Wednesday, June 24, 2009

What SCO management knew

Lewis Mettler comments on RedHat's filing in the SCO bankruptcy. Now, I disagree with him about SCO management. Darl has been through this kind of thing before. I think SCO's management knew exactly how flimsy and baseless their case was. Whatever their lawyers told them, I think they knew the reality. They'd simply decided that the strength of their case didn't matter. They figured IBM would settle because it was cheaper than fighting and winning.

SCO's problem was just that they miscalculated how IBM would figure the costs. If it's cheaper to settle than to win a lawsuit, you settle. SCO calculated the cost of settling as just the dollars IBM would have to pay them. IBM, though, felt that settling would be taken by their customers as an admission that the accusations had some merit. Since the accusations were that IBM had broken contracts just to make more money, they felt that'd negatively affect their business. Their software business runs around $6 billion a year, so even a 1% drop in business from customers getting nervous about IBM not honoring contract terms would be $60 million a year in lost revenue. That makes settling a lot more expensive, and IBM decided it was cheaper to throw a few tens of millions of dollars at defending their good name than to put hundreds of millions of dollars of revenue at risk.

SCO weren't deceived by their lawyers. They didn't believe they ever had a case. They simply figured that IBM would pay Danegeld if it wasn't too much. And they were wrong.

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