Chinese software pioneer Red Flag bites the dust

Home grown software venture closes its doors after its financial backer withholds subsidies

PUBLISHED : Friday, 14 February, 2014, 3:44pm
UPDATED : Saturday, 15 February, 2014, 1:16am

China's best hope for a home-grown computer operating system to compete with global giants like Microsoft lay in tatters after state-backed Red Flag Software was forced to close its doors.

Founded in 2000 during the dotcom boom, Red Flag was once the world's second-largest Linux distributor, providing desktop and server software built on top of the free and open-source Linux program.

Despite its lofty goals and early success, Beijing-based Red Flag ended all its employment contracts on Monday, according to a report on the Sina news portal on Thursday.

"A lack of brand awareness and sustained investments, coupled with the rise of rivals including Red Hat Enterprise Linux and SUSE Linux Enterprise, led to its downfall," said Eric Peng, a research manager with IDC in Beijing.

The situation for Red Flag had deteriorated so much that the company could not even meet water and electricity payments on its Haidian district building in December.

Red Flag's 150 employees, who have not been paid since April last year, are now trying to claim a combined sum of about 15 million yuan (HK$19 million) from the company's largest shareholder, the Software Research Institute of the Chinese Academy of Sciences.

Its low-cost products, which included application software for multiple computer hardware platforms, represented the mainland government's effort to reduce reliance on expensive and proprietary technology sold by foreign companies.

Red Flag was established by the Software Research Institute of the academy, the mainland's top scientific think tank, and NewMargin Venture Capital.

At the height of its success, Red Flag enjoyed high adoption among government departments, state-owned enterprises and schools, Peng said.

In December 2003, Red Flag helped establish the Asianux consortium, which developed a Linux distribution platform that could be separately marketed, customised and distributed by members as their own. Its other members included Miracle Linux of Japan, Haansoft of South Korea, VietSoftware of Vietnam, WTEC from Thailand, and Enterprise Technology of Sri Lanka.

The firm's staff said the institute's failure to honour its agreement to pay Red Flag a maximum of 40 million yuan in subsidies brought the company to its knees. The institute, however, said in a statement last month that no money was granted because Red Flag pulled out of a certain project, adding that the company was mismanaged. Red Flag and the institute did not respond to requests for comments.

Red Flag may be the highest-profile failure in the mainland government's effort to have a viable, home-grown operating system, but there have been other attempts.

In 2009, China Mobile unveiled a modified version of Google's Android operating system called OPhone, which sputtered and disappeared a year later.

Last month, the government launched the China Operating System (COS), a mobile operating system that was designed to compete with Android and Apple's iOS.

Sandy Shen, a research director at Gartner, said COS will likely not have much success.

"China wants to have its own technologies nurtured by its own companies. The government has its own agenda to compete against the Western giants, but the market is ruled by different forces," Shen said.