Who are these SCO guys, anyway?

“Those guys in Utah are no dummies.” That is how a recent article in Forbes magazine described the management team behind SCO, the company that has outraged the open source community by claiming that it owns key components of the Linux operating system.

The article was one of the very few in the US press that has given SCO any chance of winning the mounting legal and PR battles that it is now fighting. SCO has so far exchanged writs with IBM and Linux distributor Red Hat, and is challenging the legal basis of the GPL – the intellectual property licence that provides a kind of ‘constitution’ for all open source activity.

But if the SCO people are not dummies, then why exactly have they taken on, simultaneously, the combined might of IBM and tens of millions of IT professionals who are passionately committed to the idea of a free, open source operating system?

There are good two places to look for the answers. The first is in SCO’s financial filings; and the second is in the resumes of the management team.

The latest results from SCO look quite good – but only at first glance. In its recently announced third quarter, it made a profit of $4.5 million on sales of $21.3 million, and in its

SCO: How does it make its money?      
Unix OpenServer 5.7m 27%
Unixware 3.0m 14%
Other Products 2.5m 11%
Licensing Unix code 8.3m 38%
Services 1.9m 8%

second quarter, it made profits of $3 million million on sales of $20.5 million.

But these results are distorted by the fact that, back in March, it managed to persuade two companies to pay some $13 million for licences to Unix code. $8.25 million of this fell in the second quarter, with the rest spread over the year. One of these licensees is Microsoft, the sworn enemy of the open source movement.

In the second quarter, this money (as the table shows), contributed 38% of sales. Without it, revenues would have fallen 12% and SCO would have lost $1.1 million. A similar pattern would be seen for the third quarter. And unless SCO can find more licensees, it will keep happening.

In fact, sales of SCO’s main Unix products, OpenServer and Unixware, are falling sharply as big competitors develop improved Linux solutions on the Intel platform. In 2002, SCO lost $24.9 million on sales of $64.2 million.

Put this together, and what it shows is that, as a software products company, SCO is shrinking and losing money. Without the Linux licensing attack, its future looked bleak.

And the resumes of the people involved? The current SCO used to be called Caldera – majority owned by the Canopy Group of Utah. In 1996, Caldera fought and won a lawsuit against Microsoft, claiming the company owned parts of DOS, the predecessor to Windows.

The chairman of SCO now, and of Caldera then, is Ralph Yarro, and he seems to relish the battle. “I’m not a guy who goes away quietly in the night. I fight. If you take something from me, I’m going to come after you,” he told Forbes.

But SCO CEO Darl McBride also has a history of successful litigation – against Ikon, his previous employer. The suit left him millions of dollars richer.

Although SCO’s shares have risen in recent months, the odds are probably still against it achieving a satisfactory outcome. But those people who get a bill from SCO for their Linux licence should also bear in mind that SCO has hired lawyer David Boies to prosecute the case. He fought and won the US government’s anti-trust case against Microsoft.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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