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March 7, 2010

An intelligent move

Novell’s latest CEO has got the company back on an even keel, but can his bold new strategy help it return to growth? Jason Stamper reports.

By Jason Stamper

Few technology firms have quite such an illustrious history as Novell. The firm that brought enterprise networking to the mainstream with the introduction of NetWare back in 1983, had cornered 70% of that market by the early 1990s. But things have not always gone smoothly for the company as it has sought to diversify since. Today, with a two-pronged strategy aimed at Linux and IT management software, it’s reached another critical point in its evolution as it reinvents itself once again.

Novell was founded in Provo, Utah as Novell Data Systems Inc way back in 1979, by George Canova, Darin Field, and Jack Davis. Canova’s wife came up with the name Novell, mistakenly believing that it meant ‘new’ in French. It started life making disk operating systems, but was reincorporated as Novell Inc in 1983 after a venture capital injection, and turned its attention to designing network hardware. In May of that year Ray Noorda became president and CEO, and it introduced NetWare that same year.

In 1997 Noorda was succeeded by Eric Schmidt, who is CEO of Google today. Schmidt accelerated efforts to leverage Novell’s core networking strengths in the Internet arena, soon launching NetWare 5 and Novell Directory Services (NDS), with native support for the Internet communications protocol (IP).

The firm bought services firm Cambridge Technology Partners in 2001 as it diversified yet further, and the former CEO of Cambridge, Jack Messman, took over the reins at Novell.

Messman radically changed Novell during his tenure. On his watch Novell bought Ximian for its desktop Linux and related tools. In January 2004 the acquisition of SUSE Linux, Europe’s leading Linux vendor and one of the top commercial Linux distributions on the market, gave Novell the chance to claim it could offer Linux from the server to the desktop, as well as enterprise-grade networking services and technical support unmatched by rivals.

But the board gradually lost faith in Messman’s ability to turn the strategy into growth. It ousted both Messman and his CFO in June 2006 after a quarter that saw sales slip by $10m to $287m.

Ron Hovsepian, who’d been president, stepped into Messman’s shoes. It didn’t take him long before he found himself at the centre of a new controversy.

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The Microsoft deal
Shortly after Hovsepian took the reins, Novell and Microsoft announced a joint patent agreement to cover their respective products. They promised to work more closely together in order to improve their software’s ability to work with other software, setting up a joint research facility. Speaking at the time, Microsoft CEO Steve Ballmer said, “This set of agreements will really help bridge the divide between open-source and proprietary source software.”

It was clear what was in it for Novell, not least an up-front payment of $348m from Microsoft. But the open source community was up in arms, accusing Novell of ‘selling out’ and expressing concern that the GNU General Public Licence could not accommodate such an agreement.

In a letter to the open source community on November 9, Bradley Kuhn, CTO of the Software Freedom Law Centre described the agreement as, “worse than useless.” The open source Samba team objected too, and Jeremy Allison, who was on that team and also a Novell employee, ultimately quit his job at Novell in protest.

Fortunately for Novell, when the third version of the GPL license was decided, the deal between Microsoft and Novell was grandfathered in. A new clause allowed companies like Novell to distribute GPLv3 software even if they have made a patent partnership like the one signed with Microsoft, as long as the partnership deal was made before March 28, 2007.

But when I caught up with Hovsepian recently, I was keen to know whether he would still have signed that agreement with Microsoft, now that he knows how the open source community reacted. “I think what’s most important in that Microsoft experience is what’s most important for the customer,” he said. “One of the things that I absolutely learned from that experience was my need to communicate faster and stronger to the [open source] community. We could have done a better job there reaching out to the community.

“However the customer reaction to this [deal with Microsoft] has been fantastic,” he said. “Customers are going to have a Java/open source stack in their shop and they’re probably going to have a Windows stack for the foreseeable future…. that’s where we focused the agreement on interoperability: around the customer. We learned some things that we should have done better but all in all, what we think we have done is bridged Microsoft to begin to appreciate what open source is about, where open source is going.

“If you look at some of [Microsoft’s] announcements or some of the things that we have done with them, they at least have a better understanding and tolerance of what we want to get done from an open source perspective, and I applaud the community’s effort to be more understanding of it as well as Microsoft’s efforts to be more understanding,” Hovsepian said.

You can listen to the entire podcast interview with Hovsepian at http://bit.ly/c3LmUJ.

I asked the same question of openSUSE Community Manager at Novell, Joe Brockmeier when I met him in London last month. “It’s not all hugs and puppies,” he conceded. “Whatever [Microsoft’s] stance now, they have a record of being negative [towards open source] and any affiliation with them is going to be controversial.

“It’s clear that for die-hard free software advocates, the Microsoft deal is not attracting them,” he added. Asked whether he would sanction the deal being re-signed when it comes up for renewal, Brockmeier said: “[We] need to think very hard about what impact it has on the community. I don’t think we had anticipated what the reaction would be.” But he added that, “While there is a theoretical argument that there’s a negative, there’s a very real and concrete argument [because it also involves a payment] of hard cash.”

Intelligent workload management
Regardless of the Microsoft agreement, it’s clear that Novell has tried to align itself with the open source community. It sponsors open source projects and has a broad portfolio of open source technologies. Brockmeier says the company is much more serious now about developing a real open source community around things like SUSE with real contributors from the community, and not just paying lip service to the open source cause as it may have done in the past.

But that strategy has not yet seen Novell regain the stellar growth it once enjoyed. So in December last year, Hovsepian announced a new strategy around what it calls Intelligent Workload Management. It’s a broad, bold move, which came at the end of a difficult year not just for Novell but for the industry. Against the backdrop of the recession, Novell reported full year revenue for 2009 of $862m, down from $957m in 2008.

Hovsepian said of the results: “While it was a challenging year in terms of revenue, we worked hard to improve our cost structure, deliver innovative solutions, and expand our partner ecosystem while delivering a significant improvement in non-GAAP operating margin… As we move into 2010, we will focus on invoicing growth as we pursue opportunities in our current markets and in the emerging market of Intelligent Workload Management.”

So what is this new category? “Customers today are looking for a pragmatic solution to securely manage and optimise their distributed computing resources,” said Hovsepian. “Novell’s approach to Intelligent Workload Management will help companies leverage their existing IT assets, realise the significant cost benefits offered by new models like virtualisation and cloud computing, and provide them with the necessary tools to secure information as it moves inside and outside the organisation.”

The firm says Intelligent Workload Management integrates identity and systems management capabilities into an application workload, in doing so increasing the workload’s security and portability across physical, virtual and cloud environments. As a result, enterprises are able to, “Significantly reduce the risks and challenges of computing across multiple environments while granting their users secure and compliant access to the full computing services they need,” Novell says.

Hovsepian believes Novell can become a leader in this space. But after almost three years in the job, is he the right person to front the firm as it looks to this new category, and this new stage in its evolution? “I get up every morning with a lot of enthusiasm about this company because of its people and its technology and the customer base,” he told CBR. “From my vantage point I believe I have a lot more that I can give, working with all three constituencies.”

By its own admission, Novell has not always been the best at communicating its strategy. Let’s hope that it gets it right with Intelligent Workload Management, so that this iconic company can once again claim leadership in a segment as fast-growing as enterprise networking once was.

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