VA Linux Systems
By Jodi Mardesich

(FORTUNE Magazine) – LINUX COMPUTERS hq: Sunnyvale, Calif. founded:1993 sales: $50 million (est.) employees:132 privately held address:

Imagine that six years ago, while still a student at Stanford, you started a company to sell cheap, powerful PCs equipped with the Linux operating system. On the side, you helped a couple of classmates write a business plan for an Internet directory--called Yahoo. Your pals, Jerry Yang and David Filo, went on to become billionaires while you opted to stay with your little startup, VA Linux Systems.

Life's not fair, is it? But wait. Six years later Linux, the free, Unix-like operating system, has attracted large numbers of fans among techies who prefer it passionately to Microsoft Windows NT--and VA founder Larry Augustin can dream of wealth after all. IDC reports that Linux's share of the server operating system market grew from 7% in 1997 to 17% in 1998. That has helped VA Linux become one of the Valley's fastest-growing outfits, with customers like IBM, SGI, and WinStar.

Life at VA Linux is hopping. Last December the company had 17 employees; now it has 132 and has outgrown its office space in Sunnyvale. VA won't disclose its revenues, but Augustin says that sales are doubling every quarter and that he wants to be selling more than $1 billion annually in less than five years. The financials may soon be public--an IPO is expected this year, which would likely reward investors Sequoia Capital and Intel.

But VA's rivals are also hopping. Red Hat Software of Durham, N.C., has already filed for its IPO. More important, several PC vendors now offer Linux computers, including industry superpower Dell and a startup called the Linux Store that sells a less powerful machine for almost half off the price of VA's ($700 vs. $1,300 at the entry level).

To stay ahead, VA has gone on an acquisition spree, nabbing a number of companies, including its largest rival, Linux Hardware Solutions. It also grabbed the rights to the Internet address, a hotly contested property for which contenders may have bid as much as $5 million. (Microsoft was reportedly a bidder; a company spokeswoman said she could not confirm the report.) The seller of the address, Linux programmer Fred van Kempen, asked suitors to write an essay describing what they would do with VA won by promising to keep the site a noncommercial source of Linux technical lore--it will refer visitors interested in buying a Linux PC to Van Kempen was paid in stock and decided to go to work for VA.

There he joined many of the stars of the Linux community. In May, VA created a division called Linux Labs, where 25 code warriors work on projects from improving Linux's look on the desktop to adapting it to Intel's upcoming IA-64 chip--part of the deal when Intel invested. Other noteworthies include San Mehat, who has Linux running on an oscilloscope in his office; Linux guru Jon "Mad Dog" Hall; and Geoff "Mandrake" Harrison, a user-interface expert who wants to make the Linux interface "suck less." Why is VA hiring these supergeeks? "It's another way for VA to give back to the community," Harrison says.

For the programmers and for Augustin, Linux is more than a business. It's a crusade to free the world from Microsoft's domination. "This is a revolution around the way we do development," Augustin says. "It's revolutionizing the way the software industry works." As things now look, it is also a revolution that may pay Augustin well for his patience.

--Jodi Mardesich