Originally Published: Friday, 19 May 2000 Author: Rob Bos
Published to: featured_articles/Featured Articles Page: 1/1 - [Std View]

Stock Prices Don't Matter

Does this stock market volatility matter to free software? Not one bit. Not one teensiest bit at all. Free software has grown up nearly independent of monetary concerns, and will continue to do so. Stock value is utterly irrelevant to the future of Linux and free software -- the heart and soul of free software has nothing to do with stock options, or board meetings, or hierarchies of authority.

Quite a fair bit of emotion has been spilled recently over the stock market. Microsoft, for instance, has gone down by nearly half its value -- from about $120 to under $70. This is only one small example of the overall decline in the amount of imaginary money that software companies have commanded. To them, this is a serious problem. Most commercial companies rely on their stock price to drive perceptions of their success in the market. Stock options in some way drive a very large number of decisions that commercial software companies make, from product announcements to company buyouts to any number of other small things.

Stock price has in recent years been a primary motivating factor behind too much of the industry. It's an unhealthy obsession that causes developers and companies to focus on the acquisition of greater and greater amounts of wealth -- playing the "Stock Game" rather than actually trying to do something as revolutionary as create quality software.

Even Linux companies haven't been totally immune. Obsession over stock price has, despite pragmatic caution on the part of Linux developers and users, still reached a somewhat irrational pitch among some people.

VA Linux Systems, on its IPO, shot up to 320 US dollars per share on its first day, thereby making the most spectacular IPO in history. It is today worth $50 per share as of Thursday's closing, certainly a more realistic price. Red Hat Software's stock, which was once $151 a share, is now at $20 1/4 as of Thursday's closing.

This decline in stock prices, however, hasn't been the sole province of Linux companies. The entire computing industry has been sparked off. Some of the more spectacular declines, for instance, have been in areas traditionally considered the more reliable mainstays of the business.

Does this stock market volatility matter to free software? Not one bit. Not one teensiest bit at all. Free software has grown up nearly independent of monetary concerns, and will continue to do so. Stock value is utterly irrelevant to the future of Linux and free software -- the heart and soul of free software has nothing to do with stock options, or board meetings, or hierarchies of authority. Stock price isn't even a valid indicator of the success of Linux, and nor will it ever be, since Linux works independently of the stock market.

The stock market can only reflect the value of individual companies. People who invest in companies invest, ideally, on the premise that those companies will grow and become more valuable in the future. Investing on individual companies because they are involved with Linux is foolhardy; it is a truism that overall trends in a market don't necessarily mean anything about the individual companies in that trend.

The Linux overall market is growing like mad; the OS is being implemented all over the world. Service contracts, product announcements, and expositions are constantly being announced. New free software packages are being constantly announced, updated, and refined. The various distributions are stronger and more robust than they've ever been, and most of them are showing dramatic growth.

The overall Linux pie may be growing, but individual companies in that pie should always be judged by their own merits. Any investments in those companies must be done very carefully. The Linux market is an emerging one, where new companies appear and disappear on a moment's notice. Their success is tied to a number of conventional factors, and on a couple of new ones that the stock market has relatively little experience with.

A company which makes extensive use of Linux in its operations must support the community. Without broad support, a company is far less likely to survive the relatively inhospitable environment offered to them by developers and users. In conventional computing terms, when a single entity owns the platform, there is a single, concrete entity to make alliances with -- Microsoft, Sun, or IBM, for instance. Without the support of those central companies, any business plan that involves Windows, Solaris, or OS/2 as a central component of their strategy will necessarily fail. Similarly, a company that intends to use free software as a core component of their business plan must tender a careful alliance with the owners of that software.

Stock prices mean very little; they are irrelevant to free software. To companies, however, they are often a core concern. How the two approaches will evolve together and arrive at compromises will be interesting to watch; they are both useful tools for dealing with the world, and both have their place. The fundamental duality implied in this problem will be a source of strength and conflict for both the free software and the business communities -- a dynamic that will likely work for the benefit of both.

Rob Bos (rbos@linux.com) is a staff writer for Linux.com and is currently wondering why on Earth kfm suddenly started wanting 100% CPU for three minutes whenever it started up. Computers suck.