Inside the Microsoft-Novell deal

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• Goulde

Cath Everett ZDNet.co.uk

Published: 30 Apr 2007 13:43 BST

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...$45m the year before, in the first fiscal quarter of 2007 alone, its Linux Platform Product sales jumped a healthy 46 percent to $15m, while invoicing was up a phenomenal 659 percent to $91m.

"In answer to how important this deal is to Novell, Novell is taking Microsoft's money all the way to the bank. The deal is very lucrative for it despite initial market cynicism about the coupon arrangement," says Lachal.

Longbottom takes it a step further, however. Because Linux rival Red Hat has been more successful than Novell to date and Novell has been making losses on most of its other lines for a while, he believes that this new Linux strategy simply "has to succeed". Therefore, in his opinion, the deal with Microsoft is crucial to the organisation's survival, not least because it makes Novell a more credible rival to Red Hat.

Neil Macehiter, a partner at analyst company Macehiter Ward-Dutton, explains: "Novell can leverage this in marketing terms and it will reduce barriers in some customer accounts because it'll be able to talk a stronger interoperability story."

Nonetheless, Macehiter does not expect Red Hat to suffer too much in the short- to medium-term. "Where it might hit it is in accounts that are seriously considering a Linux strategy and where Microsoft is a significant supplier. And that's not to say there's not a lot of people in this situation because there are," Macehiter says. "But even so, I think Red Hat will do what it takes to win deals, and it already has a strong presence in the enterprise Linux market with a lot of major suppliers such as IBM and HP behind it."

Microsoft's motivations
As to how the deal benefits Microsoft, meanwhile, the answer is based in pragmatic business realities. The vendor's hope is that the move will help lower any barriers to selling more products generally, and more units of its new Vista operating system specifically, as the software market becomes increasingly commoditised — not least due to the appearance of open-source offerings in various functional areas, which tends to hit pricing.

Jon Collins, a service director at Freeform Dynamics, explains: "The commoditisation of software is a threat to Microsoft and, largely, the whole gravy train period is over. So the vendor can no longer maintain its old position of Microsoft or nothing and is having to do a lot to enable its technology to work with other people's, while trying to ensure that customers prefer it."

Over the past couple of years, this has seen Microsoft bang the interoperability drum to the extent that it created an Interoperability Customer Executive Council in June 2006 and has continued to initiate various pacts with third parties to collaborate in areas such as web services.

In relation to its great bugbear Linux, however, increasing levels of pressure from customers buying both Windows and its open-source alternative have gradually seen Microsoft reach the stage when it could stonewall no longer.

This left the supplier with three theoretical options — it could support one of the leading Linux distributions such as Red Hat or Novell. It could support a second or third tier one such as Debian or, as Goulde points out, it could support "a Microsoft concoction of straw-man pseudo Linux", which was unlikely to wash.

"Microsoft took a good look at the situation and realised that Red Hat probably wouldn't have the conversation. Since it acquired JBoss, it's got a very strong middleware strategy and is bent on competing directly with .Net. So even if Red Hat had been willing, Microsoft didn't want to put it in a stronger position to advance its middleware strategy," Goulde says.

Novell, on the other hand, does not have a middleware strategy of this ilk and has taken a neutral stance on what customers run on top of its platform — even if the Mono open source project that it sponsors is taken into consideration.

Mono provides developers with tools to build and run .Net client and server applications on Linux, Solaris, MacOS/X, Windows and Unix and also enables existing binary code to run on Linux.

However, Goulde says: "Mono isn't widely adopted and you can't build a strong strategy with it today. It has real customers, but it doesn't really pose a serious threat to Microsoft. Also historically a lot of Novell customers are Microsoft customers and vice versa so there's an affinity there, which isn't necessarily the case with the smaller Linux distributors."

Another piece in the jigsaw, however, was Microsoft's comprehension that...

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