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Lessons from the Layoffs at Linuxcare

by Tim O'Reilly

Linuxcare CTO Responds

Dave Sifry reacts to Tim's article.

The venture capital community and tech press is abuzz about recent layoffs at Linuxcare, the Kleiner-Perkins backed Linux support company.

Boosters of open source argue that Linuxcare's stumble is simply a result of management missteps, trying to grow too fast, and the overall cooling of the market to speculative high tech offerings and to Linux in particular. Observers critical of open source might argue that this event shows the weak commercial underpinnings of Linux, and the difficulty of making money when the software is free.

I draw an entirely different lesson: that the "service" opportunity for open source software requires thinking in a much bigger box. (You don't actually have to go outside the box. You just have to give yourself some elbow room.) Linuxcare's initial business model involved a great deal of reliance on phone-based tech support and other low level services; they are now repositioning themselves for higher-level professional services such as creating private label versions of Linux. They are absolutely right to think bigger. The service opportunity is immense, but it isn't necessarily in the obvious places.

Let me illustrate with a couple of stories.

My all-time favorite open-source derived service business is UUnet, now a multi-billion-dollar division of MCI Worldcom. Rick Adams, the founder of UUnet, has never been particularly identified with the free software or open source movement, and to this day doesn't particularly like to acknowledge its role in his success. Nonetheless, he was the author of several important open source packages and built a huge business based on them. He wrote B News, at one time the most popular Usenet news transport software, as well as the first implementation of SLIP (Serial Line IP), the predecessor to PPP in making dialup internet access possible.

For those of you who weren't around at the time, a brief history lesson: You now think of Usenet as something you get from your ISP. In the early days, it was a completely voluntary operation. You got your "Usenet feed" from a neighbor who was already hooked up. You arranged to dial up on a prearranged schedule to pick up and forward mail and news, mostly using the UUCP (Unix to Unix CoPy) communication protocol. It would often take two or three days for a message to propagate itself across the net. Every news site had to download every news message in any newsgroup to which they subscribed, so this could be a very time-consuming operation, requiring hours of connected dialup, often during off-hours. Users would then access the news from spool files on their local machine. (Under today's modern news servers, connected over the Internet, users can access messages in real time from a remote host, first downloading only the headers of messages in a newsgroup, then retrieving any individual messages they want to read.)

Over time, a number of sites emerged as Usenet/UUCPnet hubs, feeding hundreds or even thousands of other sites. Each of the hubs was connected to the others, forming what was called the Usenet "backbone." Rick Adams was the manager of a site called seismo at the U.S. Center for Seismic Studies, which eventually became one of the world's largest Usenet hubs, and was particularly important because it was the only one in the early years with a connection to Europe. The closer you were to seismo or one of the other hubs, the faster your mail and news got through, since it had to travel over fewer hops to get to its destination.

But there was trouble in this cooperative paradise. As the traffic load got bigger, the phone bills of the hub sites also got bigger, to the point that management couldn't look the other way any longer! Why is our dialup phone bill $100,000 a month? How does this support our mission?

Rick was one of the first to realize that his software needed commercial support. If people were willing to pay for UUCP and Usenet access, he could get the bureaucrats off his back. The commercial ISP was born. (At the time, it might have been called a UUSP, for "UUCP Service Provider"; TCP/IP didn't become the biggest part of the business till years later. UUCP lives on as the UU in UUnet's name.)

Rick first started UUnet as a non-profit corporation under the aegis of Usenix. Over time, he realized that the opportunity was bigger than he thought, and converted UUnet to a for-profit corporation. The Internet took off, and UUnet was a big part of making that happen.

(An aside: O'Reilly's own small part in that history ran parallel with UUnet's. In 1986, I wrote a book, Managing UUCP and Usenet, that evangelized the Usenet and told people how to get hooked up. This was O'Reilly's "underground bestseller" of the mid-80's, the book that more than any other defined our earliest publishing efforts. We became a UUnet customer, and Rick distributed the book to all his other customers. When he started offering TCP/IP services as well, we switched. We realized none of this stuff was well documented either, and so commissioned our 1992 book, The Whole Internet User's Guide and Catalog, which was so instrumental in bringing awareness of the Internet to the masses.)

To my mind, Rick and other early ISPs really understood what service means in a world where the software is free. Rick didn't try to put Usenet in a box and sell it. He didn't try to offer tech support services (though they were certainly part of his offering.) He gave the net "dial tone." He took all of the uncertainty out of access. He realized that in order for Usenet to grow to the next level, it needed a more reliable infrastructure, with a backbone that had the resources to offer a level of service that was good enough that people would be glad to pay for it.

To some people, this might make Rick and others like him enemies of free software, at least those who confuse gratis with libre. After all, UUnet took a service that had previously been provided on a volunteer basis, one of the great outpourings of cooperative goodwill in computer history, and replaced it with something you have to pay for. The old free, cooperative dialup net is dead.

But in fact, while the software was (and still is) free, the service it provided was never free. In the old days, we each paid our own phone bills, and the backbone sites with a lot of traffic paid more than their fair share. Rick basically dipped into the revenue stream that we were already paying to the phone company, and made it his own. Heck, now UUnet is a phone company, or at least part of one.

Another interesting part of the UUnet story leads me to my second "service based on free software" example. When Rick converted UUnet from a nonprofit to a for-profit corporation, he had to roll over the accumulated proceeds into another nonprofit. He funded an organization called the Internet Software Consortium, whose mission was to maintain free software required by the Usenet and internet infrastructure. Two of the packages supported by ISC are INN, the current generation of Usenet news server, and Paul Vixie's BIND (Berkeley Internet Name Daemon), the software behind the Internet Domain Name System.

The DNS also has turned out to have a huge service business associated with it, though that business was hijacked by a government contractor and turned into a lucrative monopoly. I'm talking, of course, about Network Solutions, whose business of registering domain names was a service business implicit in the DNS.

In a similar way, you can make the case that companies like Hotmail and Critical Path are exploiting service opportunities afforded by the net's open source email infrastructure.

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