Will Microsoft buy Novell?

The answer to that question is probably not, though the thought had crossed my mind. In a way they already have done in a small way, they have given Novell approximately a quater's worth of net profit in return for what appears to be a cut of all Open Enterprise and SUSE Linux sales. Although no shares have changed hands, this, in itself, seems to me to be a kind of "virtual" company sale. This is even not considering the palaver regarding the patent covenants....

During this last week I asked someone much wiser than myself "How come a company like Novell can be so easily duped?", I then quickly followed it on with the question "Or am I simply missing something important here?". He then asked me what I meant and I proceeded to explain my thoughts.

Novell has given away an ace for Microsoft to use as a weapon in convincing customers that there may be IP problems with GNU/Linux, despite any evidence of any kind backing this up, spreading fear, uncertainty and doubt over that in the enterprise. FUD in the original sense of the acronym. I find it difficult to believe that Novell would find this advantageous; for them to admit that there are IP issues in GNU/Linux would mean they could not legally distribute it, and for them not to would place them in an inconsistent position with the covenant and agreement they have signed. They seem to have publicly chosen the latter of the two. What they say privately I do not know.

The successful mass-deployment of SUSE enterprise distributions depends on the same thing as all of us in the GNU/Linux market, that is mass-acceptance of the GNU/Linux philosophy there. It is difficult to compete with Microsoft on Microsoft's terms, they are too good at it, and their current monopoly means they legally, and sometimes illegally, place restrictions on competing technologies. I find it hard to believe that Novell's management team believe they can increase revenue by following a path that increases Microsoft's install base in their area. After all, Microsoft do not have a track record of being nice about such things.

Novell also justify the agreement by claiming it will improve interoperability between Microsoft and GNU/Linux. I, as a member of the free software community, am not convinced by this. And I am not the only one. Jeremy Allison's interview with LinuxWorld shows that he is just as skeptical, if not more so, and he is an ex-Novell employee.

Did Novell really believe the agreement would result in increased Linux revenue (to what it would have been)? Do they really think interoperability with Microsoft will be improved? Or have I simply got the wrong end of the stick? The person of wisdom whom I asked put a different perspective on it.

He explained that Novell's old cash cow was NetWare; however, due to some silly decisions they made, and some clever ones Microsoft made, they lost that server market in a major way to Microsoft. In order for Netware to then get back their market, or even survive in the long term, they needed to inter-operate with the Microsoft protocols.

He went on to say that Microsoft, being well aware of this, started to not give the protocols to Novell. This placed Novell in a difficult position, and that was a major reason why Novell went into the GNU/Linux business despite the fact Red Hat were well entrenched as the enterprise market leader there. Microsoft were killing NetWare, and Novell needed to diversify.

He pointed out that Novell were losing revenue. In the last quarter's result Novell's profits, as seen here, were as follows:

. Q1 2007 Q1 2006
Software Licenses 38,351 42,102
Maintenance and Services 191,225 200,192
Total: 229,576 242,294

Novell Revenue for Q1 2007 and 2006 (x 1000 USD)

Reading the "blurb" I notice they saw a "$15 million of revenue from Linux Platform Products, up 46 percent year-over-year", but a "combined revenue from Open Enterprise Server and products related to NetWare(R) declined 18 percent from the year ago period". They also quote a "651% increase of Linux invoicing" but that is quite meaningless without knowing exactly what that is. Their blurb though was heavily bullish regarding the GNU/Linux business though.

The conclusion I come to is that the figures above show that they are losing NetWare business faster than they are currently gaining that in GNU/Linux. This is reflected in their "Maintenance and Services" revenue is down 9%, a figure far more important than the "Software License" revenue in terms of both money and long term stability. Doubly important when considering the GNU/Linux business model.

My friend theorized that Novell needed, or wanted, the money. After all, they could not easily turn down a quarter's worth of revenue "just like that". At first I was skeptical, and even hostile, to that premise, but the more I thought about it the more I could see the logic.

All the above is, of course, in the minds of my friend and myself. I do not have access to the Novell board, nor does, I believe, my friend. We neither of us know exactly what is going on, nor the motivations behind it.

Despite the above, the thoughts going through my mind as I left the meeting was if Novell could sell a bit of their soul for a few pieces of silver, then what would they do next?


Verbatim copying and distribution of this entire article are permitted worldwide, without royalty, in any medium, provided this notice is preserved.