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Andover.net: Another One for the Linux Bandwagon

With the surge in RedHat (RHAT) , anything Linux has been red hot. For instance, the long-struggling software developer, Corel (CORL) , rocketed because of rumors of a possible acquisition from RedHat, as well as the release of new Linux-based applications.

Linux is an operating system based on the open source concept. That is, programmers across the world are allowed to add and modify the source code of the operating system. This is very different from the traditional approach, in which a company -- such as Microsoft -- has its own developers who create software.

It was a young developer, Linus Torvalds, who created Linux in 1991. He posted it on the Net and it has evolved into a robust operating system, with the support of such companies as IBM, Intel and Hewlett-Packard. In fact, Linux accounted for about 17 percent of new licensed shipment of server operating systems in 1998 (according to International Data Corporation).

One of the companies spawned by the Linux revolution has been Andover.net . Revenues have increased from $1.3 million for 1998 to $2.1 million for 1999. The company is primarily advertising driven (95 percent of total sales). There are over 130 advertisers, with the top ones being EarthWeb, IBM, CNET, Broadcast.com and Silicon Graphics.

Furthermore, about $570,000 of the 1999 revenues were the result of barter arrangements. Basically, these are non-cash transactions, in which companies swap banner impressions.

Andover.Net is a network of Web sites catering to the Linux community. The company has engaged in an aggressive acquisitions strategy. Purchases include:

  1. Slashdot.org (June 1999): This is a comprehensive site for the Linux developer community, chock-full of useful content, discussion boards and other online resources.
  2. Animation Factory (June 1999): This company has a database of over 100,000 downloadable images.
  3. Freshmeat.net (August 1999): This is a Linux software application repository.
  4. ThinkGeek.com (October 1999): This is an online retailer for Linux (such as books, gifts and so on).
All in all, Andover.net has been generating significant traffic. Page views have soared from 6.5 million per month in 1998 to 45 million per month in 1999. This represents about 50 percent of visits to Linux resource sites on the Web.

Next week, Andover.net plans to have its IPO. The proposed ticker symbol is ANDN and the price range is $12-$15.

In most cases, it is difficult for individual investors to get shares in an IPO. However, Andover.net is different. The company is using OpenIPO.com, which distributes shares of IPOs based on the Dutch Auction method (the system was developed by Nobel winner William Vickrey).

Here's how it works: Over a certain period of time, investors can place bids on the IPO. These bids are under complete secrecy. When all the bids are submitted, the OpenIPO.com system determines the lowest price that will allow for the company to raise the necessary amount of funds. Then, all bidders get this price, if their bids were at the price or higher.

It does not matter if you are a billionaire or a pauper. If your bid wins, you get shares. It's as simple as that.

The problem with the system, though, has been that the auction allows for demand to equal supply. In other words, the system provides for market efficiency. So, in theory, there should be no pop in the IPO shortly after the debut as is so often the case with new offerings in the sector.

This has been the case, so far, with all OpenIPO.com deal