July 20, 1999 2:05 PM PDT

Be goes public, but doubts persist about its future

Related Stories

Be plans set-top push

May 7, 1999
Operating system developer Be Incorporated launched its initial public offering today, but some wonder if the company's too late to the party.

Be's stock opened at 6 and edged up 2.06 on its first day of trading, but software developers and analysts say that the company's window of opportunity to become a force in computing may already be closed.

The status of the company's operating system, the BeOS, as an alternative to operating systems from Microsoft or Apple Computer has largely been supplanted by Linux. Be's main target market--operating systems for so-called Internet appliances such as TV set-top boxes--is competitive and nearly nonexistent so far. Furthermore, profits, partners, customers, and support from software developers also remain elusive.

"The technology is fine, but it's a little late," said Lou Mazzuchelli, an analyst with Gerard Klauer Mattison. "If you are going to go with one of the off-the-beaten-path OSes, you will go with Linux."

Be, he added, has "a very tough road ahead of them."

A look at Be's opening price provides argument for both supporters and detractors. The stock rose to 8.5 a share by 11:30 a.m. PT, 2.5 over the opening price. But Be had originally planned an opening price between 8 to 10.

Risky business
Be was founded in 1990 by former Apple executive Jean-Louis Gass?e as, essentially, an alternative to Apple. The Be system stressed ease and multimedia. Demonstrations of BeOS prototypes became a standard, and often well-attended, part of many technology conferences in the mid-1990s.

In 1996, Apple attempted to negotiate a purchase of Be, but discussions foundered over price. Apple eventually chose to purchase Next Software, which was run and part-owned by Apple cofounder Steve Jobs, for $400 million, far more than the company was offering Be.

Since then, Be has been developing its operating system and landing some bundling deals with companies like Hitachi and Microworkz. Outside investors include Intel.

This past February, the company offered to give its system free to computer makers on the condition that it was the first interface a consumer would see. Few takers arrived. In May, the company more seriously began discussing the Net appliance market.

The company will issue six million shares in the public offering and use the money for, among other tasks, increasing its sales and research budgets and kicking off a "Be Everywhere" campaign, according to filings with the Securities and Exchange Commission.

Be frankly lays out the risks inherent in the operating system field in the forms filed with the SEC. Among other challenges, the company states that it is trying to compete against existing institutions with greater technical, marketing, and financial resources. Success depends upon gaining the support of software developers, which may never occur. The Net appliance field looks promising but may never completely take off.

In addition, the company states: "We have only one product that may never gain broad market acceptance."

In the past three years, Be's revenue has climbed but so have losses. In 1998, revenues came to $1.2 million, but net losses totaled to $16.9 million. For the first quarter of 1999, revenues grew to $309,000, but losses came to $5.8 million. Overall, the company has accumulated debt of $54.6 million.

Observers agree with Be's assessment of the marketplace. Nearly every software company is driving into the still-emerging Net appliance market with products that will, effectively, perform similar functions. Inertia favors the existing powers.

"The problem is that there is a lot of overlap between what they are going to do and what Microsoft is doing," said Ashok Kumar, an analyst with USBancorp Piper Jaffray, adding, "The [Internet software vendor] economics are skewed toward the large players. "

One telling sign for the company's future lies in the financial results for the next two quarters, Kumar said. Typically, companies report strong growth right after the IPO. If Be's revenue stays flat, "it's all downhill from there," he said.

Losing to Linux
The open-source upstart Linux has also become a thorn for Be, analysts say.

"They are competing for the same space Linux is trying to play in," said Rob Enderle, an analyst at Giga Information Group, but "Linux has substantially more interest than BeOS."

Enderle sees the rollout of Microworkz's iToaster as a good case in point. The company initially said the $199 computer used a hybrid of Linux and BeOS; it then backed off and said it used only BeOS and proprietary Microworkz enhancements. But it was the Linux hype that drove the news, Enderle said.

The biggest computer manufacturers have embraced Linux in varying degrees. IBM, Compaq Computer, and Hewlett-Packard offer systems guaranteed to work with Linux, and Dell pre-installs Red Hat Linux on several models, including business computers.

While BeOS is a desktop operating system headed for gadgets and Linux's success has been chiefly with servers, Linux is nevertheless headed in that direction as well.

"The challenge for BeOS in small form-factors such as handhelds is that Linux is already there in terms of acceptance, and vendors appreciate the mind share that Linux lends itself to," said Stacey Quandt, an analyst at Giga Information Group.

"Linux is going in so many directions: devices, handhelds, wearable computers, server appliances. BeOS is in a niche market with digital media," she said.

In the gadget market, Linux is appealing, because companies won't have to pay royalties, Enderle said.

BeOS is also hampered by a lack of mainstream software--a problem that afflicts Linux as well. "There's a shortage of Mac titles, but it's harder to find BeOS titles," Enderle said.

Technically sound
BeOS is technically good, analysts said, though Quandt noted there have been complaints that it takes about eight hours to load onto a laptop, when loaded from a CD.

Enderle said BeOS is relatively crashproof, largely because it isn't burdened the way Windows is with the requirement to support older "legacy" software written for earlier versions of the operating system.

Michael Tiemann, a founder of Cygnus Solutions, a company that has developed programming tools for both Linux and BeOS, praised BeOS for achieving a technologically elegant operating system. "It has benefited from throwing away 20 years of operating systems baggage," he said.

On the other hand, Linux has a huge developer base and the excitement of open source programming, a feature absent from BeOS, Tiemann said. "There's a lot more collaboration with the Linux community," he said of his company's interaction with Linux gurus. With BeOS, "we're not getting the kind of feedback, enhancements, and community synergy that we get from Linux."

The open source development of Linux, though, can be intimidating to companies who want the security of a product road map, a feature BeOS and Windows offer.

Another difference between BeOS and Linux is that Linux is available on many more chips than Be. (A computer's chip can't run just any operating system. It first takes work to allow the chip and OS to "talk" to each other.)

Be now works on PowerPC systems and Intel systems, but Linux, because its source code is open, can be more easily translated to other systems. It runs on everything from PalmPilots to machines using chips from Intel, Sun, Silicon Graphics, HP, Compaq, IBM, and others.

 

Join the conversation

Add your comment

The posting of advertisements, profanity, or personal attacks is prohibited. Click here to review our Terms of Use.

What's Hot

Discussions

Shared

RSS Feeds

Add headlines from CNET News to your homepage or feedreader.