HealthCheck Mandriva - Rebooting the company

by Richard Hillesley

After what may have been the most tumultuous months in the company's often tumultuous history, Mandriva is planning a comeback with a new community oriented strategy. Richard Hillesley looks back at that history and talks to the people charting Mandriva's future.

Not for the first time, Mandriva, the Paris-based Linux company, is fighting its way back from the edge of bankruptcy. This time the outcome might be different as the company sets about constructing a sustainable business model, building bridges and healing rifts with the community.

Back in January 2003, MandrakeSoft, as Mandriva was then known, had to file in the French courts for "declaration de cessation des paiements", the French equivalent of Bankruptcy Protection, but had recovered sufficiently by March 2004 to reach an agreement whereby liabilities of €4.1 million (roughly equivalent to $5 million) would be repaid to creditors over a nine-year period.

By 2007 the company was in trouble again, and had to be rescued by Occam Capital, led by Marc Goldberg and owned by the French bank, Bryan, Garnier & Co. Bryan Garnier injected an initial €3 million into Mandriva and made later interventions, but failed to resolve the historic and systemic problems of the company. By May 2010 Mandriva was back in the bankruptcy courts and looking for new investors.

That summer NGI, a Russian foundation owned by Leonard Reiman, bought a stake in the company in return for a €2 million investment, but Mandriva was still in trouble. In September, Edge-IT, a subsidiary of Mandriva, was put into liquidation "to get rid of the debts", and the key employees were let go. Some developers were offered positions at Mandriva, but the majority chose to leave and form Mageia.

The rumours and speculation reached a peak just after Christmas last year, with the release of a statement to the shareholders by the then CEO, Dominic Loucougain, in which he stated "Without a permanent funding solution for our company before January 16th at noon, I will declare bankruptcy."

In retrospect, this may be the moment when the darkness began to lift from around Mandriva.

When we was fab

Mandriva's problems date back to the days when Mandriva was known as MandrakeSoft. Linux Mandrake may have been the most popular desktop Linux distribution on the planet between 1999 and 2004, but its success was founded on a particular set of circumstances. In the late 1990s, broadband was still scarce and downloading an ISO and burning a CD was a slow and painful business.

The early commercial success of Linux Mandrake was founded on a distribution agreement with Macmillan Software, now the Pearson Technology Group, which was signed in May 1999. By August of that year, Macmillan was claiming that its sales of Linux, based on Mandrake, accounted for 52% of Linux retail sales in the US. More than 70% of Linux Mandrake sales were in the US, but the success of the distribution owed everything to sales of software in a box and/or as a CD provided with a book, distributed through Macmillan's publishing channels. Mandrake grew too quickly, and costs rose as the company expanded to satisfy the demand. The company failed to post a profit between 1999 and the fourth quarter of 2003, when it had a brief financial resurgence and claimed a profit of €270,000 on revenue of €1.42 million.

The rise of Mandrake coincided with the dotcom boom. Broadband usage was rapidly expanding, and Linux could be downloaded and installed from an ISO. Mandrake's business model was based on high volume sales with relatively small returns, and without the help of willing OEMs, reserves of capital, or support agreements, the free software desktop was always going to be a difficult proposition as a long term business model.

Stuck to the roots

As a response to its declining revenue from sales, MandrakeSoft made a bid to raise funds through the Paris Euronext free market (Marché Libre) in July 2001, with an initial offering of 688,480 shares, representing 20.28% of the company's capital. MandrakeSoft may have hoped, as many did, that Linux was about to replace Windows on the desktop, but for any number of reasons this didn't happen, and the company was forced to file for bankruptcy protection only eighteen months later.

At the same time, Red Hat was adjusting to the changing times on the back of agreements with IBM, HP and SGI, which gave it a sustainable business model around its server offerings. No commercial distribution subsists solely on the desktop, and Mandrake/Mandriva sold server operating systems, but never shared the close working relationship with the hardware companies enjoyed by Red Hat or SUSE; without this relatively easy path into the business world, it was harder for Mandriva to find success. Indeed, when Gaël Duval, who founded Linux Mandrake in his student bedroom by grafting a KDE 1.0 desktop onto Red Hat Linux 5.1, was dismissed from the company in 2006, he told linux.com "It seems that the company is going to address the corporate market more and more.... My opinion is that we should have stuck to the roots (individuals and SOHO)".

Duval may have been wrong to believe that Mandriva could direct its energies towards individual users and survive as a commercial entity. But Mandriva also failed to establish the kind of partnerships it needed to survive in a wider commercial context.

A year after Duval left the company Mandriva was rescued by Occam Capital, who continued to pour money into Mandriva in the hope that it would pick up server and support sales as Linux grew in popularity. But Mandriva was having difficulty making the transition between being one of the biggest players in distros, to distros not being that important any more. By the end of 2009, the debts were piling up, and Occam was reluctant to bail the company out once again.

Next: Not waving, but drowning

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