Linux firm CyberNet planning IPO

The developer of server software hopes to be one of the next companies to benefit from the Linux surge on Wall Street when it goes public early this year.

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CyberNet Systems, a developer of Linux server software, hopes to be one of the next companies to benefit from the Linux surge on Wall Street when it goes public early this year.

CyberNet next month plans to file with the Securities and Exchange Commission for an initial public offering, president Chuck Jacobus said. The IPO itself is scheduled roughly for the end of March.

An IPO, in which a company sells stock to the public, provides an infusion of cash to fuel growth. But it also makes the company accountable to shareholders, who want to see profits and an increasing stock price.

Linux, an open-source operating system that competes with Windows NT, was the basis for several successful IPOs in 1999, including Red Hat, VA Linux Systems and Cobalt Networks. VA Linux, in particular, had a record first trading day last month.

CyberNet, based in Ann Arbor, Mich., sells packages of software that turn an inexpensive Intel-based PC into a server that can deliver Web pages to browsers across the Internet, store and print files on a company's internal network or be used as a protective "firewall" to keep out network intruders, the company said. The software comes with Red Hat's Linux, which may be freely distributed by other companies.

In the future, the CyberNet plans to add software to enable easier use of virtual private networking, or VPN, a method of sending encrypted communications over a public network.

The software is used on single-purpose servers known as "server appliances," devices designed to be better suited to the task at hand, easier to use or less expensive than their general-purpose cousins.

Server appliances make sense as a way to eliminate complexity for customers who have a hard time finding the resources to tune products to specific jobs, said International Data Corp. analyst Jean Bozman. "There's less need for people at the user site to optimize the operating system," she said.

Rival Windows NT, which is designed for general-purpose servers, isn't good for single-purpose machines, Ferlazzo said.

"It's too big an operating system," he said. "Increasingly, small and medium businesses are going to say, 'Why do we want to fool around with NT servers when we can get something dedicated, and it's no muss, no fuss?'"

But CyberNet will need some help raising its profile in the increasingly crowded server-appliance realm. Among publicly traded server appliance companies are Cobalt and eSoft, two companies that use Linux in their products, as well as Auspex, Network Appliance, EMC, Quantum, Maxtor, CacheFlow, Intel and Procom. And big-name server companies such as Hewlett-Packard, Dell Computer, IBM and Compaq Computer also are moving in.

In addition, privately owned companies such as Network Engines are gaining ground in that market.

"In order to get the dollars they needed to do the marketing, the likes of Red Hat and VA had to go public. It brings instant recognition," said Technology Business Research analyst Joe Ferlazzo. "That's what the IPO market is about these days."

CyberNet acknowledges the need to become more noticeable in the Linux and server appliance market.

"For us to compete in that space, we're going to need the same kind of energy level," Jacobus said. Using funds already in hand, the company plans to double the company's employee count from 60 to about 120 in the next three months, with many of the new hires coming in the marketing department, Jacobus said. After the IPO, marketing will get even more intense, he said, including efforts to push into European and Japanese markets.

The company released its software in October and sold nearly 10,000 copies of it in the last two months, said Greg Emery, CyberNet senior vice president. "It's been a little ahead of our expectations," he said.

CyberNet's NetMax software costs $99 IPO Mania per package. An all-in-one version costs $499, and about 10 percent of customers of the lesser packages have been upgrading, Emery said.

Another way to boost business lies in partnerships with larger companies that can bring access to more customers, Ferlazzo said. "If they want to see any significant volume, they're really going (to need) a partnership with one of the significant players," he said.

Indeed, CyberNet has partnership plans in the works. Through an informal collaboration with Oracle, the NetMax software is geared to work with Oracle's database software.

"Application-specific servers...are going to be really an explosive market opportunity in the next two years, and Linux is probably going to be the operating system of choice on them," Ferlazzo said. "It sounds like (CyberNet is) right in the sweet spot."

CyberNet's foray into Linux software is the latest of a variety of high-tech ventures the company is pursuing. CyberNet also invented "force-feedback" joystick technology, in which computer games push back on a joystick to give a more realistic game play. CyberNet and Immersion commercialized the technology, and CyberNet holds 1.4 million Immersion shares currently worth $45 million. Immersion went public in November.

CyberNet also has plans to bring high-speed communication software developed for military simulations to the computer gaming industry, Jacobus said.

"Most gaming companies are still worried about stand-alone (games) and dial-up modems," but high-speed "broadband" networks will be a major change for gaming in the near future, he said.

CyberNet will release a game title later this year, largely to demonstrate its communication technology, then will license that technology to other game companies, he said.

In addition, Cybernet holds a patent for connecting medical equipment such as heart monitors to the Net, he said. That technology is expected to debut in 2001, he added.