Commentary: Novell surfs the open-source wave

By Richard Fichera, vice president

Linux and open source seem to have energized Novell's user and partner community and may give Novell a chance to undo its most fundamental error vis-a-vis Microsoft--misjudging the importance of integrating services with a capable application server and not having tight integration with the enterprise desktop.

With its ownership of SuSE Linux and the possible beginning of an uptick in Linux desktops, Novell's fortunes may be due for an upward run, despite its essentially flat performance during the last few years.

At this year's BrainShare conference, Novell's annual customer and partner event, we were pleasantly surprised at what we found. While it is true that an overall improvement in the economy might account for some slight positive momentum, an improvement of 20 percent in overall attendance and 80 percent in the number of exhibiting partners is clearly a sign that there is more than just a slight loosening of corporate travel budgets.

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Probably the single most galvanizing event for Novell has been its acquisition of SuSE. At LinuxWorld, we heard many unsolicited comments about the positive aspects of the acquisition, primarily focused on Novell's worldwide support capabilities and the necessity for increased competition in the primary distribution market.

At BrainShare, admittedly with an audience self-selected for a positive Novell bias, we heard many comments about how the recent publicity around Novell and Linux made it easier for Novell supporters to make their case internally for continued use or expansion of Novell products. A final supporting piece of evidence produced by Novell management, with disclaimers that it was not necessarily proof of a trend (despite management's hopes), was a clear slowing down of the long quarterly decline in core NetWare revenue.

While we do not believe that Linux will ever seriously threaten Microsoft's dominance on the client side, interest in alternative desktops among Forrester's client base has been increasing, and we see Linux as a reasonable candidate for second place, with market share of between 5 percent and 10 percent in the next five years. Should that happen, Novell is well positioned as one of the leading suppliers, having an impressive stable of intellectual property to round out the core "office" functionality, as well as distribution and support capabilities.

The most intriguing aspect of Novell's acquisition of SuSE and its strong movement to make legacy products available on Linux (Red Hat as well as its own SuSE technology) is that it represents a chance for the company to hop into a time machine and undo its most critical mistake of the last several decades.

In the 1990s, Novell, with critical file and print services that were superior to those offered by Microsoft, missed the importance of the application server. By the time it became obvious that "good enough" file and print services on top of a general-purpose application server trumped better file and print services, it was too late. Novell could not break into the application server space and, as Microsoft continued to improve its file and print servers, the downward spiral for NetWare began.

With Linux, Novell gets a second chance. Its file, print and directory products are technically excellent products that, along with its other offerings, will be integrated with a widely accepted and rapidly growing application server. Whether Linux will be No. 1 or No. 2 is a debate we will not engage in here, but it most certainly will be one of the most rapidly growing OS platforms over the next few years. Having a quality suite of file, print, directory, management and desktop offerings for Linux can only be positive for Novell.

So the opportunity is good, but turning it into solid commercial advantage will still be an execution challenge for Novell. Among the things it must come to grips with are:

• Monetizing Linux. The major challenge for the entire Linux distribution industry is monetizing an operating system that originally came with an emotional expectation that it was somehow "free." The distribution vendors must figure out revenue models that preserve the value of Linux by keeping it cheaper than Microsoft and still return enough money to make them viable businesses. Most, Novell included, seem to be converging on recurring license/support and consulting revenues. Novell has the added advantage of substantial layered products that can be added, which gives it an advantage over other distribution vendors.

• Sustaining its legacy base. In its rush to Linux, Novell must reassure its current installed base that it will continue to invest in their solutions and must demonstrate that commitment through parallel releases and enhancements. Over time, Novell must make it easy for its current installed base to easily migrate to the newer Linux-based offerings.

Recommendations for customers:

• Look before you leap, if you are a Novell user. The company is fundamentally sound, has adequate cash and may begin to show positive revenue growth. Migration for sound architectural/corporate standardization may make sense, but migration out of fear for Novell's future prospects or commitment to its core products is certainly premature.

• Consider Novell as a source for infrastructure services if you are investing in Linux on the server side. Novell's print, file, directory and other products are proven and mature, and they'll provide the same utility under Linux that they provided to previous generations of legacy users. While we don't want to read too much into a transient advantage, Novell is the first vendor to publish a high-end benchmark for the new 2.6 kernel, beating rival Red Hat.

• Consider Novell as a leading source for Linux desktops, especially if you are using the company's other services on Linux servers. Novell has an impressive suite of desktop office and management tools and is working to fully integrate them with its other resource management offerings.

© 2004, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.