Covalent -- the Apache Red Hat ? :-)

Rohit Khare (
Sat, 18 Dec 1999 22:22:01 -0800

Linux model inspires Apache Web server business
By Stephen Shankland
Staff Writer, CNET
December 16, 1999, 4:00 a.m. PT

Will Apache, popular "open-source" server software for running Web
sites, become the next Linux?

Covalent Technology certainly hopes so. The 12-person Lincoln, Neb.,
company has received $5 million in venture funding that it plans to
use to emulate red-hot Red Hat, which operates in a related market.

Flush with funds, Covalent will move to San Francisco, hire a new
chief executive and increase its headcount to 60 by June, said Randy
Terbush, Covalent's current CEO and one of the eight founders of the
Apache project.

Covalent sells technical support and enhancements for the Apache Web
server, much like Red Hat provides services based around the Linux
operating system. Both are distributed through the open-source model,
which means the software can be used for free and modified at will. A
Web server is the software layer that delivers pages to viewers, and
Apache is the market's most popular product, despite competition from
well-financed behemoths like Microsoft.

With Linux a proven technology to win the attention of Wall Street,
Covalent is one of several companies hoping that business plans built
around other open-source technologies popular among programmers will
be their ticket to glory.

Leading the investment round was H&Q Venture Associates, which will
get two seats on Covalent's board. Adobe and Texas Instruments also
contributed funding. Eventually, Covalent's goal is an initial public
offering, Terbush said.

"This is the second wave of the open-source thing," Terbush said in
an interview. "Linux has taken off and is in the news, but Apache has
gone unnoticed in that area."

But Covalent will have to stave off some better-established
competition. Red Hat, beneficiary of an $84 million initial public
offering, began offering Apache technical support in November. And
Linuxcare, which just raised $32.5 million, said yesterday it will
provide support for Apache as well as several other open-source

Covalent has more to offer than just technical support and consulting
services, however. The company also sells an add-on to Apache that
enables use of "the secure sockets layer" encryption technology,
essential to private transactions such as credit card payments.

In the future, the company will add more proprietary modules for
authenticating credit cards and scanning for viruses, Terbush said.
"We're currently discussing licensing of this technology from other
companies," he said. The company also will fund work on the
open-source, nonproprietary additions.

Apache could well benefit from the Linux boom, said Giga Information
Group analyst Stacey Quandt. "One trend is for Linux to be the
next-generation e-business platform. If that happens, it's clear more
organizations will be using Apache, because it's often paired with
Linux as a Web server," Quandt said.
Terbush said the funding will help Covalent snap up some developer
talent. "It should really enable us to bring on some core Apache
people," he said.

Still, hiring big-name open-source programmers near Silicon Valley
could be difficult. One of Linuxcare's three goals for its newfound
millions is to hire its own open-source programmers, and VA Linux
Systems likewise hopes to hire some big names with the $132 million
it raised in its recent initial public offering.

"There are only so many names that are superstar status," Quandt
said. "There's a lot of competition for open-source expertise."

Apache is used on 55 percent of Web sites, more than twice the number
of the second-place finisher, Microsoft's Internet Information Server
(IIS), according to consulting firm Netcraft. Apache ships as part of
IBM's WebSphere e-commerce software.

"Apache obviously challenges IIS," Quandt said. Apache, unlike IIS,
works on many different operating systems besides Linux, and
therefore makes sense for companies that use several different types
of computers, she said.

Covalent's technical support services are in keeping with a popular
business model for open-source software, which can be obtained for
free but isn't necessarily simple to install and use. Covalent also
sells copies of Apache itself for $25, $10 of which the company
donates to the Apache Software Foundation.

The technical support operation will stay located in Nebraska, Terbush said.