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INTEGRATION WATCH: Novell’s Novel: The Next Chapter
By Andrew Binstock
 January 1, 2004 — Novell’s announcement that it acquired SUSE Linux AG has been universally described as a masterstroke that will give the company a relevance it has not enjoyed in years. Even Wall Street got caught up in the excitement and immediately ran up the company’s stock price 50 percent.
But before we get too excited about all this good news, let’s make sure we keep perspective. All Novell has done at this point is make two popular acquisitions—the first being Ximian, picked up in August.
Despite those moves, the company has yet to announce its strategy or its product line, and until these are spelled out in detail, it’s too early to really tell how things stand.
I confess I am hesitant in this area due to Novell’s repeated references to now being a “desktop to server” vendor of Linux. The desktop part concerns me because desktop Linux is just not profitable.
To wit, on the same day Novell went public with the SUSE acquisition, Red Hat announced its decision to stop selling and supporting Red Hat Linux—the company’s desktop product. Red Hat’s move was confirmation of what most everyone knew: The adoption of Linux as a Windows desktop alternative is not imminent, and when it arrives is unlikely to be terribly profitable.
Red Hat was making its money on sales of server implementations. As a result, the company naturally chose to focus its energies there—to the great disappointment of many “evangelists” who still aver that the desktop Linux revolution is around the corner. Some distant day, perhaps, desktop Linux will be an important competitor to Microsoft on the desktop, but its success in this area is likely to come from price-sensitive customers (that is, international). As such, these sales cannot figure prominently in the strategy of companies that need to be successful today with Linux.
The server is where Novell has traditionally succeeded and where it must succeed in the future.
The company’s first obligation will be to put together a compelling SUSE-Ximian-Novell story. The product that Novell delivers must make adoption of Linux more attractive and must make Novell’s solution the best Linux offering of the lot.
In this regard, when Novell vice chairman Chris Stone contended that the SUSE acquisition was not about Microsoft, he was not being entirely disingenuous. For lack of a Linux product distribution of its own, Novell has not been known heretofore for Linux, so it must first begin establishing itself by selling against Red Hat, before it can even think about selling against Microsoft.
SUSE, of course, is a great tool for this campaign; but let’s not forget SUSE was not exactly going great guns when Novell bought it.
As important—perhaps more important—than the SUSE product is IBM’s backing. Armonk invested US$50 million in Novell and thereby signified its intention to have an alternate source to Red Hat for its Linux products. IBM’s backing establishes Novell Linux as an important player, and undermines Red Hat’s contentions that Orem’s sudden arrival has no appreciable importance. And because IBM’s commitment goes beyond being merely a passive investor, Novell’s future could be a bright one indeed.
Initially, Novell will be able to capitalize on its installed base of loyal customers, many of whom have watched with concern as the company foundered.
Now they have a reason to believe—that is, they see a sensible upgrade path and the prospect of a growing community of users. Previously, neither existed.
To move beyond this base of loyalists, however, Novell needs to further define and refine its story. Sun and Red Hat already are promoting their own Linux server stories, and they are certain to be fierce competitors. Plus, there is no reason to believe they will be the only companies competing with Novell.
Historically, alas, Novell has faltered at just this point. Rather than fight for his network operating system and its niche, Novell CEO Ray Noorda fought Microsoft on multiple fronts and lost on all, including the NOS.
After he stepped down in 1994, a gun-shy board hired technologist CEOs who were disinclined to wave the red flag of battle: Bob Frankenberg and Eric Schmidt. Stone is poured from a similar mold: He’s a consensus builder who put together the CORBA initiative years ago.
Now, he and CEO Jack Messman have to craft a compelling message for Novell that enables its Utah missionaries to successfully duke it out with other vendors for the hearts and minds of IT. This is the big challenge. And how well they succeed at this task will determine whether Novell gets to live another day.
Andrew Binstock is the principal analyst at Pacific Data Works LLC
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