The demise of LinuxCare can be attributed to many factors. The first was that enterprises were slow to adopt Linux - in the early '00s, IT spending came to a grinding halt with the dot-com and stock market crash. But the key factor to LinuxCare's spectacular death spiral was the fact that they were going up against Red Hat, the very company they were basing their business on. Red Hat not only developed their own distribution of Linux, but also started offering support for it. Red Hat offered a one-stop shop for Linux software and services regardless of hardware. Enterprise customers decided it was easier to buy from one vendor. This same sentiment is what drives sales of Microsoft software in enterprises today.
I never thought that either company was a particularly bad idea, but there was some clear mismanagement at LinuxCare and some difficult marketing that needed to be done at Levanta.