SCO 4.0

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What a long, strange trip it's been for SCO. Born the alternative California software company on the beach in the late 1970s, SCO has embarked on a new mission to transform the company yet again.

Call it SCO Version 4.0.

The central undertaking this time is to focus significant energies around a new product--the oddly named Me Inc.--that could serve as the foundation for a variety of new network services and applications. With the introduction of Me Inc., the company is trying to recast itself as a reliable supplier of serious software tools and platforms for partners and end users alike. That's a far cry from what many have reduced the company to in the third phase of its existence (SCO Version 3.0)--i.e., an all-consuming, litigious, if not loathsome, foe of open-source software.

Talk about a change from the free-wheeling ways of SCO, or rather the Santa Cruz Operation, as it was known, when it was new. That was in 1979, when Doug and Larry Michaels started a Unix-system porting and consulting company. Shortly thereafter, SCO made a name for itself as a supplier of the first commercially packaged Unix operating systems for Intel-based machines. Version 1.0 of the company was not only technically rich, but channel-friendly, too. While Apple and other area companies attracted greater press attention, SCO, nonetheless, became a Silicon Valley success story by simultaneously delivering innovation around the Unix platform and building a base of partners. SCO Open Desktop debuted as the industry's first 32-bit GUI interface for Unix systems running on Intel machines, for example, while partner head count grew to the thousands in the company's heyday.

For more than a decade, the company's fortunes grew as it expanded overseas and into more advanced Unix platforms. Then, in 1995, about the same time the Web was beginning to take off, SCO entered a new phase when it acquired Unix systems source technology from Novell. While the deal did little to change the balance of power in the Unix world, it consolidated Unix intellectual property into the hands of SCO.

Then, in 2001, Caldera bought SCO's Server Software and Professional Services Division and renamed the combined operations Caldera International. Company officials thought the move would emphasize Caldera's push into open-source Linux software while downplaying SCO's ongoing efforts in Unix. While Version 2.0 of SCO was long on hope and ambition, it was short-lived. The very next year, Darl McBride was named CEO of the company. Soon thereafter, he implemented changes that resulted in the renaming of the company after its best-selling product, SCO OpenServer.

While trying to revive its Unix business, SCO discovered it owned quite a bit of intellectual property--so much, in fact, that it concluded it could make a credible case that members of the open-source community, who were helping to make Linux a hit, were infringing on its property. That included some with very deep pockets. In 2003, SCO filed what would later grow into a multibillion-dollar lawsuit against IBM, which had previously made steep commitments to helping Linux become a commercial success. SCO followed that legal maneuver with a slander suit against Novell. In addition, SCO began sending letters to major corporations, asking them to consider the implications of using SCO intellectual property without SCO's permission. That set off a firestorm, along with a wave of criticism and negative publicity. Most of the press and Linux community turned on SCO, lampooning it in print and online chat rooms. Things got so tense that the company wound up hiring bodyguards to protect McBride at one trade event.

The ongoing legal battle proved to be not only costly from a public-relations standpoint, but a financial one as well. Until recently, SCO's legal bills were running as high as $7 million per quarter--basically as much as it generated in software sales every three months. That's when company officials decided to rethink their strategy. They put more energy into their core Unix operating-systems software and the new Me Inc. technology.

Make no mistake: SCO is still fighting its legal battles--the suit against IBM goes to court in February 2007--but it has capped what it will spend on legal fees at $40 million. From now until then, all SCO wants to talk about is new technology for partners and customers.

"We decided to focus on our products and not fight everything that comes at us," McBride says. "The way we do that is first by reinvesting in SCO OpenServer. The second part is targeted at the hot, new and growing spaces and applying our long-term capability around back-end systems."

Enter Me Inc. enables programmers to offload computing tasks from small client devices--think handhelds, cellphones or even PDAs--to more scalable systems attached to a network that SCO calls edge processors. From SCO's view, the newest technology is a logical progression of scaling to meet a broader set of customer needs. Whereas OpenServer empowered branch organizations and SMBs, and SCO UnixWare helped meet the infrastructure needs of enterprise customers, Me Inc. could benefit virtually any size customer. Helping to empower mobile-office workers regardless of the type of device they carry is what SCO believes will propel it through this phase and next. After all, Me Inc. offers help in the form of real-time information access, distributed architecture and end-to-end security.

But getting there won't be easy. One reason is partners. Although partners generally say they are loyal to SCO, they again gave the company the lowest scores in the Server Operating Systems category of the 2005 VARBusiness Annual Report Card (ARC), much as they did in the two previous years. Its products, support and programs all finished dead last in the study, behind Microsoft and Novell.

That said, many SCO enthusiasts, like Keith Schewanick, remain loyal. Schewanick, founder and owner of Schewanick Computer Services, a Studio City, Calif.-based programming house, has worked with Unix software since the mid-1980s and with SCO since 1989. His latest offering, a business-management system for courier companies and messenger services, runs directly atop SCO. He says he has found SCO's tools invaluable, its support improved and technology "a cut above that from Microsoft."

"I'm very much behind them. Even though I work in open-source software, as a programmer, I appreciate the company's position on intellectual property," Schewanick says. "There needs to be a balance."

SCO--which has turned a profit in its Unix business in each of the past three quarters, according to McBride--might be able to find just that.

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