told LinuxWorld that the name change was a "management decision," unrelated to the Caldera product's name, "to show that the brand was unique."
The LinuxOne Web site says:
A key feature of LinuxOne OS is its ability to run on the most advanced PC workstations with devices that increase communication bandwidth, such as ADSL and cable modem. LinuxOne OS will support these new technologies with its sophisticated proprietary device drivers....
A distribution based on proprietary device drivers has always been possible, since Linus Torvalds has interpreted the GNU General Public License as allowing them. But other distributions have gone to some lengths to avoid them and their accompanying public relations problems. However, and more to the point, Linux already supports Asymmetric Digital Subscriber Lines and cable modems.
That bit of hyperbole notwithstanding, it seemed possible that LinuxOne OS might be something special -- or become such. It's worth remembering that Linux-Mandrake itself began as a barely modified Red Hat variant, with K Desktop Environment (KDE) and some internationalisation features grafted on. And look at them now: they are outselling Red Hat Software, by some accounts, two to one. LinuxOne might have something similar in store.
But where was LinuxOne OS? It wasn't running the firm's Web site, that's for sure. If you will recall, LinuxOne is running a generic installation of Red Hat 6.0 to power its Web site. That seems to display a stunning lack of faith in the home team.
A closer look at the site revealed that a beta release was promised Real Soon Now, and you could sign up to buy a (binary only) CD-ROM of it for $9.95 -- by sending your credit card number unencrypted across the Internet. (The devil-may-care attitude to security applied to customers, too!) The lucky first 100 requesters would receive the CD-ROM for free.
What would be special about it? LinuxOne didn't say, really, except that it would be "the easiest Linux operating system and software to install and use...." I'll add that this would be the first distribution I'd ever heard of with no public beta cycle. Developing a Linux distribution totally behind closed doors is rash, because you close yourself off from peer review. Even distributions with proprietary components, such as Corel's, go through a public beta process.
Dick and Jane go IPO
Even before I had heard of anyone receiving one of those $9.95 beta CDs, the other shoe dropped: on September 22, LinuxOne announced that it had filed with the SEC for an initial public offering.
Consulting a few search engines about Wun C. Chiou turned up the news that he had most recently founded NetUSA (formerly Pacific Microelectronics), which he left in March to found LinuxOne. This meant that LinuxOne has been in business only for six months -- and is already filing for an IPO (with no product). Only in America, eh?
Chiou's previous company, NetUSA, is mostly an Internet services firm, with occasional odd sidelines. During Chiou's tenure, one of them appeared to be the sending of unsolicited commercial e-mail, judging by one Usenet post complaining about spam from NetUSA. Chiou also saw NetUSA through its recent IPO, which unfortunately quickly declined from about $7 a share to its current price of around $0.63.
LinuxOne's S1 filing announced an intent to sell 3 million shares at $6 to $8 each. In the filing, LinuxOne reported zero revenue and a $17,000 operating loss for its initial quarter. Despite this, the firm reports having $150,000 in the bank, apparently from private stock placements. Of the executive officers, none but President and CEO Chiou owns any stock (as reported on the S1 filing).
The odd financing is perhaps explained in part by LinuxOne's incorporation status: it's a Nevada corporation, created in a lawyer's office in Reno. That is not how the venture-capital game is played. Companies wanting to go the Wall Street route generally incorporate in business-friendly Delaware. Venture capitalists like the highly regular and complete disclosure requirements of Delaware incorporation law. Without the assurances that those kinds of laws bring, startup funding can be hard to come by.
Many businesses do incorporate in Nevada, including some large and publicly traded ones. The main benefits for doing so, as I understand it, lie in the realms of privacy and taxation. Nevada's rates for corporate taxes are low. Its incorporation statutes require very little disclosure of one's financial affairs compared with those of some other states (including Delaware). And Nevada does not have reciprocity agreements with other tax jurisdictions. So if you want to minimize your corporate tax and the disclosure of your business affairs, you incorporate in Nevada.
LinuxOne's IPO offering has no underwriters: Per the filing, shares "will be offered for sale by our management" for 180 days, with a possible extension of another 90 days. The filing projects 9.2 million shares outstanding after the IPO, which represents 33 percent equity of a $73 million market value, assuming an $8 share price. The $8 figure was said to have been "arbitrarily established by us" to raise about $23 million after expenses and "bears no relationship whatsoever to our assets, earnings, book value, or other criteria of value."
The company has laid claim to the NASDAQ ticker symbol LINX. So it may or may not have a product, but it looks poised to score the biggest coup in ticker symbols since Genentech snagged DNA.
Commentators pronounced LinuxOne's S1 filing to be virtually identical to Red Hat Software's (except for the lack of securities underwriters). Questioned about that by CNET, LinuxOne declined to return its calls.
A funny thing is that at least one of the LinuxOne Web site's employment opportunities listings is, word for word, identical to a job listing at Red Hat's careers page.
You know what they say about imitation and flattery.
Would the beta show that 'the brand was unique'?
On October 28, I received a copy of LinuxOne's product, a Beta 0.3 CD-ROM disk -- with Intel binaries only, and no source code (except a package of what looked to be unmodified 2.2.12 kernel sources). Boot it, and you get to a familiar-looking Syslinux boot screen. In fact, you reach a whole lot of familiar screens if you've installed Red Hat 6.0 as often as I have. If you have, then LinuxOne will look spookily familiar, since each screen is an exact replica of Red Hat 6.0's, except with LinuxOne's name and URL substituted for those of Red Hat Software.
There are occasional bare spots in the repainting job: One screen says "Welcome to LinuxOne" if you select the English-language version, but still refers to Red Hat if you choose French, German, Italian, or any of the other languages. Remembering the LinuxOne-MandrakeSoft agreement, I checked the language-support options with keen interest. Was there support for Chinese or Japanese? No soap: LinuxOne's language coverage is exactly the same as Red Hat 6.0's, and no more.
At the directory-layout level, also, LinuxOne comes across as a barely modified Red Hat 6.0. The top-level Red Hat directory is still there, unchanged except that it's been renamed LinuxOne. The docs directory is more of the same: the Official Red Hat 6.0 Installation Guide, the Red Hat Linux 5.9 Alpha Installation Addendum, the Red Hat sample kickstart configuration, and the standard collection of LDP FAQ and HOWTO documents (packaged exactly as in Red Hat 6.0).
But I don't mean to imply that LinuxOne OS is 100 percent Red
Hat 6.0. It also borrows from Mandrake: Packages for BeroFTPD,
BeroList, maxwell, postfix, MandrakeUpdate, and mandrake_doc are
also present. And after searching high and low, I found one
package that actually appeared to be from LinuxOne itself:
linuxone_desk provides a half-dozen KDE icons and
.kdelnk files for the "LinuxOne desktop" (KDE
Not surprisingly, at the user level, the resulting system is a
kissing cousin to the last-but-one Red Hat release, with a small
sprinkling of Mandrake on top. That results in minor glitches
daemons both being enabled by default. For fixes, we're
referred to "the Errata available from http://www.linuxone.net/",
which are not there, and for system configuration to "the
post-install chapter of the Official LinuxOne User's Guide",
which isn't in evidence, either.
The intellectual-property status of all this is an interesting question: The CD's copying file replicates Red Hat Software's application of the GPL to its distribution as a whole (a "compilation" copyright) from Red Hat's 6.0 release. Also, the disk's top-level README acknowledges the copyright and trademarks of Red Hat Software and MandrakeSoft, and states that some work is from LinuxOne. But what is LinuxOne's work, here? There's no sign of the much ballyhooed "proprietary device drivers." And is it fair to call what's (more or less) an aging Red Hat release with the serial numbers filed off "the easiest Linux operating system and software to install and use"?
Red Hat's official position is to decline to comment on what LinuxOne may or may not have copied from Red Hat. And they offer a cheerfully sanguine, if rather generic, interpretation of the LinuxOne IPO: "We're seeing a lot of Linux-related IPOs, and I imagine that we're going to see many more, and we have to leave it up to the markets to decide where the value is," Red Hat spokesperson Melissa London told LinuxWorld. "Obviously, we think that whatever furthers the adoption and acceptance of open source on a large scale is a good thing for all of us in the open source community."
Source code availability and the GNU GPL
One thing is for sure: LinuxOne shirked a key responsibility of membership in the open source community: public access to source code. Under GNU GPL section 3, LinuxOne must either include the source code of the GPLd programs it ships, or include a written offer, open for three years, of source media at nominal cost. LinuxOne, initially, did neither.
The README states: SOURCES: All the LinuxOne specific packages come with their sources in the source-CD (PowerPack Edition). Please use FTP servers for sources. In the case where you don't have Internet access, Linux-Mandrake can send you a sources archive for very little charge. I'm sorry, but this doesn't cut it: LinuxOne doesn't have a "source-CD (PowerPack Edition)"; at the time that it released its distribution, its ftp servers carried no source code; and this isn't "Linux-Mandrake's" (MandrakeSoft's) problem.
On November 3, a
/misc/source directory appeared
on LinuxOne's ftp server. According to open source licensing
expert Bruce Perens, the directory, as of November 4, did not
contain all the source code for all the GPLd programs
that are included in the LinuxOne distribution. If this is true,
it constitutes a violation of the GNU General Public License
(GPL). That, he told LinuxWorld, is a fixable thing.
"What I'm more concerned about is the weird, fly-by-night
aspect," he said. Perens's feelings are detailed in a piece
titled "Let's run LinuxOne out of town on a rail!" (See Resources.)
I've been unable to check the
directory myself: The LinuxOne ftp server was not responding for
the 15-hour period before this article went to press. The
address, by the way, appears to be inside an IP-network numeric
range belonging to "Pacific Micro," the former name of Chiou's
earlier company, NetUSA.
Consider the source
GPL violation is a serious matter. As a newcomer, LinuxOne may simply have been unaware of the problem. But it still needs to be fixed. Soon.
LinuxWorld spoke with Brian Youmans, distribution manager at the Free Software Foundation, about LinuxOne and the GPL. His first reaction was that "it sounds, on the face of it, like they're not playing by the rules, and it's time for somebody to give them a call and explain the rules to them." He added diplomatically, "We've had to deal with several other distributions, usually small upstart ones, where people aren't playing by the rules exactly. Once they understand their responsibilities, which are not onerous, they usually comply."
Youmans did subsequently speak with Chiou by telephone and reported that he found him "very cooperative. He stated that source code was available on request, and also that LinuxOne would consider automatically sending source code CDs with all orders in the future. He seems to have a sincere desire to do the right thing."
Neither Chiou nor anyone else at LinuxOne would speak with LinuxWorld. Instead they are referring press inquiries to the company's corporate counsel, Michael Morrison, in Reno. Morrison explained to LinuxWorld that the company is in the SEC-imposed quiet period following its IPO filing, and said he had no information on the licensing question. While he seemed familiar enough with LinuxOne's product offerings to state, in authoritative tones, that "no one else has anything to compare to their unique products, especially Red Hat", he said he didn't have the technical knowledge to shed any light on what the "proprietary drivers" might be, or to comment on what the company's plans were for providing technical support.
What does it all mean?
The day after I finally saw the LinuxOne OS Beta 0.3, a little more of LinuxOne's product strategy came to light: no more Beta 0.3. You can now get "LinuxOne OS (English) version 1.2" on CD-ROM (or LinuxOne Lite 1.2, designed to run on Microsoft FAT partitions, à la WinLinux 2000) for $29.95. One gathers that 1.0 versions are for the timid. Moreover, Chinese and Japanese versions are "coming soon."
So, this gives some clue as to what LinuxOne is probably trying to do. Chiou and his business partners probably have extensive experience with the East Asian market and presumably a network of business contacts. It's possible that the projected Chinese and Japanese versions are intended to be their real products. Creating such a distribution, if only through translating other people's work, is no mean feat, and we can only wish them luck.
LinuxOne's attorney told LinuxWorld that LinuxOne has just entered into a "very substantial contract" with SRI, "the biggest distributor in Japan," to distribute LinuxOne in that country. "It's very significant that they [SRI] took on LinuxOne instead of Red Hat or Caldera", he said. (Even though Morrison said this information had already been publicly released to the press via Business Wire, LinuxWorld had neither received a press release nor was able to turn one up searching the Business Wire and other PR Web sites.)
Of course, all this may be about stock speculation and nothing more. Chiou's prior IPO issue declined in value by a factor of 10. Somebody no doubt gained a pile of cash on the way up, and somebody else lost it on the way down. I'm not sure who, but it wasn't pocket change.
It's tempting to give LinuxOne a hard time for its distribution's apparent lack of new content and exaggerated claims. But starting small with grandiose dreams is no crime, nor is it a predictor of failure: Just ask MandrakeSoft.
Still, it seems awfully bold to file for an IPO, without underwriters, with a tiny firm that's existed only for six months and that barely has a product. And to have the cheek to ask us to pay $29.95, sight unseen, for a distribution that the firm hasn't the conviction to run as its own Web server, and to expect us to not worry our pretty little heads over source code seems a bit much. Add to that LinuxOne's claims to be a world shaker poised, as the About page says, to "become the world's highest-rated supplier of Linux solutions based on innovation, packaging, support, and global capability."
It could happen. The mouse could roar, and Chiou could have the last laugh. But call me skeptical. I tend to believe, with Damon Runyon, that "the race is not to the swift, nor the battle to the strong, but that's the way to bet."
About the author
Rick Moen is a Linux system administrator who thought until now that he'd never, in a million years, get mileage out of having passed the CPA exam. Rick was the primary organizer for Windows Refund Day in the San Francisco Bay Area, and one of the main troublemakers behind Silicon Valley Linux User Group's Silicon Valley Tea Party, the Great Linux Revolt of '98, and other Bay Area Linux PR events. His project for November will be finding out how well GIFs burn.
Eileen Cohen is a contributing editor at LinuxWorld.
- LinuxOne/Linux Mandrake announcement from LinuxPR:
- CNET story about the LinuxOne filing:
- Red Hat's Careers page:
- Bruce Perens's piece on LinuxOne:
First published in LinuxWorld.com.