Novell
Acquires SuSE; Rearranges Itself And Linux
Novell
announced on November 4th that it had acquired the SuSE
Linux distribution for $210 million.
When added to earlier Novell actions this year, repositioning
the company closer to Linux and purchasing Open Source desktop
software vendor Ximian, Novell now becomes a major Linux player.
In fact, with a simultaneous $50 million investment by IBM,
contingent on the SuSE acquisition closing, Novell makes no bones
about the fact that it’s aiming for the Number One position in the
Linux market.
Novell
CEO Jack Messman has a list of why he thinks Novell and SuSE are a
good fit:
-
SuSE
offers great technology.
-
SuSE’s
strategic fit with Novell is based on permitting Novell to offer
a complete stack which defines a whole new platform for Novell,
including Ximian, Gnome, KDE, File, Print, and tightly coupling
desktops with servers.
-
Novell
can bring its ecosystem of support and partners to Linux.
-
While
SuSE is strong in Europe Novell will help SuSE grow in the
United States.
-
SuSE
is already the second largest Linux company; Novell will help
them become Number 1.
-
Novell
is well known with 85% of F500; many of these customers will buy
Linux from Novell.
-
Linux
is the future of computing.
Novell can help customers by reducing the barriers to
Linux in the enterprise by adding their experience as a Network
Operating System Company to the mix.
There
is a lot to assess and digest here, as we rearrange the Linux market
– and its many players – in light of the news.
SuSE
SuSE
was considered the Number Two player in the Linux Distribution
Market. At the acquisition, Novell estimated that SuSE’s current
revenues were in the area of $35 to $40 million per year. Enough to be interesting, but not enough to make them
profitable or to fund a full marketing push out of Europe and into
the North American market.
Now,
as part of a $1 billion company, SuSE/Novell will be a Very
Important Linux Company. Assuming
Novell can manage itself (and it seems to be doing better at that
job), SuSE should be assured stability and resources.
With 2,000 consultants and technical support staff worldwide
and a substantial partner ecosystem, Novell is poised to take the
SuSE brand into both large corporate settings and the SMB market.
Novell already has about 600 of their field certified on Linux.
Other
Open Source Vendors
Novell
has pledged that it is committed to being a “good” open source
vendor. By this, it seems to mean that it will keep SuSE as a
separate business, built on the open source model.
SuSE will keep its Nuremberg headquarters and its own brand.
Novell plans no significant changes for SuSE except for
removing the inevitable inefficiencies in the back office overlaps
caused by the acquisition. Novell
suggested that looking to its recent Ximian acquisition as an
example might help, where no modifications were made to the
licensing model or the strategy.
SuSE
will continue to provide a free distribution of Linux, with point
releases (unlike Red Hat, which has just announced that it is
discontinuing its program and moving to offering a less supported
free open source product (Fedora) plus a binary-only, priced
subscription product, Enterprise edition). Novell will support other Linux distributions with its Linux
infrastructure products (this means mainly Red Hat, of course).
The
Open Source Community seems pleased that SuSE’s continuing
existence is assured but a little leery of Novell’s open source
management style, as part of a clearly corporate business.
IBM and the Systems Vendors
Not
surprisingly, IBM put out its own release on the Novell/SuSE
announcement, placing its stamp of approval (if $50 million isn’t
enough) on the transaction, noting that it assured IBM customers of
continued choice and support for SuSE Linux, but also pointing to
the fact that Red Hat also supports IBM products.
Sun
and HP are both SuSE licensees.
(Sun is also a Ximian licensee for its Linux desktop
offering.) Novell
expects SuSE’s licensees to be undisturbed by the change in
ownership. We’d
certainly assume that would be true for the short run – and
keeping it that way will be important for Novell’s success in the
Linux market.
Partners
The
Novell partner community is presumably pleased.
They have long needed a better product portfolio and this is,
in some sense, the missing puzzle piece for the portfolio Novell has
been assembling. Many
Novell partners have already considered the Linux market.
More will now move in. There
will, of course, be substantial retraining required for some.
SuSE Partners will continue, acknowledging that in many
cases, Novell and SuSE partners may be the same firms.
The difference in geographic emphasis is likely to lessen the
overlap problem. Novell
and its partners, particularly its system partners IBM and HP, are
likely to make a well-supported SuSE available nearly anywhere,
worldwide.
Customers
By
all early reports, customers (especially large corporates) are
overjoyed. Many had
been concerned about depending for a mission-critical operating
system on relatively small, fragile companies.
With a billion dollars a year in revenue, Novell takes that
concern off the table. Novell
claims that they’ve heard from many companies, asking for an
information meeting. We
suspect that some CIO’s who had already invested in Linux are now
breathing deep sighs of relief – and that there may be some
strategic switches from Red Hat to SuSE in the North American
market.
ISVs
ISV
relationships have not been a strong point for SuSE (or for Novell,
of late); this is an area where Red Hat is much stronger.
This is going to take work.
But there are lots of big software companies who have already
ported or are committed to porting to Linux, at ever level of the
market. Systems and
infrastructure vendors like IBM, HP, and Oracle have most of their
portfolios Linux-ready. Applications
vendors like SAP have followed. Even at the lowest level of the market – consumer desktops,
Lindows has gathered 1800 desktop Linux applications for its
software distribution warehouse.
There is plenty of energy here, and lots of economic
justification for a “real” business model, that is, one based on
being paid for intellectual property and its support.
We’d guess that with Novell’s assistance, SuSE should be
able to attract a substantial number of certified applications.
Microsoft and the non-Linux
Market
We
suspect that Microsoft will have to take Linux a bit more seriously
with Novell in the picture. Novell
is a long-time Microsoft competitor and, at some points in the past,
a very successful one.
Novell
believes they disagree with Microsoft on the Linux market and on how
enterprise ready Linux might be.
They also disagree on whether there’s an appetite for Linux
on the desktop. Novell
and SuSE are a good fit around the desktop, with Novell’s recent
acquisition of Ximian and SuSE’s bundling of a variety of desktop
offerings. This will
bring Linux closer to an important Microsoft market which has been
relatively unthreatened in the North American market so far
(although Linux desktops have begun to catch on in some European,
South American, and Asian markets, especially with governments over
both cost and policy issues). We’re unlikely to see enormous share changes any time soon
(as in next year), but we suspect that the Linux desktop market
share is inevitably going to start growing steadily, especially in
the value conscious government and education markets.
The
SCO Lawsuit
Novell
claims to not be paying much attention to the SCO lawsuit.
Like most Linux players, Novell notes that customers have
been remarkably undisturbed, pointing to a recent survey of 100 F500
CIO’s, where 85 said the SCO suit had not interfered with their
Linux plans. While
Novell continues to call on SCO to make public its claims, it states
firmly that it’s not holding back because of “SCO’s
unsubstantiated claims.” As
to indemnifying Linux users, Novell hasn’t considered the issue
yet, but says it will look into it shortly.
This
one is going to take a long time, we suspect, to properly unwind.
Just for starters:
-
Novell
was the seller of UNIX to SCO and retained some of the IP
rights. This
probably changes the IP rights of SCO versus Linux to the UNIX
rights now that Novell owns a Linux distribution.
-
Because
IBM invested $50 million in Novell (about 2% of Novell), this
means IBM also has an interest in whatever rights and
protections extend to Novell.
-
Because
Linux distributions exist under the GPL open source license,
whatever rights Novell asserts SuSE has belong to all of Linux.
And
that’s without getting into issues like the curious joint
beginnings of Novell and SCO, both founded by industry pioneer Ray
Noorda or the fact that SuSE, IBM’s partner, could choose to
indemnify its buyers, taking IBM off the hook.
Just
think of what fun SCO is having trying to think of all the
implications!
Repositioning Novell
Novell
has been positioning itself away from NetWare and towards Linux for
some time now, hoping to participate in what they see as a drive
toward Linux in the enterprise.
They consider it a work in progress.
Their job, as they see it, is to help customers determine
where Linux fits into their architecture and to develop methods to
let them migrate to and smoothly deploy for Linux.
This will be more than Novell can do with its own consultants
and will be based on partnering, including expanding their existing
relationship with IBM Global Services.
And
Now What Happens
There
is a great deal of speculation that this will kick off a round of
Linux consolidation with buyers (the list is gold plated, with IBM,
HP, Sun, Oracle, CA, and even Microsoft being mentioned) rounding up
sellers (Red Hat, of course, but also the other distributions –
Mandrake, Debian, etc.).
I’d
suggest some common sense here.
The reason the systems vendors haven’t bought the Linux
distributions up until now has been that they didn’t want to own
Linux distributions. The
open source model works a lot better if they are held separately in
pure play companies. Novell may not be quite so pure (it does sell infrastructure
software, some of which is proprietary), but it’s pretty close.
Novell believes that the hardware companies want to stay out of the
Linux distribution business because they remember UNIX.
Leaving it in the hands of specialist vendors helps to keep
it unfragmented.
There
are lots of variables in this equation.
The biggest one is Novell’s ability to execute, keeping its
commitments to the Open Source model, while remaining profitable and
growing its Linux market share.
We’d rate this as very doable, particularly with partners
like IBM in their corner. The
other variables are harder to quantify: the reaction to Red Hat’s product line changes, the
continuing customer receptiveness to Linux, the decisions of ISVs to
port or write new software for the Linux platform, and the decisions
of important individual vendors as to how they will play (or not
play) in the Linux market.
One
thing is sure. With
Novell’s purchase of SuSE, the Linux market is now definitely out
of the niche and into the mainstream.
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