January 12, 2001, 11:26 AM — LAS VEGAS -- Linux supporters were ecstatic when the financial markets responded extremely favorably to the IPOs of open-source companies. However, after the unprecedented hype behind company launches such as VA Linux Systems and Red Hat, share prices plummeted, leaving companies desperate to reorganize. Now, it seems that the shareholders were not the only victims but that Linux's chances on the desktop also became something of a casualty of share dividends.
Red Hat's 52-week high on the Nasdaq stock exchange was just over $151 per share. Currently the Linux distribution company's shares are trading at just below the $11 mark. VA Linux shares reached a high of $320, but today the stock is trading at $12. Sure, most dot-coms have taken a big hit recently in their market capitalizations, but Linux stocks were among those with the highest distance to fall, and fall they did. But what exactly happened?
One opinion is that people were waiting for a technology bandwagon to jump on, and when one came along, they nearly tipped it over. When Red Hat became the first large Linux company to launch on the market, people thought it was "the" Linux company, according to Jon "maddog" Hall of nonprofit group Linux International.
"The day traders saw the Linux name and bought into it, but they soon realized it was not 'the' Linux company. Then VA came along, with the (Nasdaq) symbol of 'LNUX', and people said, this one is 'the' Linux company," sending its stock price through the roof," Hall said.
But all was not well in Linuxland for long. "When day traders realized they had made a lot of money in the market, and had to pay income taxes, they sold their shares," Hall said. "What did those stocks drop down to? They dropped to what they were actually worth."
Suddenly, with market capitalizations lowered to only a small fraction of what they previously were, companies realized they needed new business models to keep their investors happy. The solid choice was the server market where open-source companies were already holding their weight against industry giant Microsoft. The problems with migrating from Windows NT to Windows 2000 have also given Linux an even bigger push in the back-end market, according to Linux advocates. But what meanwhile happened to the Linux on the desktop?
"You don't want to look to the Linux distributions for desktop news anymore; they're all focused on the server market," said Nat Friedman, president of Linux desktop application company Helix Code, in Cambridge, Mass. "The desktop is not in the core business model anymore."