Cobalt Networks

» see cobalt.com as it lived, on the wayback machine

~ the obit ~

Sun Microsystems announced in September 2000 that it was buying Cobalt Networks for about two billion dollars in stock, and closed the purchase on 7 December. It was the largest acquisition Sun had made to that point. The company it bought had been founded four years earlier as Cobalt Microserver, had taken the Cobalt Networks name in June 1998, and was selling a blue plastic cube running Linux to small businesses that wanted a web server without hiring anyone to run it.

The pitch worked. By the end, Cobalt had around 1,900 end customers across more than 70 countries and the rackmount version of the same software was doing real volume with hosting providers. It went public on 5 November 1999 at 22 dollars a share and traded up by as much as 618 percent during the first day, which was near the top of a year that had a lot of competition for that particular record.

In March 2000 it spent 1.15 million of its own shares, valued at 69.9 million dollars, on a company called Chili!Soft, whose product was a port of Microsoft's Active Server Pages to Unix and Linux. A Linux appliance vendor buying a Microsoft compatibility layer with paper money is a fair summary of what the previous eighteen months had done to everyone's sense of scale.

Then the paper stopped being worth anything. Sun's own shares fell by more than 90 percent over the following two years, so the two billion dollars was a number on an announcement rather than a sum anybody collected. Engineers left over the following months. Sun kept the brand on the products for three more years and ended the line in December 2003 with the dual-processor RaQ 550.

~ the rap sheet ~

~ the two numbers ~

Twenty two million dollars a year in revenue. Six billion dollars of market capitalization. The ratio between those is about 270 to one, on a hardware business, which means the buyers of the stock were not valuing a server company at all.

What makes Cobalt worth a stone rather than a footnote is that the underlying business was honest. It shipped a good product to paying customers at a price that covered building it. The valuation was attached to it from outside, by a market that had decided anything with Linux and an IPO date was worth a multiple of everything it would ever sell. When Sun wrote its check in stock it was paying one inflated number with another, and both deflated on roughly the same schedule.

~ what february 2001 looked like here ~

The dot-com crash reads, from a distance of twenty five years, like the financial event of that season. It was not the one Turkey was having. On 19 February 2001 a public argument between the president and the prime minister set off a run, overnight interbank rates went to numbers that do not belong on a chart, and on 22 February the lira was floated and lost about a third of its value inside a week. Banks were seized. Small businesses closed.

So the story of a server company valued at two hundred and seventy times revenue landed here as something happening in a country whose currency was not the problem. I was sixteen and seventeen across those two years, watching one crash on the news in Turkish and reading about the other one in computer magazines, and only the second one had a product attached to it.

~ the part that was real ~

Cobalt got to market first with a rackmount server one unit high, which is now simply how servers are shaped. The founder of RLX Technologies credited the company with clearing the way for the blade server, and the idea that a server should be a sealed appliance configured through a browser went from strange to standard within about five years of the first Qube.

Sun bought all of that and then let it go. The appliance business did not fit a company whose story was Solaris on SPARC hardware, and by 2003 the argument inside Sun had been settled against the blue boxes. The engineering went one way and the brand went into a product line that was quietly ended, which is the usual shape of a two billion dollar acquisition that nobody was ever going to be measured against.

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