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Instant Insight |
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Heroic Salvation or Sleeping with the Enemy? Novell has announced it has entered into an
agreement to acquire Nuremburg, Germany-based SuSE Linux for $210 million in
cash. SuSE Linux is the largest European enterprise Linux vendor, and is
second only to the U.S.-based Red Hat in Linux product revenues. Novell also
announced that it would receive a $50 million investment from IBM through the
purchase of Novell convertible preferred stock. In addition, the company
announced that it is in negotiations to extend the commercial IBM/SuSE Linux
agreements to ensure the ongoing support for IBM eServer and middleware
products. Key product features and support afforded by SuSE
Linux Enterprise Server 8 include: ▫
Focus
on medium to large enterprises Linux needs; ▫
Integration
of Windows, Apple, Novell, and UNIX networks; ▫
Support
for Web servers and Web application servers, File and print servers, Mail
servers, Web content filters and proxy servers; ▫
Enhanced
connectivity to support dial-in and dial-out servers for analog, ISDN, and
DSL connections as well as networking support for DNS, DHCP, WINS; ▫
Integrated
support for high availability (failover); ▫
High-performance
computing platform. Novell highlighted a number of developments that
would be a result of the acquisition: ▫
Novell
would become the first to offer comprehensive Linux solutions for the
enterprise from the desktop to the server through its own offerings and
existing SuSE partnerships with vendors including HP, IBM, Oracle, AMD,
Intel, EMC, SAP, SAS, Siemens, Sun, and Sybase, among others. ▫
Novell
would be the only $1 billion software company with a Linux distribution and
the worldwide technical staff to support it. ▫
Novell/SuSE
LINUX would become the world’s largest supplier of desktop-to-server Linux
solutions and technical support. This acquisition follows a series of Linux-based announcements from Novell over the last four months including the August purchase of Ximian, a supplier of Linux-based server and desktop solutions, and the September release of an open beta version of Novell’s Nterprise Linux Services. Novell stated that it will continue to support Red Hat Linux, but SuSE will become their preferred Linux platform. Timing The transaction is expected to close by the end of
its first fiscal quarter, January 2004, and is subject to regulatory and
stockholder approval. The SuSE/IBM agreements are expected to be finalized
and effective prior to the acquisition closing. Net/Net This announcement is a classic case of “there is good
news and there is bad news.” We’ll start with the good news. This is a good move for SuSE, for Novell, and if
properly brought to market, possibly the user and the marketplace as a whole.
SuSE gains access to a worldwide partner/channel infrastructure, enterprise
sales and support force, and a strong enterprise brand, while Novell
revitalizes its eco-system with a new “engine” in the emerging opportunities
of Open Source Linux in the enterprise. Linux has made significant impact on
enterprises as edge servers have appeared and as enterprises have built out
their networking infrastructure. Customers have realized the Linux advantage
in Web servers, protocol management, and firewalls, finding a relatively easy
justification and quick return. However, save the early adopters in the high-performance
technical computing and finance communities, users have yet to embrace Linux
for their business process applications, to say nothing of the highly
optimized data centers extant with significant man-years invested in finely tuned
operations. The opportunity for Novell will be to leverage the
significant beachhead Linux has at the edge of the Net and coordinate a big
move, manifest in two directions. First, the company can focus on application
developers: encouraging the development of business process application that
ties user interaction with data center information and applications; offering
support and leadership in the ideological clash between the open and
proprietary software business models. Second, at the desktop, the company can
offer an alternative to Microsoft. The value of integration in the
application space is more than compelling; it is critical and is the
principle driver of various XML and Web Services efforts. Microsoft has been
responding with its Microsoft Office System. Novell is now in a position with
its Novell, Xiaman, and SuSE components to address
the challenge as well and without the burdensome Windows franchise to
protect. Now, the bad news. Novell’s acquisition of SuSE
Linux could jeopardize the future success of Linux and the open source
movement. Given Novell’s history as a proprietary value-focused ISV and its maintaining a toehold in the market through turbulent
times that has seen its large, but shrinking, installed base under attack,
the acquisition of SuSE would seem to run counter to the spirit of open
source computing given Novell’s history as anything but an open source
distributor. To many, Novell is a poster child for the type of closed, single
vendor solutions that open source forces are seeking to combat. To the
religious stalwarts, SuSE would appear to be sleeping with the enemy. SuSE adherents have reason to be concerned, given
Novell’s recent track record in executing acquisitions in a fashion that has
been less than optimal to all concerned. In particular, consider Novell’s
acquisition of the UNIX source code from AT&T that led to the ultimately
doomed Unixware moniker. As with many things, the
timing was wrong and Unixware came in direct
conflict with what was at the time Novell’s cash cow, Netware. The company
failed to give Unixware the support it needed
especially in the area of channels development — a notable shortcoming given
Novell’s success in creating a very successful channel program for Netware —
yet the company failed to educate the channel about its new UNIX offering.
Consequently, Unixware was sold off in 1995 — along
with the original AT&T source code — to SCO in what is now a contentious
legal dispute, which is a topic in and of itself. So the question lingers: Why does Novell need to purchase
an open source distributor when the source code is readily available? Novell
already has a working relationship with SuSE and through its acquisition of Ximian was building a portfolio of Linux-based offerings.
If Novell truly leaves SuSE alone, i.e., operating under the same open source
environment that it has to date, and just uses Novell’s well established
channels to boost distribution, then this could be a boon for Linux. However,
if there is even a hint of Novell adding proprietary extensions to SuSE Linux
or too tightly coupling it with their own application offerings, then the
market runs the risk of repeating the fractionalization and ultimately
debilitating experience that UNIX vendors experienced. Novell is in an interesting position. The full
circle nature of the current Novell Linux strategy is mildly ironic with
regard to the nature of timing. Novell had spent a dozen or so years
acquiring and then selling comparable technologies and products to the
elements they are integrating in this strategy. Unfortunately,
through it all, the market, the marketing, or the management (or some
combination of all three) was unable to respond to the opportunity. That was
then and this is now. This time, Novell has a clear opportunity with a
market armed with a business-centric applications needs and a
management-centric “lower my costs” mantra. Novell marketing and messaging
has weathered the storms of the post-Y2K market and improved the cluttered
and often confusing messaging landscape. The management appears to have
answered the lingering product/services/solutions question that was hampering
Novell in the recent past with a confident “yes” and is working a strategy
that has the potential to integrate Novell-the-business, as well as Novel-the-technology.
SuSE Linux is a strong product, a strong open source proponent, and a
potentially excellent catalyst in Novell’s move into the center of the
enterprise Linux contest. Nonetheless, the risks are enormous. Even though SuSE is not the largest Linux distributor, the threat of code base fragmentation is very real and could blow the whole open source effort out of the water. Internally Novell continues to face the inherent juxtaposition of maintaining the NetWare user base while embracing a future whereby NetWare is increasingly irrelevant. It would be a shame if this opportunity to further legitimize Linux and bring it into the mainstream of corporate IT processes is lost due to internal (Novell) or external (SCO, that other Utah company) bickering. Nevertheless, it will be up to Novell to prove they have the discipline and foresight to pull off the acquisition and product execution. If successful, Novell could come out revitalized. If unsuccessful, the impact will reach far beyond Novell, and quite possibly damage the industry as a whole. Competition usually breeds vitality. Since it’s in the best interest of the industry, we wish Novell good fortune in this endeavor and hope they force both Microsoft and Red Hat to run even harder. |