November 4, 2003

Putting Novell's SuSE purchase into perspective

We listened to the "We all love each other and everything is going to be wonderful" press conference, looked at reactions from our readers to the original "Novell buys SuSE" announcement, monitored and asked questions in assorted IRC channels, and talked to contacts at Novell, SuSE, Ximian, and elsewhere. But whatever we say (or anyone else says) this week, don't expect the full effect of Novell's SuSE purchase to be visible for at least two months; the deal won't be finalized until January, according to both companies' managements.

The press conference
by Robin 'Roblimo' Miller

Novell CEO Jack Messman started the conference by using the word "exciting" twice in his two opening sentences and tossed in "excited" a couple more times during his first minute just to make sure we all understood what kind of event this was.

"It's about reducing barriers to Linux adoption," Messman said. That sounded nice. Here are some other statements he made, presented by us in fine executive bullet-point style:

  • Novell's focus for the last year has been on Linux
  • SuSE and Novell are a great fit; this will benefit customers
  • Linux represents freedom of choice
  • Novell and SuSE together will give customers the "lower TCO of Linux" and the "security and reliability of Novell products," which will be "a great combination."
  • Novell will now provide a "complete Linux stack from the server to the desktop"
  • This is good for SuSE
  • Good for the open source community, too; Ximian and SuSE acquisitions show how committed Novell is to the open source community
  • Equipment and hardware vendors will want to partner with us, which will help spread Linux

Another sound bite from Novell officialdom:

"With Novell's help, SuSE can become the number one Linux."

And three more gems:

"SuSE is the best operating system on the market."

"80% of the Fortune 500 have Novell products."

"Linux is the future of computing."

SuSE CEO Richard Seibt gushed about Novell's "worldwide sales and support" and training capabilities, enthused over the "CNE's and Novell customers' loyalties," and said now the way was clear to "make Linux and open source pervasive."

Novell vice-chairman Chris Stone described SuSE people as "our new employees." (There are 399 of them as of today, as opposed to more than 1,200 Novell employees just doing tech support. Six hundred "are already trained in Linux," Stone said.) Seibt had a whispered reaction to this comment that was hard to hear over the phone, and Stone's response, also whispered and hard to hear, seemed to be "I was just joking." At least they both laughed, which is a good sign.

One reporter came right to the point and asked if the merger would result in layoffs. Messman said they loved Seibt and wanted him to stick around; that one thing that made SuSE so attractive was its talented technical staff; and that they didn't see much duplication between SuSE's and Novell's development sides. But he also said there was "some overlap on the administrative side," which doesn't bode too well for SuSE's marketing and other support people.

Messman assured everybody that Novell would not be moving all SuSE operations to the U.S.; he said they would always have a strong presence in Nuremberg, where SuSE is currently located.

Still, nothing about layoffs (or who might be affected) was uttered. "It will take at least 60 days to figure out how the merger will work," said Messman.

The SCO bugbear was raised -- and dismissed -- out of hand. Despite SCO's attempts to douse the Linux/GPL flames, "our customers are still demanding our products," Seibt said, and he added that he expects "even higher demand in the future."

Messman and Stone agreed. "Novell continues to call upon SCO to substantiate its claims," they said. Good relations with the other two United Linux partners -- Conectiva and TurboLinux -- were mentioned. That turned out to be SCO's 15 seconds of fame during this event. The three-letter name was not mentioned again.

On the money front, Stone and Messman said they expect SuSE to bring in between $30 million and $40 million in immediate annual revenue for Novell, to be "revenue neutral in fiscal 2003" (i.e., neither improve nor hurt the company's bottom line), and move into "an earning position in 2004."

Now that IBM has a new $50 million investment in Novell, we're sure they'll be glad to hear SuSE is expected to contribute so much to the company's bottom line so soon.

Finally, after 45 minutes of saying things like "The other major enterprise Linux distribution," Red Hat was mentioned directly. Yes, it was admitted that there might be some marketing opportunities caused by Red Hat's recent "end of life" declaration for some of its products. And yes, possibly some similar declarations by Microsoft about NT and some of its server products may also present opportunities. But Novell and SuSE management didn't want to harp on competitors too much. They wanted to talk about what they were doing.

Open source community reaction was mentioned, however. Stone said, "So far, all the feedback I've gotten from our folks, through Nat (Friedman) and Miguel (de Icaza, of recent Novell acquisition Ximian) has been positive." Red Hat came up again, with the reassurance that Novell (and by extension, Ximian) would continue to support Red Hat -- but now "SuSE will be our lead partner."

Business winners and losers
by Lee Schlesinger

From Novell's point of view, this is a great move. Novell's file, print, and directory services have long been considered technically better those of its competitors. The company realized Linux was a natural fit for those services months ago, and promised to make them run over Red Hat and SuSE distros. By buying SuSE, Novell can once again own not only the services but the operating system on which they run. That's a powerful story for Novell's sales channel people to take to the marketplace.

The move should have only a slight adverse effect on Red Hat in the near term. Novell still promises to support Red Hat's distro as a secondary platform. There should be no effect on other distros, since they were never in Novell's plans. However, the Novell/SuSE deal gives business a clear short list for their choice of enterprise distributions. If Novell's plans for integrating its services with SuSE take off, this deal could have more of a negative impact on Red Hat in a year or two.

Microsoft could wind up the biggest loser of all. Novell services on a SuSE platform will sell for substantially less than Windows Server 2003 and offer comparable functionality in many areas. Many businesses that once ran NetWare moved away from it because Windows' perceived ease of use and wide range of applications. At that time Windows had the buzz, while NetWare was perceived as clunky. Network administrators, however, learned that managing a large group of Microsoft servers is no picnic, even with costly third-party management applications to help.

Now, Linux has the buzz, and Windows Server is seen as bloated and expensive. There should be very little resistance to returning to a company whose products worked well for an organization in the past.

The Linux Street Buzz
by Joe Barr

The acquisition was everywhere you looked in Linuxville yesterday: mailing lists, LUG meetings, comments to news stories, and, of course, on IRC. Early reactions were shock and surprise, even though the story made the back alleys of the rumor-circuit just a couple of weeks ago, when the attempted merger was said to have been halted by opposition from the German government, which owns a piece of SuSE.

As always, a few Linux folk simply took advantage of the news to bash everyone else's choice of distribution and boost their own. But behind that constant white-noise, real concerns about real issues were being voiced.

Some (lightly edited) quotes from the #kde channel on irc.freenode.net:


"I hate corporate influence over community oriented projects."

"If SuSE & Co switch away from KDE, KDE will lose attention, users, momentum."

"Novell -> American company. Gnome -> more popular in America. Ximian -> now owned by Novell. My fear -> SuSE becoming a "Gnome distro" under the direction of Novell."

A couple more from the #kde-devel channel on the same network:


"They can't just make KDE go away on SuSE (short and midterm)."

"I think it would a bit more than a licence change to fix the differences between KDE and Gnome."

"That's more or less the result of Miguel and Nat doing better PR and better work in establishing Gnome in business."

"You don't really believe they'll continue supporting both."

There was also a bit of quiet optimism expressed on IRC and elsewhere. But most prevalent is an uneasy "wait-and-see" attitude.

Reaction from some industry insiders
by Chris Preimesberger

Lino Tadros, president and CEO of Falafel Software/Component Science of Colorado Springs, Colo. said he thinks the Novell acquisition will be a major plus for the Mono Project, the Ximian-hosted .NET CLR project now under the Novell roof, because of SuSE's reach into the enterprise. The acquisition opens a potentially big sales channel for Mono-related components and services, such as those created at Falafel/Component Science.

"I just talked to Miguel (de Icaza, creator of the Mono compiler), and he says the deal is a good thing for all of us," Tadros said with a big smile. "I tend to believe Miguel when he says something is good."

Mike Davis, senior researcher at analyst Butler Group, told Computer.co.uk in the UK today that Novell had been trying to reposition itself "because its NetWare [operating system] is very dated. But IBM's involvement is the most telling element in the deal."

"SuSE became more vulnerable after the SCO Group, which has worldwide offices, pulled out of United Linux. IBM has a great need to maintain viable and strong distributions. So a bit of me says this is directly as a result of SCO's actions," Davis said.

Conclusion

Investors seem to think Novell (NOVL) was wise to buy SuSE. Novell stock spiked to $8.80 soon after the purchase announcement hit the wires, and closed the day at $7.33, up 21.16% from the previous day's $6.05 close.

In contrast, Red Hat (RHAT) dropped 11.7%, or $1.80, the same day - from $15.38 to $13.58. But NASDAQ as a whole dropped 9.74 points during this period and many smaller stocks like RHAT dropped even more, so it's unlikely that investors were fleeing Red Hat in favor of Novell; the difference simply means Novell's move may have been greeted even more favorably than the 21.16% increase shows.

On the community front, Novell and SuSE execs are going out of their way to reassure everyone that "SuSE will keep its KDE support commitments," and that "it's all about choice." But as any pre-merger employee of Hewlett Packard or Compaq (or for those of you with long memories, of Digital) can tell you, what is said right after a merger or buyout and what happens a year later can be totally different. In any case, KDE has a strong, independent community behind it, and is loved by millions (including several NewsForge editors), so it will keep going no matter what.

And one NewsForge reader who chose to remain anonymous sent in this analysis:

Novell bought Ximian in August and is announcing

today the acquisition of SuSE. Ximian is behind Gnome whereas SuSE backed KDE. But what

is the business of Novell in the desktop market? Not much.

More interesting is the thread of news releases on SuSE's site. One week ago, SuSE announced that they're joining the ObjectWeb consortium, who's behind J2EE JOnAS and other open-source middleware components. Ximian is also driving the Mono project, so now Novell will have one finger in each pie: .NET and J2EE!

Again, we remind you that it's going to take at least two months before we see what really happens as Novell digests SuSE. Will there be severe culture clashes between the Nuremberg and Utah contingents? Will NetWare's loyal customers all suddenly decide they love SuSE Linux on their servers and even desktops? Will Novell's worldwide cadre of Novell engineers and resellers all become instant Linux zealots?

In an off-the-record conversation several weeks ago, a Ximian insider told a NewsForge editor that after Novell bought Ximian, "in a cultural sense, Ximian has been taking over Novell, not the other way around."

Could this happen on a larger scale now, with SuSE and Ximian having such a strong influence on Novell that instead of Novell trying to make more things proprietary, as some fear, the opposite happens and Novell becomes more of an open source company than it is today?

It's possible, but we're going to see how things shake out over the next few months -- at least -- before we start making predictions about the future of NovuSE or SuVell or whatever you want to call it, even though no name changes are anticipated. At this point, anyway.

Category:

  • Business
Click Here!