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Eazel's Business Model

by John Ochwat
09/15/2000

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Eazel Inc. is in an enviable position for a startup. It has talented programmers, experienced management, a comfortable cushion of startup cash, and lots of attention from the business press.

Jerry Borrell, editor in chief of Upside magazine, gushed in a June profile of the company, "Where do I line up to invest in such an 'it's only a matter of time before the IPO' firm, you ask? Through the wisteria-draped doorway of Eazel, on San Antonio Road in Palo Alto."

Much of this excitement comes from two things. The first is Eazel's corps of GUI whizzes, some of whom worked on the original Macintosh. The second is their product, the "Nautilus Graphical Shell for Linux," basically the Linux equivalent of Windows' file manager or the finder in Mac OS.

A good user interface for Linux has long been a Holy Grail for software developers, and one of the "killer applications" that many people have thought is holding Linux back from making major inroads in the desktop OS market. So as Eazel's all-star team is on the verge of rolling out Nautilus, it's tempting to agree with Jerry that the company is can't-miss.

Nautilus will be released under the GNU General Public License, which means it will be free. Which raises one little question: How will Eazel turn a profit?

Your own private systems administrator

"The sharing and collaboration that takes place in open source is what got us excited (about making Nautilus open source)," says Mike Boich, Eazel's president and CEO. "We thought briefly about writing and distributing proprietary software, but we decided it was against the grain and character of what excited us in the first place."

(Eazel's software is a part of the GNOME environment, which is included in most major Linux distributions including Red Hat, Mandrake, TurboLinux and others.)

You got a license for that?

Since "open source" is often synonymous with "free," it can be a little confusing trying to figure out how companies intend to make money on Linux software.

According to Mozilla.org, the GNU General Public License (or GPL) requires that any "derivative works" based on software covered by the GPL also be covered by the GPL, and that source code to these works be made publicly available. This means that any development that anyone does that is derived from GPLed code must also be made free.

Nautilus will be released under the GPL. However, because components (that is, pieces of software) work with Nautilus but are not a part of Nautilus, they don't fall under the GPL. Just as Sun Microsystems' StarOffice works with Linux but was proprietary (before Sun opened its source), third-party components for Nautilus can be, too.

Being free at the beginning of an application's life is one thing; being free for all time is another. For example, there's the crack-cocaine marketing model, where something is free until users are addicted, at which point it costs. Then there's the software variant of that, where the stripped-down demo version is free, but the fully configured application is not. Nautilus is free now. But will it cost money in the future?

"Never say never, but our policy is that all our software will be GPL software," Boich says, "although it's conceivable that third parties will distribute modules that will plug into Nautilus that are proprietary."

It's also conceivable that Eazel could partner with a third-party developer (such as Adobe for a Linux PDF viewer, for example) and even share a portion of revenue. But it's important to note that while these components work on Nautilus, they are not a part of Nautilus - and are thus not bound by the GPL (see sidebar).

At this point, however, these partnerships and revenue streams are all hypothetical.

What's a little confusing about Eazel is that although it looks like a software company - it has, after all, developed Nautilus - Boich says that it's going to morph into a service provider. "What we hang our business model on is a network-aware, component framework that will allow us to provide services to our customers," he says.

The idea is for people to obtain Nautilus for free. Once they have it and have registered with Eazel, they will be able to subscribe to a service that will allow them to log on to the Eazel web site and get a variety of Internet-based services, including software updates and web-based storage.

Eazel is aiming to have a public beta of Nautilus and services online by the end of September. "At that point, we'll have a software catalog online, but ours will be tightly coupled to an installer in Nautilus, so that with a single click you can get software installed on your system. And over time that service will evolve to include auto update notification," Boich says.

While the details are still being hammered out, it looks as if the software catalog will be free, as will a certain amount of storage comparable to what other providers currently offer. The automatic update service will be part of a yearly subscription (expected to cost between $30 and $50 per year); extra Web-based storage will likely be priced on usage.

"There are probably 100 applications today that account for 80 to 90 percent of downloads," Boich says. "We'll make our best effort to enable users to install anything else, but with the caveat that we haven't tested all 10,000 applications, but we've tested the top 100."

"The overall gestalt is that of trying to provide services like a systems administrator, so that Linux users who are not virtuosos will get value from software."

Linux for the masses

The phrase "Linux users who are not virtuosos" sounds like an oxymoron. But for Eazel to be successful, appealing to those types of users will have to be the core of their business.

The virtuosos, after all, have in large part already made up their minds about Linux and, by extension, Nautilus as well. But the majority won't be that technically inclined.

Dan Kuznetzky, vice president of systems software at International Data Corp., argues that the most likely place for Linux to gain market share is in places where the computing needs are more transaction-oriented. The typical user in those situations is not an expert, but rather someone like a doctor, lawyer, or nurse.

"Does a nurse know or care what operating system she's using when running a patient tracking system? She doesn't care, she just wants it to work. If an error message showed up saying 'you're missing a dll,' she'd call security and say, 'Someone stole one of our dlls.'"

If that type of person has Linux at home, what is their motivation for subscribing to a never-ending set of updates if their computer, applications, and operating system already do what they're supposed to?

Eazel's answer to that is two-fold.

First, Nautilus's user interface and network integration are all designed to make it trivially easy for people to find, download, and install the software they want (provided, of course, it works as well as advertised).

Second, Andy Hertzfeld, billed as Eazel's "Software Wizard" on the company's Web site, says that as users download more software and plug-ins, they start to disagree with one another. The resulting problems are hard to troubleshoot, and frustrating for the user. Eazel's service will try to solve more of these disagreements before they even arise.

Will people pay for that kind of service? Bill Claybrook, a research director with the Aberdeen Group, thinks they will. "Many of the new people using Linux aren't necessarily techies," he says. "Businesspeople won't do it themselves. They will pay money to have it all on a CD, to get the documentation and support. I think you'll see a lot more of that happening, people buying it from the vendors."

It's the applications, stupid

Eazel runs on Linux, which is popular with techies for a number of reasons - two main ones being that it's open source and it's not made by Microsoft. But for most non-techies, applications are more important.

"The thing that would make them switch are most of the applications we customarily use on Windows, especially the Microsoft productivity suite (Word and Excel)," says Claybrook.

"And the two have to be compatible, not just similar. More people will be using Linux on the desktop because of stuff like StarOffice (a Linux productivity suite from Sun Microsystems). Eazel is just a small piece of the puzzle. You can get a desktop from Eazel, but a lot of things you need you get from somewhere else."

IDC's Kuznetzky is more emphatic: "Eazel is dressing up Linux to go to the party, but not the tickets to get in. And the tickets are applications. If the desktop is pretty but has no applications, people won't buy it. Eazel, GNOME, etc. are a bunch of separate building blocks on which Linux can be built, but each alone is not enough."

Kuznetzky notes that Microsoft Excel has 94 percent of the spreadsheet market, and Word has a 95 percent share of the word-processing market. "That means that all the other vendors combined are squabbling over 5 percent," he says. "And even if they could get all the others to port to Linux, it wouldn't solve the applications problem. For example, if I was a consumer and I needed Quicken (if I needed it to be compatible with what my accountant has), I couldn't get it if I wanted it."

While Eazel is not in the application development business, they know how important applications are.

"We came into this with our fingers crossed," Boich admits, but the recent goings-on in the open source world give them cause for optimism. "We looked at StarOffice (an office productivity suite from Sun Microsystems) and said, 'Gee, I wish that were open source.' Lo and behold, Sun announced at the O'Reilly Open Source Convention that they were making it open source."

As a result, Linux users now have a productivity suite (StarOffice), a Web browser (Mozilla), and a file manager (Nautilus) for free.

"We call that a catalyst, and there's a credible group of companies developing a really viable productivity platform and web browsing platform," Boich says.

Ifs and buts

Despite the pedigree of the people working at Eazel and the positive reaction to demos of Nautilus, the Greek chorus of analysts seems to think a sexy interface like Nautilus won't be enough to make legions of people switch to Linux.

In other words, the company's fate is tied to a number of factors it can't control, most notably the growth of Linux, which in turn depends on applications.

If Kuznetzky is correct in thinking Linux will grow primarily on other devices, like set-top boxes and cell phones, it won't be good news for Eazel, because Nautilus only works on desktop machines.

Boich, however, calls the recent momentum of Linux "a juggernaut," adding "we couldn't be more pleased with the progress in the last 12 months. We drunk the Kool-Aid; we do believe this is happening. And we've seen a lot of dominos falling in terms of major OEMs supporting Linux."

Even if all that comes to pass, Eazel faces another obstacle. Despite its expertise developing user interfaces, the company's success will ultimately depend on service.

"Morphing into an ASP [application service provider] offering data backups and storage means they will be competing with managed service providers," says Stacey Quandt, an associate analyst with the Giga Information Group.

"There are certainly economics to merit this choice," she says, "since network attached storage alone is estimated to be a emerging billion dollar market. And if so, the focus moves away from the interface towards server infrastructure something that Eazel, and especially its former Apple gurus, are not known for."

"The constant there is user experience, and providing a great experience between what Nautilus does now and what it will be doing in the future with services," Boich says.

Those are formidable challenges, and with any start-up, the future is highly uncertain. But if they're successful, the whole open source movement stands to benefit.

"Part of our challenge is to continue to improve the GNOME environment so that it will be more interesting and will win," Boich says. "So we're trying to strike a balance between contributing to the public good and revenue."

John Ochwat is a former editor for Upside magazine and contributes to numerous tech publications.


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