March 1, 2002 8:30 AM PST

A fresh vision for Novell?

"Buy some popcorn" and watch Novell's comeback plot unfold.

That's Chris Stone's advice--just days after he rejoined Novell as its No. 2 executive--to those who doubt the company's ability to rise again as a significant force in the software industry.

In the early 1990s, Novell commanded more than 70 percent of the server operating system market. That was before it lost focus and market share in competition with Microsoft and, more recently, Linux. The company now holds roughly 17 percent of the network operating system market.

Stone was appointed to vice chairman in Novell's office of the CEO after Tuesday's departure of CEO Stewart Nelson. His return to the software maker after a three-year absence has raised hopes among some that the company--known for innovative engineering but weak marketing--can turn the corner.

But many, including some Novell customers, remain skeptical that the company will be more than a marginal player.

Stone's new boss, Chief Executive Jack Messman, said this week that his second-in-command is "a visionary who understands technology."

His former boss believes that Stone was called upon to once again alter the direction of a software company in need of fresh ideas and assertive leadership.

"He is quick-moving and very strategic," said former Novell Chief Executive Eric Schmidt, now CEO at Web search portal Google. "He is a good communicator and a hard driver. He was the person most responsible for the directory (software) strategy as it evolved, and I'm sure it was his leadership on that issue that brought Jack to Chris in this role."

The challenge that Stone is posing to skeptics--to sit back and enjoy the strategic "show" he will put on--will if anything add some life to a company not known for its marketing prowess or high industry profile.

Stone, who served as executive vice president of strategy and development during Schmidt's tenure, says the future for Novell is not predicated on reliving the past and recapturing lost operating system sales.

see special report: Web services: The new buzz Instead, the company will pursue other business areas with a renewed focus on the company's directory services software technology, now called eDirectory. Novell will concentrate on marketing eDirectory as a technology to which software developers can write applications, in the hope of taking a chunk of the potentially lucrative market for Web services infrastructure software. Novell is also targeting network security and computer-user authentication areas, he said.

Novell is attempting to evolve its business to handle a variety of software infrastructure tasks and associated consulting services, after its $266 million acquisition of technology consultancy Cambridge Technology Partners, completed in March last year.

Analysts see Stone's return boosting morale at the software maker. "Novell has gone through a number of rounds of abrupt management changes over the years, yet this feels different," said a note issued Thursday by The Sageza Group, a market analyzer based in Mountain View, Calif. "With the return of Mr. Stone, the company will bring back one of the men credited with turning around the company under the direction of Eric Schmidt."

An uphill trudge
Though Stone is a sentimental favorite, analysts see an uphill effort to restore even a hint of the company's former glory. Novell on Thursday posted an unexpected 2 cent profit in its fiscal first quarter, but warned that weakness in the consulting arena would hurt revenue in the short term.

"Whether this time around Novell can do better than past efforts to catch on to the latest trend is a big question. The company has had trouble translating its technology strengths into market-share gains," said Dwight Davis, software analyst with industry consultants Summit Strategies.

Stone acknowledges that the company has a struggle ahead. Any resuscitation of Novell's fortunes should not be measured in months, but in years, he said. A lack of relevance to the information technology community and lack of innovation on the technology front, as well as mixed messages on how Novell products can save an IT department money, has led to the company's latest plight, Stone said, in which falling revenue has forced it to lay off employees and shift its strategy to include the acquired consulting arm.

"Give it some time," Stone said in an interview after he was appointed. "Don't write Novell off. It's a gem. All it needs is bold moves and focus. Otherwise, I wouldn't have done this. I'm not a fool."

Stone's ideas have been floated before. Under Schmidt's leadership, Novell experienced a brief renaissance during the late-1990s technology boom as the company focused more of its energies on eDirectory. But that comeback collapsed under the weight of a veteran sales force and an executive staff incapable of changing its tactics, insiders said.

Stone eventually retreated to his Boston-area home and family in 1999 and started his own company, Tilion, a maker of supply-chain software, after tiring of the cross-continental commute to Novell's Provo, Utah, headquarters.

Those concerns have evaporated, since he'll run Novell's engineering, marketing, product management, alliance and consulting arms from the Cambridge, Mass., offices the company inherited from Cambridge Technology. Stone will, at least initially, visit Novell's headquarters a few days of every week.

While analysts and former Novell executives applaud the rehiring of Stone, the company's customers are not as convinced. "The people in upper management kind of shift in and shift out," said one customer, who requested anonymity. Customers said the company's plight is dire, and that they've heard promises before and have been disappointed.

"The size of the iceberg that hit the Novell ship is pretty big, and (a comeback) depends on how quick they can patch it, but it doesn't look good," said Doug Spindler, president of the San Francisco Novell User Group.

"Novell's definitely had the (technological) lead, but they've fumbled too many times," Spindler said.

Opening gambits
Stone's initial moves are likely to be related to his roots as a champion of developers. He once led the Object Management Group, which created CORBA, or the Common Object Request Broker Architecture, a programming architecture that ties disparate software and computers together.

Now he wants Novell to quickly adopt the Java 2 Enterprise Edition architecture and related Web services technology standards, such as XML (Extensible Markup Language) and SOAP (Simple Object Access Protocol), so that programmers can more easily write software that runs on Novell technology, particularly eDirectory.

And what will become of NetWare? The company's old stalwart operating system by all accounts is still impressing customers in its latest release, version 6.0, but also losing market share to competitors.

"NetWare just continues on," Stone said. "What NetWare needs, which it has never had, is a good development environment."

Stone's challenge is formidable. Novell reported first-quarter earnings at the close of the market Thursday that showed continued declines in most of its market segments--though eDirectory sales climbed 5 percent sequentially off a small base--and few signs that a bottom has been reached as the company continues to digest struggling Cambridge Technology.

It also is attempting to revamp its sales model to incorporate the consulting services into its culture--a change from selling single products to selling technology "solutions," or bundles of technology that address a specific problem such as network user authentication.

"It's a different time," Stone says. "Novell needs different things."

 

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