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10 years gone: The VA Linux Systems IPO

Open-source advocate John Mark Walker commemorates the 10th anniversary of the Nasdaq's "most successful" IPO to date, from the perspective of a company coder.

Editors' note: This is a guest column. See John Mark Walker's bio below.

Quick, what were you doing on December 9, 1999? If you actually remember, then there's a good chance that you're an old-school Linux type. If you don't have any idea, then read on, and you'll discover what you missed.

I'll never forget where I was--at ground zero of the apex of dot-com ridiculousness. While I and all of my co-workers were in the office that day, about the only thing we accomplished was writing 15 gazillion Perl-based variations on the theme of stock tickers that displayed the price of LNUX, updated at regular intervals. Well, that and drinking champagne. Words cannot adequately express what it's like to look around the office and know that everyone in the building is a newly minted millionaire--on paper, at least.

Ten years ago today, shares of LNUX, the Nasdaq symbol for VA Linux Systems, went on sale to the eagerly awaiting public. You may recall that VA Linux Systems was the company that combined Linux, open-source software, and Intel-based hardware. Just six months prior to VA's initial public offering, Red Hat Software had gone public with a very successful IPO.

We were in the middle of the open-source pixie dust revolution, when many flagging companies jumped on the open-source bandwagon in a desperate attempt to recapture past magic. It was this phenomenon that led to the general conflation of the late-1990s open-source boom with the dot-com bubble, and it would be a few years before most industry analysts, pundits, and beat reporters figured out that there was a difference.

But back to IPO day. I strolled into work sometime after 9:30 that morning and was immediately greeted by Pay, my manager, with some astounding news. We all guessed that the day would be significant, but none of us were prepared for the tsunami of blissful, surreal numbness rushing to greet us.

He showed me a sheet of paper faxed that morning from the investment bank's office (truly ground zero on that day), that was copied ad nauseum and shoved into disbelieving faces. I'll never forget what was on it: just a simple table with 2 columns. The column on the left was a list of investors, and the column on the right was the price they bid for our stock. The numbers were astronomical: $320, $250, $200, $300, $290.

Curiously, some investor didn't get the memo and bid a paltry $50. We laughed at that because it was really funny--at the time. A year later, and I would recall that lone investor for an entirely different reason: on December 8, 2000, LNUX closed the day at $8.49.

On IPO day, we could all do the math, and on that day, the math was in our favor. The official IPO price was $30, and most of us owned options on shares with a much lower strike price. We had all won the lottery, hit the jackpot, (insert gambling metaphor here). Or so we thought. What actually happened was, as Don Marti so artfully described it, we had all become players in a game none of us truly understood.

To this day, the VA Linux IPO remains the Nasdaq's most successful, in terms of its first-day gain, but what does that success really mean, in the context of events that have taken place since? At the time, the LNUX IPO was lumped in with the rest of dot-com mania and treated as the poster child for the insanity that gripped the market.

The New York Times summed up that view best with its report on the IPO, "A Tiny Company with Dim Prospects Goes Public with a Bang." (Note: the Times has since changed the headline, but we remember the original.)

You'll be unsurprised to know that we viewed things slightly differently. But as the stock price plummeted, we went from a sign of the audacity of the times to a symbol of wasted effort, a gloomy future, and everything that was wrong with the go-go '90s. We were somehow expected to repent for the misdeeds of others.

It is simply wrong to view VA Linux as a dot-com vehicle or to attach a greater symbolism to its downfall. It was really neither; it was simply the dramatic rise and fall of a company that overreached. It was a real company that made real things and believed very strongly that open source was going to be a major component of IT very soon.

That we executed poorly and paid dearly for it does not diminish the original ideas behind the company. While VA was not profitable after the IPO, it was certainly not because of revenue. In fact, revenue growth was strong, but our unrealistic growth plan--to become Dell in less than two years--did us in. Only the convenience of timing allows VA Linux Systems to be mentioned in the same breath as eToys, or Webvan. The revenue of those was rather paltry, in comparison.

To put the VA Linux IPO in its proper context, let's rewind and remember what was going on at the time:

  • Red Hat had a great IPO the summer of 1999.
  • IBM had jumped into bed with Apache and had started its first big push with Linux.
  • Oracle and most other major database players had released native versions for Linux.
  • A year earlier, Dan Kusnetzky famously authored the famous IDC report showing explosive Linux growth of 212 percent.

And yet, in spite of these obvious signs of traction and increasing market share with real customer demand, Linux and the rest of the open-source "bandwagon" were treated like Summer of Love refuse that had never really come down from the acid hits.

Every article about Linux included (stupid, irrelevant) questions about whether it would replace Windows 98. There was a widespread belief among industry observers that open source was fueled by the dot-com bubble and would wither away when the bubble burst. Every article referenced a ragged band of hippie programmers who did it out of love or ideology and just wanted to beat the evil empire.

At that time, no one had really figured out what was driving open-source development. It's worth pointing out that we card-carrying members of "the" open-source community played our part in that perception. Who can forget the famous Windows Refund Day? And if you never smelled Richard Stallman or Eric Raymond at a conference, then you clearly missed out.

It was a heady time of uncertainty, doubt, and eternal optimism. A time of green-field bliss, of "Linux without limits," and there was no problem that a few lines of Perl (Practical Extraction and Report Language) couldn't solve. After all, "the geek shall inherit the earth." It must be true; I read it on a T-shirt.

It truly was a time of the almighty individual weaving his magic and changing the world--and if you were lucky, getting paid well for it. We were young and naive, and those of us endowed with Y chromosomes were high on testosterone. We truly believed that we were on the right side of history but were too stupid to realize our own limitations. This was a blessing and a curse.

That unyielding belief in the omnipotence of writing code gave our army the energy to slay dragons we wouldn't have otherwise, but it also gave us the chutzpah to tackle issues that we ultimately could not solve. Case in point: that time when someone who shall remain anonymous tried to rewrite our ERP system from scratch. In Perl. He didn't last very long.

As it turns out, we were right about the open-source thing, but we somehow forgot the other history lesson: the one about how being on the leading edge of something successful doesn't mean you'll enjoy all, most, or indeed, any success. Those who ultimately reaped the benefits of open-source proliferation did so because they were smarter and took a more conservative approach.

The 10th anniversary of Red Hat's IPO passed without much fanfare last summer, probably because its management is too busy running a successful company to really take the time to pause and reflect. VA Linux Systems, meanwhile, was devastated by the tech bust because those start-up companies were a significant percentage or our revenue.

VA Linux Ssytems changed its name in 2001 to VA Software, after jettisoning the hardware business entirely, and it focused on selling licenses for SourceForge Enterprise. And when that didn't work out, it became SourceForge, a collection of Web sites deriving revenue entirely from ad sales. And it has since changed its name again, to Geeknet.

For the veterans of the VA Linux IPO, we're left to ponder what might have been and savor the unreal moments, while deriving some small consolation from the fact that our instincts were right: open source was not a fad; it was just the beginning. It's not going away, and VA Linux was ahead of its time. Small consolation, indeed.