November 28, 2000 1:40 PM PST

Conservative Novell goes on marketing offensive

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October 4, 2000
To dye or die, that is the question for Novell executives.

The company's senior managers have dyed their hair flame red while employees have been swapping tattered T-shirts for those with new logos, all part of a sweeping marketing campaign to boost the image and confidence of the beleaguered software maker.

But few investors are smiling on the company's $60 million marketing mission--the biggest and most crucial since 1983, when Raymond Noorda and venture capital firm Safeguard Scientific created Novell. The stock hit a new 52-week low Tuesday morning, and analysts say the Provo, Utah-based company is ripe for a major shake-up or acquisition.

Even those who believe Novell is on the rebound say it will be a long time in the making.

"We do not believe that the technology franchise is in jeopardy, said Wasserstein Parella Securities analyst Stephen Dube. "But the pressure is on management to produce results. Rapid action is needed to rebuild investor confidence."

One of the keys to Novell's comeback, executives say, is a sweeping marketing campaign spearheaded by a newly hired executive marketing team. The campaign, which features advertisements during Monday Night Football, will ramp up a notch in January with more network television spots by Austin, Texas-based agency Sicola Martin.

Changing its rep
The initiative, combined with new product offerings and upgrades, is meant to shore up Novell's shrinking market share, increase awareness of the Novell name and boost waning morale at offices in Provo, San Jose, Calif., and elsewhere.

As part of the effort, more than 5,000 Novell employees around the world learned how to better promote their employer and its products during "messaging training" seminars. Although the company's flagship NetWare software is relatively well known in technology circles, said Darin Richins, vice president of global marketing, few people outside of Utah know much about Novell itself.

"Quite candidly, people came to know Novell for NetWare, and as we tried to branch out, it became slightly difficult," Richins said. "The Novell network operating system has become a little bit...not unimportant, but evolved and changed.

"Also, quite candidly, there has been this negative perception that Novell hasn't been a marketing-driven company. That was certainly one of our major objectives this year--to change the perception and deliver some great marketing objectives."

Novell also wants to change its reputation. Although the company has introduced innovative products that have been well received by its clients, Novell itself is often characterized as a conservative, dour place, headquartered in the middle of the Mormon religious movement's home territory in the Utah desert. The marketing campaign, which executives kicked off by dyeing their hair "Novell red," is meant to reverse that reputation.

"Just so you know I'm not a fuddy-duddy, we did a contest on our intranet. We asked employees if they'd rather have executives dye their hair red or shave an N into their hair," said Richins, who is based in Novell's San Jose office. "The dying the hair won out, but my team insisted I shave an N in the side of my head--much to the chagrin of people who call me a father and husband. The rest of them got off with a hair dye."

Too much, too late?
But marketing gurus say Novell's marketing push, which got off the ground Sept. 25 with a public relations blitz and a slew of commercials on cable television, may prove too much, too late. As tech investors place a renewed emphasis on revenue instead of market share and buzz, they are frowning on companies that spend cash on marketing bombast instead of research and development.

According to Web ad tracker AdRelevance, Internet companies spent $3.1 billion on TV and print ads in 1999--and about a dozen dot-coms spent at least $1.9 million for a single ad during the 2000 Super Bowl.

But the stock market drubbing in April forced many tech companies to rein in spending. In a study from September, AdRelevance found that dot-coms shrank ad budgets and shifted strategies, trying to carve out a brand identity from more targeted and inexpensive Web ads instead of pricey TV and print ads.

The tidal shift in marketing has many experts wondering why Novell embarked on its new initiative this fall. They suspect that Wall Street will continue to punish the company, in part because of the $60 million campaign, even though by last year's standards the expenditure is relatively modest.

"With a lot see A News.com webcast: Dot-coms: Down and out?of consumer brands going down the drain, from Pets.com to Furniture.com, this is a very, very difficult time to try to build a differentiated brand, especially for any software or technology company," said Eugene Fram, the J. Warren McClure research professor of marketing at the Rochester Institute of Technology in Rochester, N.Y.

"The bubble has burst," Fram said. "Often, timing is the critical issue in marketing, and to try to do this right now is an exceptional challenge. It's a difficult thing to do ordinarily, but this is going to be really tough."

Wall Street clearly isn't smiling on Novell's marketing effort. On Tuesday morning, the stock hit a new 52-week low of $5.63. The stock is down 37.15 percent since the beginning of the month and down 85.79 percent since the beginning of the year. The shares reached a 52-week high of $44.56 in February.

When it rains, it pours
The new 52-week low follows a string of negative news for Novell. On Sept. 6, the company announced a plan to ax about 900 jobs, or 16 percent of its staff, to reduce costs and conserve cash. Novell has about 4,600 employees remaining.

Only a few weeks after the layoff announcement, the Council of Institutional Investors handed Novell the dubious distinction of being one of America's top "corporate underachievers," along with Humana, Kmart, Loews and National Semiconductor. The Wall Street Journal and other business publications carried the report from the Washington-based council, which represents many big public pension funds.

The company's stock also gained the embarrassing distinction as one of the worst performers in the Standard & Poor's 500 index this year. That has made it tough to lure top salesmen and technologists with stock option packages--a standard perk for middle managers and executives in the tech industry.

Morale sank further last week. On Friday, Novell shares fell 20 percent after the software maker said fiscal fourth-quarter profit fell below $1 million. Sales fell 21 percent to $273.3 million from $344.6 million in the year-ago quarter.

In a somber conference call with analysts, Novell chief financial officer Dennis Raney said the company has been reorganizing its sales force to focus on larger accounts and revamping a reseller plan that accounts for most sales of packaged software to small businesses. But he lamented that it will take several quarters for new partner-incentive programs to show results.

Rosy past
Novell's situation wasn't always so dire. In fact, the company was one of the jewels of the technology industry in the '80s and early '90s.

Under the eccentric Noorda, Novell helped found the corporate network market in the early '80s with the introduction of the local area network (LAN). In 1983, Novell introduced NetWare, the first LAN software based on file-server technology. Novell developed a PC networking system that designated one machine to manage the network and control access to shared devices, such as disk drives and printers.

Through the 1980s, corporate requirements for networks grew significantly, with LANs being increasingly replaced by Wide Area Networks (WANs), which unified large corporate environments. By the early 1990s, Novell had updated its NetWare operating system with key features for distributed enterprises, and the product enjoyed a 70 percent share.

NetWare had become so successful that by the early '90s Novell was the fourth-largest tech company behind Microsoft, IBM and Hewlett-Packard.

Back then, Microsoft struggled with its buggy Microsoft Net, which died after five largely unsuccessful years. Microsoft's second attempt to crack Novell's growing market share, Microsoft LAN-Man, short for local area network manager, also was a flop. On more than one occasion, Microsoft approached Noorda about buying out its rival.

But the Novell tide began to turn by the mid '90s, when Microsoft began nibbling at its market share. An increasingly paranoid Noorda began a personal attack on Microsoft. He accused executives of having had no intention of acquiring Novell but instead hoping to trick him into divulging NetWare secrets.

Bill "Pearly" Gates and "The Embalmer"
According to "The Plot to Get Bill Gates," a 1999 book by Gary Rivlin, Noorda liked to call Gates "Pearly" and Steve Ballmer "The Embalmer." According to Noorda, Gates promised the heavens but then Ballmer prepared you for the grave.

Noorda went so far as to compare Microsoft propaganda with that of Nazi Germany. According to "The Microsoft File: The Secret Case Against Bill Gates," a 1998 book by Wendy Goldman Rohm, Noorda once scribbled poetry during a Microsoft meeting: "Shame, shame, shame, I know your name. It is Pearly," in reference to the pearly gates of heaven.

It's unclear whether Novell's newest marketing blitz--or any other measure--will return the company to the 70 percent market share of its halcyon days.

But some marketing experts say the campaign may be a small step in the right direction, reversing more than a decade of neglect in the marketing department. Novell was renowned for its low-budget marketing under the leadership of Noorda, who himself had a reputation as something of a cheapskate.

Even in the '80s, when the company was financially secure, the 60-something executive routinely flew on senior citizen discounts. According to Rivlin's book, Noorda cut short a merger meeting in Redmond, Wash., in order to catch a late-afternoon flight back to Salt Lake City because it was the last flight of the day available for the discounted fare.

Given that history, any marketing initiative is likely to increase brand awareness by some measure, said Nancy Panos Schmitt, associate professor of marketing at Westminster College in Salt Lake City.

"Novell is such a minor little player. If they want to establish awareness, they have to build a campaign," Schmitt said. "Novell is very well known in Utah because of the employment, but if you were to talk to an average person on the street here in Salt Lake City, even they wouldn't know what Novell did. They'd know they're somewhere in computers, but they wouldn't know any products."

Not a lost cause?
Despite Novell's major setbacks in the past several years, Davenport analyst Drake Johnstone says the company may not be a lost cause. He excused Novell's marketing campaign, noting that other e-commerce companies, such as Oracle and Commerce One, have also launched major initiatives to woo corporate clients.

"Their spending on a brand name is not frivolous," Johnstone said. "The objective of the ads is to target hundreds of thousands of companies considering initiatives in the e-com area."

Johnstone and other analysts also speculated that the company may be open to an acquisition or spinoff because revenue from its traditional directory product has declined. That has dragged down the value of Novell's generally well regarded e-commerce software.

"A potential spinoff of the e-commerce software unit can't be ruled out," Johnstone said. "They have a potential jewel that's sort of locked up in their company. If the traditional product is dragging down rev growth beyond 2001, I wouldn't be surprised if they unlocked shareholder value."

 

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