"Our current cash needs are approximately 4ME ($4M USD). This level of cash infusion would resolve outstanding debts, cover the expenses needed to become profitable, plus secure an extra amount to satisfy the needs of future growth. In order to solve this cash issue, MandrakeSoft has been conducting a Warrant operation since May 28th, 2002. This operation offers an extremely convenient way for current shareholders to purchase shares at a low price (2.1E/$2.1)…

Additionally, we have yet another commitment for about 30% of a 4ME investment round, but to close this round we must find at least a 2ME ($2M USD) complement…

If you are concerned about MandrakeSoft's future, this is the time to mobilize! "

Right before Christmas for the second time in a year, MandrakeSoft, the Paris-based Linux distributor, was publicly asking users for money.  The plea for help was posted by the MandrakeSoft team and called upon the Mandrake Linux community to buy products, club memberships, or invest. Far from being treated with curiosity, the plea was taken seriously by Mandrake fans. 

To anyone unfamiliar with MandrakeSoft’s rocky past, it just didn’t add up. Mandrake Linux has garnered several million users throughout the world and many of these enthusiastic supporters claim that MandrakeSoft has the best commercial version of Linux around. Not to belabor the agreement that put Mandrake Linux into Microtel PCs selling at Wal*Mart.

So what’s the deal? What company goes around begging for money?

We’re not begging, declares Mandrake Linux creator and company co-founder, Gael Duval. “We’re now close to reaching break-even, but until that time, we continue to lose money every month,” he tells Open. “That’s why we had no other choice but to call upon the community of Mandrake users to support us until we reach breakeven, and to help ensure the next release of Mandrake Linux, scheduled for Spring.” What plagues MandrakeSoft in its hunt for short-term cash, however, has less to do with a need to improve its technology and more of a need to shed the burdens of a troubled financial past.

To help shed those burdens, MandrakeSoft had to finally turn to the French courts for help. On January 13, 2003, MandrakeSoft filed for "declaration de cessation des paiements". According to an announcement on the company's web site, such a filing is similar to a U.S. Chapter 11 reorganization. The web announcement goes on to say that, "Following this filing and with the support of the court via a court-appointed Administrator, MandrakeSoft will be protected from its creditors, renegotiate its liabilities and prepare a continuation plan to be approved by the French Court in the coming months."

MandrakeSoft was born in 1998 with the mission to make GNU/Linux easier. Like other new Open Source businesses, they designed a business model based on the belief that by generating money via sales of products and services based on Mandrake Linux, they would succeed. What's more, they did.

MandrakeSoft’s first fiscal year was profitable. Making money at the height of the dot-com bubble, however, was as much a curse as it was a blessing. In May 2000, large investors came up with a plan to put a new CEO and management team into MandrakeSoft. The new team was to embark on an ambitious diversification scheme to revolutionize the company: The new leaders would assault the Internet-based learning market. Their strategic vision was to establish MandrakeSoft in the e-learning and e-support arenas with less of a focus on Mandrake Linux.

Those whose businesses died or barely survived the dot-com bubble burst can write the next chapter with little effort.

The new strategic vision followed a path lit by the burning of $11.94 million in cash. By 2001, headlines in the computer press pointed to big trouble: “MandrakeSoft rocked by executive loss.” It was announced that MandrakeSoft lost over two dozen executives associated with the e-learning initiative. The rest is dot-com bursting history: Ambitious visions resulted in huge losses as growth in revenue fell short of expectations. Still, all was not bleak as those who remained at MandrakeSoft saw it as the day that MandrakeSoft got its old Linux groove back.

“We had issues with a former world-class management team imposed on us by large investors,” says Duval in an interview with Open. “Many expensive long-term agreements were signed. The company’s income began to decrease. The strategy would take years to show positive results and the cash flow reached an uncomfortable level with no prospects of new investment, with the financial market downturn.”

As the year 2002 wound down, it was clear that MandrakeSoft was valiantly pulling out all the stops imaginable in seeing itself out from under. In November, MandrakeSoft brought in Francois Bancilhorn, former CEO of O2 Technology, as CEO, with a strong business focus on future profitability. Then in December, MandrakeSoft announced it was embarking on a dual licensing scheme for its firewall software.

Is dual-licensing the firewall product just the start of all-out dual licensing for MandrakeSoft? Duval says no. “We don’t intend to use this licensing scheme for our main products, such as the Mandrake Linux distribution.” The way it works: For those who don’t need any support, there is the free Multi Network Firewall (MNF) product that ships under Open Source GPL license. For customers who want support, they must buy a version covered by a more restrictive license. Users are also free to download the software and, once satisfied, purchase the commercial license later on, for support.

This is not new to the business of Open Source. Other Open Source businesses have moved toward dual-licensing schemes, to extend their revenue beyond service and support. MySQL AB sells non-GPL commercial licenses for embedded and other applications. Commercial license options are particularly relevant to embedded customers, who take MySQL and incorporate it into packaged software and equipment. Oslo-based Trolltech similarly offers its customers a GPL version of its flagship QT or commercial version of its product for software development. Those who want to use its QT for developing Open Source software for the X11 platform can use the free version; those who need the QT toolkit for commercial use purchase the Professional and Enterprise Editions.

One analyst who recognizes MandrakeSoft’s resiliency is Stacey Quandt of Giga Information Group. In 2001, Quandt was predicting how, “When I look at the consolidation of the Linux market, I think MandrakeSoft is one of the few companies that will survive, even though Red Hat has become the de facto standard for enterprise.” She was noting the popularity of MandrakeSoft’s Linux among programmers and others seeking desktop software, rather than products offered by a server-oriented Red Hat.

Today, Quandt continues to recognize the singular quality that MandrakeSoft has to adhere to the beat of its own drum. Writing about MandrakeSoft at year’s end, Quandt says that “MandrakeSoft isn’t afraid to take risks.”

Their move into dual licensing and the fact that Mandrake Linux based PCS are available at Wal*Mart at least set the stage for possible success. But the ongoing challenge for MandrakeSoft she adds, is one less of innovation and more of financial stability. “Giga recommends users should understand MandrakeSoft’s position in the Linux distribution market and its persistent financial challenges.”

Will the PCs running Mandrake Linux on sale at Wal*Mart contribute to the company’s recovery in any big way?

MandrakeSoft's Duval recognizes the Wal*Mart deal as a good business opportunity, but constitutes “only a small part of our annual income ($4.6 million).” Duval, nonetheless, is upbeat that the product strengths of MandrakeSoft will rise to the occasion. “More and more indicators show that Mandrake Linux is or is becoming the most widely used Linux distribution in the world. We are very confident that this important accomplishment will pay off in the long run.”

The big question, however remains: Can MandrakeSoft afford to wait?

One interesting observation that Quandt makes is about the key issue of support in the Linux ecosystem: “HP and IBM may offer customers a Mandrake Linux desktop or server solution,” she writes, “but both companies continue to echo one another in stating they support two distributions—Red Hat and UnitedLinux.”

Open, suggesting to Duval that UnitedLinux and Red Hat were the two “all-stars” because of strong vendor support like IBM’s, got an optimistic response. “True, we have two competitors that benefit greatly from IBM’s support,” says Duval, “but we have also begun working with IBM and other large companies. We just have the handicap of being the youngest of the most popular Linux distributions.” All the same, Duval says that MandrakeSoft does view seeking support from partners and ISVs as “the area we’ve been working hard to develop.” MandrakeSoft can assure ISVs of Linux compatibility: “Mandrake Linux was one of the very first Linux distributions to become Linux Standard Base 1.2 certified.”

As for its business user base, which sector will be the most heavily wooed by MandrakeSoft in the year ahead—the enterprise, or small business and Wal*Mart shoppers? Duval answers as inclusively as can be expected of a company aggressively seeking better financial footing: “Our core business currently relies on a very large user base, which includes both individuals and enterprises. But our products and range of services have been designed specifically to additionally fit the needs of large accounts, such as large-scale deployments throughout enterprises.”