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Novell regaining prior glory

Is it too late (or too early) to say that Novell "is back?"

Perhaps the jury is still out, but there's no question that the software company has at least regained some of its prior glory and relevance in technology circles.

Last week Novell hosted some 6,000 of its closest friends and adherents at the 20th annual BrainShare conference held at the Salt Palace in Salt Lake City.

As I mentioned in last week's column, this is not a confab for those with a weak pocketbook as the entry fees started at $1,795 per person.

Nevertheless, programmers, developers, integrators and administrators from around the world descended upon the City of Salt for a chance to learn the latest from the self-proclaimed king of the OneNet - enough so that Novell nearly broke even on the event - but more on that later.

As outlined in this column and elsewhere, during the past 12-plus months Novell (Nasdaq: NOVL) has made a concerted effort to work itself back into prominence by casting its lot with what is known as the Open Source community.

For you non-geeks out there, source code refers to the underlying software inside any application that actually defines what it is a program is capable of doing. In this sense, source code is somewhat akin to the engine under the hood of your car.

Historically, most software programs have been proprietary in nature so source owners can charge licensing or subscription fees to use an application. As a result, source code is generally guarded quite jealously.

In an open source environment, however, the developer of the source makes it "open" or available to the marketplace, meaning other programmers have the ability to modify the source and thus, what the final application is capable of accomplishing.

In Novell's case, its open source efforts have been primarily focused on the Linux operating system, the UNIX-like OS developed by then-Finnish student Linus Torvalds in an effort to develop an OS that would be easier to use than UNIX.

This is primarily why Novell is now caught up in legal wranglings with Lindon-based The SCO Group (Nasdaq: SCOX) since SCO claims (among other things) that Linux is a derivative of UNIX. Hence, SCO argues that any one using Linux should pay a fee to SCO for using the operating system, an OS that has been embraced by many technologists (in large part) since it is available for free.

For its part, Novell disputes SCO's claims of UNIX ownership and the whole mess is not likely to get settled anytime before April 2005 when SCO and IBM (NYSE: IBM) are slated to begin a trial pegged to the Linux vs. UNIX issues, as well as contracts between the two firms. But that's not what this column is about.

During the past year Novell purchased two Linux-based software companies for a combined total of more than $210 million: Ximian (focused on desktop applications) and SUSE LINUX (developer of its own version of Linux).

With the closing of the SUSE acquisition in January, Novell claimed that it was the only $1 billion software company with its own "Linux distribution."

At BrainShare last week, Novell continued its efforts to stake out a larger and larger piece of the Linux and open source pie.

Specifically, the company announced that it will deliver a new product - Novell Open Enterprise Server - by the end of 2004. The significance of this announcement is that Open Enterprise Server will combine the capabilities of its waning flagship product, NetWare, with the functionality of SUSE Linux and Ximian.

In other words, we're talking about a hybrid NetWare/Linux, something that strikes me as quite intriguing, particularly since this is ostensibly what Novell was trying to accomplish back in 1993 when the company acquired Unix System Laboratories from AT&T and attempted to create what it called SuperNOS. This network operating system to beat all NOSes never came together, which led to Novell selling USL to the Santa Cruz Operation.

So although Novell's Vice Chairman - Office of the CEO, Chris Stone, looked askance when asked if Open Enterprise Server was Novell's effort to build a SuperNOS, Novell's CEO and chairman, Jack Messman, did admit that "It is like a SuperNOS."

In support of its expanded push into the Linux marketplace, Novell launched a national advertising campaign, starting with full-page color ads in the Wall Street Journal and the New York Times.

Advertising, per se, is Novell's third- or fourth-largest marketing expenditure behind Novell events (such as BrainShare), Web-based marketing efforts, and channel marketing.

Presently, Novell will generate close to $320 million in revenues from NetWare-related sales.

Due to the fact that the company is in transition to a Linux/open source model, however, Novell will need to generate more and more of its sales from a services model, a transition that will likely prove challenging.

Nevertheless, Wall Street has warmed to Novell's efforts during the past year or so as its stock price has rocketed up from roughly $2.25 a year ago to last week's closing price north of $11 per share.

Coupled with the closing of IBM's $50 million investment in Novell, positive things are likely ahead for the company in the coming months and years ahead.


David Politis leads Politis Communications, a public relations, investor relations and marketing communications agency specializing in the high-tech and life science markets.

E-mail: dpolitis@politis.com.