On the Hedge
Joe Casad, Editor in Chief
Dear Linux Magazine Reader,
This game of writing out thoughts and predictions based on a current news story can have some complications
when those thoughts will be printed and shipped around the world. You could be reading this two months
after I wrote it, which puts some strain on the whole concept of "current." It is better to think of a column like
this as a stop-action snapshot - a point of view captured at a point in time.
Who knows where Novell will be when you read this. Will the hedge fund that aspires to dismantle the
networking giant still be on the path of dissection? Will a new surgeon (or undertaker) emerge?
Several elegant and informative discussions have appeared concerning why Novell, after so many years of
struggles and success, might be on the verge of an unwelcome takeover by a hedge fund. Some of these
analyses have way more information on this kind of financial high jinks than we could ever collect (or even
have room to print) in this magazine, but in the end, all such analyses are so like the story of the blind men
and the elephant. You can focus on any part of the story that appears within your own experience, and the rest
of the saga seems to spill inevitably from that point.
They say Novell is on the block because its stock price is too low for the actual value of the company; or, one
could look at it the other way and say that the company has too much value for the price of the stock. The
stock price, of course, is set by supply and demand, and whether these commentators are for or against Novell,
they all seem quite comfortable with the perception that the price of a stock is inconsistent with the value of a
company. In other words, supply and demand doesn't actually work as a means for assessing value - and not
just for a momentary blip on the timeline, but in an extended state of dis-equilibrium that has apparently lasted
for years.
One could take this a bit farther and consider that the reason why the stock price doesn't reflect the value is
that demand is based on perception, and perception is based on marketing, branding, politics, public relations,
and lots of other things that don't have very much to do with delivering value for customers.
In the high-tech industry, a range of other factors determining the stature of a company have even less to do
with bringing value. These factors relate to being in an optimal position to do battle with other companies,
which is analogous to owning some kind of high ground or easily defended redoubt on the battlefield. Other
On the Hedge 1
factors involve making alliances with companies that might be in a position to assist with challenging other
companies, or even accepting monetary payments in a complicated arrangement to help a partnering company
with its own battlefield agenda. When we say our system reveres competition, we all assume that means
competing for the favor of the customer, but all too often, it means competing with other companies for access
to the customer and, in a "best case" scenario, preventing the other companies from having any access to the
customer, in which case, you have inverted the paradigm completely by pursuing a course that actually takes
value away from the customer.
The problem with business strategies that aren't related to value is that they aren't really grounded to any form
of objective reality; thus, they have a tendency to float with the times. Just as they can make a company look
bigger than it is, they can also make it look smaller than it is - it all depends on perception.
Novell brought a big-company attitude to the Linux business, with lots of public relations, lots of leveraging
sales channels, and lots of political maneuvering. They also had some good ideas, and they certainly weren't
the worst monopolists in the IT space. They stood up for Linux in the SCO case, and they gave back lots of
code. But it still seems like they have been working a lot of angles through the years where the business ends
are independent of the principle of delivering value. They certainly aren't the only ones, but then, they
probably won't be the only ones who will get a visit from a hedge fund.
On the Hedge 2