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How SCO Was Really Doing Just Prior to Project Monterey
Wednesday, February 15 2006 @ 06:18 PM EST

You know how SCO, in its Second Amended Complaint, tells the story of how mean IBM ruined SCO's business by walking away from Project Monterey? And how SCO's business before that was just swimming right along, doing great? And how stunned they were to learn IBM was donating to Linux? And how Linux was this hobbyist toy until IBM came along?

I think they maybe made that up. When I was scrambling around recently, trying to save vital stuff from a dying hard drive and doing triage, by reviewing some old documents that somehow I never used on Groklaw, I came across this, an article in Forbes, of all places, from 2000, "SCO Hitches Its Wagon To Linux" by Lisa DiCarlo. The way she tells it, SCO, Santa Cruz Operation, was going down fast and looking to Linux as its savior.

Here's how the article opens:

It's not often a software operating system comes along that can challenge the status quo, gain widespread popularity and create enormous revenue potential. So, it's not surprising that some struggling software companies view Linux as its ride out of the dark tunnel of flat growth and into the bright light of prosperity.

Right now, executives at SCO scoc (nasdaq: scoc), formerly known as the Santa Cruz Operation, are debating whether Linux will be its salvation.

The software maker certainly needs saving. SCO says its fiscal third quarter would fall far short of estimates. It will lose between 50 cents and 55 cents per share, not the 13 cent loss analysts had expected. The company blamed lingering year-2000 concerns and anemic demand for its flagship Unix server software, called UnixWare. Naturally, the stock was hammered, losing about 26% of its value to close at $4 on July 11. The news comes a few months after the company restructured its product divisions, laid off 70 employees and took a $5.9 million restructuring charge.

So, the company is hitching its wagon to--what else?--Linux.

Well, what do you know? SCO was struggling. Now, SCO also told us that Linux wasn't ready for the enterprise until after IBM made donations of code. Look what really happened:

Linux help can't come fast enough. With sales of UnixWare on the wane, SCO has been working for several years with IBM, Bull Worldwide Information Systems, Compaq Computer and others to develop a next-generation version of IBM's AIX Unix system. Code-named Monterey, the software will supplant SCO's UnixWare.

The problem is that Monterey was conceived well before Linux was a household word and before IBM, the primary financial backer and developer of Monterey, invested billions in a corporate-wide Linux effort which, by the way, overlaps with its Monterey initiative.

Michels acknowledges that the target audience for Monterey has changed. Instead of being a catchall Unix, Monterey will be moved upstream to a high-end, large corporate sites that now might be using Sun Microsystems' sunw (nasdaq: sunw) Solaris systems

The article clearly says that Linux was a household word by 2000, and it says IBM was simultaneously investing billions in Linux *while also developing Monterey*, which tells my rational brain that SCO knew about IBM's Linux activities at the time, and so did Caldera, if they did any due diligence at all. And if they didn't, shame on them.

My logical mind also notes that the reason SCO's Unix wasn't doing so well, according to them at the time, was "The company blamed lingering year-2000 concerns and anemic demand for its flagship Unix server software, called UnixWare."

By the time this article was written, the CEO of Santa Cruz was telling the media that Linux was so popular that plans for Project Monterey had been changed to target high-end corporate sites, instead of fulfilling its original purpose of providing a unified Unix, because by then, no one much really wanted a unified Unix. All this happened *before* Caldera bought whatever it bought from Santa Cruz, please note.

The previous March, Infoworld had done an article on SCO's difficulties:

A reorganization aims to increase investment in the company's Tarantella software and in Linux, and to reduce expenses in the company's core Unix server business. The California-based company expects to report "significant losses" after reorganization costs.

SCO is blaming Y2K-related delays "and other effects" for the shortfall, according to a statement. "I am disappointed that the market for our Unix server software has not recovered as quickly as we expected following the Y2K period," said Doug Michels, SCO's president and chief executive officer, in a statement. Michels said that reseller activity has begun to return to previous levels.

So, there you are, just in case this trial goes all the way to the damages phase, ha ha. What have we learned? That SCO wanted Linux to sell well, and it was donating code to Linux too. And according to their spokesman in 2000, they didn't care if you used Unix or Linux:

The new structure also will make it easier for each division to pursue the Linux market, Orr said. The company already has announced significant steps in the Linux market, including professional services and a version of Tarantella for Linux.

Orr said the company now intends to take portions of its UnixWare operating system and market them as layered products on top of other Unix versions and Linux. "That way, we get a bigger market for each product individually," Orr said. Programming interfaces for SCO UnixWare and Linux will be "virtually identical," he said, and added, "Increasingly, we will not care which one you use."

Orr did not say how these changes in plans and in structure will affect Project Monterey, the company's joint effort with IBM to develop a 64-bit Unix system for Intel's IA-64 architecture, and based on UnixWare and IBM's AIX technologies.

Oh, by the way, SCO might not wish to highlight this now, but in May of 2003, in a May 14 letter to "SCO Partners", Darl McBride told them Unix was selling just great:

As many of you are already aware, SCO UNIX systems continue to sell well - including an increase in OpenServer sales over the previous quarter. Our UNIX products continue to support many of the world's largest businesses. In addition, new customer sales indicate that there is still no better option for rock-solid, dependable technology for their core businesses than our SCO UNIX solutions.

So I think any fair person would have to conclude that whatever happened with Project Monterey, the impact was not eternal. Unless the May 14 letter ... well, you know. [UPDATE: Groklaw's vruz found this confirming story from August of 2000.]

This letter is another document that we didn't have on Groklaw, because it predates Groklaw by a day or so, but because we are striving for completeness, here it is for history, SCO's Dear SCO Partner letter announcing SCO was suspending all Linux activities:


Dear SCO Partner:

As a SCO Partner, we thank you for your support and continued business. Because you are a valued partner, it is important that we make you aware of important SCO business decisions and announcements as soon as possible. As such, we wanted to make you aware of an important announcement made today.

This communication is about recent efforts SCO has made to license and protect our patents, copyrights and intellectual property pertaining to the UNIX operating system. As you know, on March 7, 2003 SCO announced that it filed legal action against IBM in the State Court of Utah, for misappropriation of trade secrets, tortuous interference, unfair competition and breach of contract. The complaint alleged that IBM made concentrated efforts to improperly destroy the economic value of UNIX, particularly UNIX on Intel, to benefit IBM's new Linux services business.

As we have progressed in our discovery related to this action, SCO has found compelling evidence that the Linux operating system contains unauthorized SCO UNIX intellectual property (IP). Due to this discovery, we are taking three immediate courses of action.

1. The first is to send a letter alerting commercial users to the fact that legal liability for the use of Linux by businesses may extend to end users. Customers should start receiving this letter today. For your information, a copy of this letter may be found here.

2. The second action we are taking is to suspend all future sales of the Linux operating system from SCO until the attendant risks with Linux are better understood and properly resolved.

3. Finally, although this action affects future development and sales of SCO's Linux offerings, SCO will continue to support our SCO Linux and OpenLinux customers and partners who have previously implemented those products and we will hold them harmless from any SCO intellectual property issues regarding Linux. SCO will continue to honor all contractual obligations with existing customers including product updates, service, and support.

As many of you are already aware, SCO UNIX systems continue to sell well - including an increase in OpenServer sales over the previous quarter. Our UNIX products continue to support many of the world's largest businesses. In addition, new customer sales indicate that there is still no better option for rock-solid, dependable technology for their core businesses than our SCO UNIX solutions.

We are excited to be building on our SCO UNIX history as we roll out our next generation UNIX operating system and SCOx framework this fall. SCOx will allow small and medium business customers and branch offices to plug their existing applications into a Web services environment. Details of this strategy will be unveiled at SCO Forum in Las Vegas late this summer.

SCO remains committed to building new business opportunities for our partners such as you. We recognize that you have depended on us to provide reliable, solid technologies for your customers for over twenty years. We look forward to helping you and your customers meet your business needs for the next twenty years.


Darl McBride
President and CEO
The SCO Group

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