I'm sure I'm not the first, nor will I be the last, to ask this question. After the large success of Open Source IPOs lately, when is O'Reilly & Associates going to go public?

Thanks,

Sam Phillips

I've thought about this issue for many years now since the open-source software craze isn't O'Reilly's first chance at the public fancy. We were instrumental in the early years of the Web, as well, and could have easily tapped into the public markets after we created GNN (Global Network Navigator), the first Web portal, back in 1993. Like everyone else, I'm drawn by the prospect of the "big win" that the public markets promise. But I've also witnessed enough computer industry history to know that, as often as not, the big win is just a way of taking the chips off the table and quitting the game. For every Sun, Cisco, Yahoo!, or Amazon that goes on to become a long-term survivor, there are hundreds of companies that went public, and later failed or were acquired and lost their identities.

What's more, once you're in the public eye, the pressures are very different. I remember talking with one successful PC software entrepreneur whose company eventually failed and was acquired under the onslaught of the internet revolution. He was complaining that he couldn't spend as much as he'd like on internet experimentation; if he started to lose money, his stock price would fall and he'd be an easy acquisition target because of his rich balance sheet. But his stock fell anyway, and it turned out much as he'd foreseen. A once great company is no more.

The public markets are a two-edged sword. From the outside, you see only the good parts. But many of the people I've talked to who've actually run public companies wish they could still be private. For every company that's been able to harness the huge capital flows of a successful IPO and a runaway stock price to gain leadership in an exploding market, there are dozens of also-rans who lost the public confidence and ended up in a spinning hamster-cage of unachievable expectations.

We like our independence at O'Reilly. Our customers like it as well, since it lets us serve them rather than the stockholders. Part of what has made O'Reilly so successful is that we don't chase quarterly earnings targets. Instead, we follow our dreams, our curiosity, and our sense of what's important. So many of the technologies we've helped bring to prominence haven't been sure winners; they've simply been interesting and important.

You also have to think about the reasons for going public. There are a lot of bad reasons (chief among them is the quick cashout) and a lot of good ones (such as earning the capital to expand more quickly than could be supported by sales growth). At O'Reilly, though, we're not in any hurry to quit the game, we're not looking to make any acquisitions, and we already have a rapidly growing company that is adequately financed by our own success.

What's more, when we've found opportunities that require greater capital investment than we can fund out of our operating cash flow, we've been able to spinout or create new companies that are on a more traditional IPO track. For example, we've done this with both Collab.Net and ActiveState. Previously, we spun out GNN and sold it to America Online, and we spun out Likeminds and sold it to Andromedia (which later merged with Macromedia.) We also have a small venture capital arm that makes strategic investments. Current investments include ePIT, VA Linux Systems, Sendmail, Inc., and Digital Creations (the company behind Zope).

These investments and spin outs allow us to participate in the public and M&A markets without exposing ourselves to their vagaries. My rule of thumb is that when an opportunity is part of our core information business, we'll keep it as a part of O'Reilly, but if we see an opportunity that is important but peripheral--especially in a market that is growing faster than we think we can keep up with in our core business--we'll do a spin out or a strategic investment.

In short, I won't say that O'Reilly will never go public. But at least for now, we're remaining happily private.

--Tim

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