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After excitedly releasing the first version of its new Nautilus open-source desktop software Monday, Eazel bit the bullet just a day later and laid off more than half of its 70-member staff.

The layoff of 40 workers came because the company has been unsuccessful in securing a second round of funding in a tight technology market, says Greg Wood, a company spokesperson.

Early Monday, the Nautilus 1.0 file manager for the Gnome desktop environment was placed on the company's Web site for free download, and the company celebrated, Wood says. The good mood didn't last for long.

By 4 p.m. Pacific time Tuesday, Eazel Chief Executive Officer Michael Boich called the staff together again, this time to announce the layoffs, the bulk of which hit the sales and marketing teams.

"It actually caught us by surprise," Wood says.

The company's core software engineers and developers are being retained because the company will continue to focus on developing Nautilus and Eazel services.

Market Tightened During Development

Founded in 1999 by a group of industry veterans who were part of the original Apple Macintosh team, Eazel began developing Nautilus to make the Linux desktop easier to use. The Nautilus shell integrates file management, Web browsing, and system management.

The layoffs didn't come entirely out of the blue, Wood says. He notes that financial opportunities have tightened considerably for Linux and open-source companies recently.

"Basically, what it means is that the environment for companies working in the Linux space is much different than it was two years ago," he says.

Eazel's business model calls for the company to continue to offer Nautilus for free and market related services to clients to bring in revenue, he says.

The company has had several notable marketing successes, including an agreement with Sun Microsystems last December to incorporate the Eazel desktop into Sun's Solaris Unix operating system.

Another deal reached in December was with Dell to load Nautilus onto all of Dell's Linux-equipped desktop and laptop PCs. Dell also invested an undisclosed amount of money in Eazel.

In Search of Desktops

Bill Claybrook, an analyst at Aberdeen Group, says that while Eazel's products are good, "the market is not really there yet for what they're doing, but it will be."

The problem is that Eazel is aiming Nautilus at Linux corporate desktop users, which is a "basically nonexistent [market] at this point," since corporations don't use Linux for desktop machines, he says. Eazel's layoffs reflect that difficulty, as the company seeks to reduce expenses to make itself look more favorable to venture capital sources, he adds.

"The unfortunate part is that they're going to lay off their marketing and salespeople," who will be needed to help get the company's sales and income going as it moves toward earning revenue from services, Claybrook says. He notes, however, that 40 sales and marketing people is probably excessive for a company as small as Eazel.

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