Novell Preps For Major Battle With Red Hat

During a conference call to detail its $210 million acquisition of Germany-based SUSE Linux, Novell's top brass said it will direct its worldwide sales army and 20,000-member-plus channel base to promote its "full stack" of Linux software globally.

Novell, which was rumored last spring to be in merger discussions with Linux leader Red Hat, surprised the market with the news of the merger with SUSE on Tuesday, and with its stated intention to become the world's leading Linux software company.

SUSE Linux--which will contribute $35 million to $40 million to Novell's coffers during the current fiscal year--is currently the second leading player in the Linux distribution market behind Red Hat. With the buy, Novell now has a Linux desktop and server operating system stack to sell along with a set of networking services in beta testing. "It's a compelling combination," said Novell CEO Jack Messman. "Novell is the only $1 billion company with a full Linux stack from desktop to server and above, and we have the worldwide ecosystem to support it. SUSE is the second-largest Linux company. We can become the No. 1 Linux company together."

Linux kernel developer and founder Linux Torvalds does not typically comment on the business of Linux but said Novell's move creates a two-horse race and will help prevent one company from monopolizing in the Linux OS space.

"Novell seems to be interested in not just servers, but the desktop as well," said Torvalds, who this year became a Fellow with the Open Source Development Lab (OSDL). "It's clear that a lot of the big players really want to have at least two major Linux distributors to balance things out and keep everybody honest and on their toes, which is probably why you'll find IBM supporting the deal."

Novell will retain the SUSE brand name and maintain its Nuremberg, Germany headquarters, which employs the bulk of the company's 399 employees, with the rest based in a small U.S. subsidiary in Oakland, Calif.

Novell, which announced its aggressive push into Linux at its annual conference last spring, currently is beta-testing a set of network services for Linux including file, print, messaging and directory services.

Moreover, the company's purchase of Linux ISV Ximian last August gave it an entry point into the nascent Linux desktop market as well as significant offering such as a Linux e-mail client to run against Microsoft Exchange and Red Carpet Linux management services.

Novell's decision to buy a Linux distribution or operating-system vendor will complete the stack, executives said. IBM anointed the merger this morning with a $50 million investment in the 20-year-old, Provo, Utah-based networking software company.

"No one has what we have now," said Chris Stone, vice chairman in the Office of the President, who has been architecting the deal for more than nine months "We're going back to the channel with this opportunity for the entire stack." The software stack and worldwide services and Linux certifications program puts the company in a unique position to compete with Red Hat, he said.

Red Hat plans to push a similar open-source infrastructure stack as part of its recent debut of Enterprise Linux 3. However, the Raleigh, N.C.-based company, which did not offer comment on the Novell-SUSE merger, lacks a global channel and a scaled-up technical-support organization of Novell, whose NetWare networking software continues to serve more than 80 percent of Fortune 500 companies, Novell executives said.

While Novell currently supports the enterprise Linux distributions of both Red Hat and SUSE, the company will be pushing its sales force, Cambridge Technology Partner consultants, channel partners and customers to the SUSE brand, Stone said.

One Novell solution provider that has dabbled with both Red Hat and SUSE distributions recognizes the tipping point.

"We've generally been happy with the general Red Hat [distribution], but if we are going to continue putting Novell services on Linux, we'll definitely move towards SUSE," said Scott Urbatsch, security specialist and engineer at Polar Systems, a Microsoft and Novell solution provider in Portland, Ore.

During the call, current SUSE CEO Richard Seibt, a former IBM executive, claimed SUSE needs Novell's channel to grow quickly. "We have a business partner strategy. This is a major differentiator to our competitor Red Hat," he said. "Our customers want a worldwide support and sales organization and a business partner organization that can support them on a local basis, especially small and [midsize] companies, and they need training capabilities. Together, we can drive the adoption of Linux much faster than we could have alone."

The Linux channel continues to grow yet most of the focus to date has been on gaining enterprise adoption.

Both Linux distributors, Red Hat and SUSE, have struggled to build successful channel programs. While both companies have struck enterprise accords with IBM Global Services as well as the service arms of Hewlett-Packard and Dell, for instance, neither one has been able to amass a major following of channel partners in the SMB space.

Red Hat struck out with the channel in the past and recently decided to postpone its long planned re-entry into the channel. SUSE itself launched a global channel program last March as well as an Oakland, Calif. based U.S. subsidiary, but that has been slow to take off.

SUSE launched its global channel program a mere eight months ago. Petra Heinrich, vice president of partner sales and services for the global channel program, was appointed to oversee SUSE's worldwide channel program. Only last month did SUSE tap company veteran Jay Migliaccio to run its channel program in the United States.

However, Novell's purchase of SUSE and the planned integration of the two channel programs will be a major boost to the overall Linux channel, analysts say.

"Novell needs opportunities to grow and Linux is a pure market to play in. On the SUSE side, Novell brings its channels," said John Enck, vice president at research firm Gartner Group. "Novell has done a lot of work over the past 12 to 18 months re-energizing its channel and getting partners excited. Novell has a ready-to-go channel strategy here in the United States and globally to move its products through."

Stone acknowledged that a "very small number" of Novell's 20,000-to-30,000-member channel base is trained and actively implementing Linux, but Novell now has a full stack of software and services to fund its ambitious quest.

Novell's Messman said the company's direct-sales force will push SUSE's Linux distribution to the enterprise, but there will be room for partners to play. He expects the ramp up to be fairly quick, with partners selling Linux beginning in early 2004.

"Novell built the company on the channel, and the channel will move to sell the Linux product, and that will be a significant advantage for us," Messman said. "Linux is the future of computing, and Novell SUSE will be a leader."

Novell executives said they are aiming for Red Hat's business, but noted there will be opportunities to move Microsoft's Outlook customers to Ximian's Evolution client and Microsoft Exchange server customers to the SUSE e-mail server.

Initial reaction from the open-source community, which keeps a stringent eye on commercial interests in the Linux space, was initially positive, but there are concerns

"This could be very good and help SUSE break into the U.S. market," said Jeremy Allison, a lead developer on Samba, a leading open-source project. "Novell now has a complete desktop-to-server solution. I'm slightly worried about KDE vs. Gnome, as Novell owns Ximian, which is a major Gnome supporter, and SuSE is a major KDE supporter. But I'm sure customers will decide."

Chris Maresca, president of Olliance Group, Palo Alto, Calif., said, "I think it's a great fit, although I would be a little concerned if SUSE Linux becomes NetWare Lite rather than remaining a full-fledged Linux [distribution]."

Channel partners questioned how the merger will impact SUSE's Linux partnerships with Sun and how it could affect a potential Linux desktop battle with Red Hat, a big proponent of the Gnome open-source desktop.

One solution provider claimed it's too early to know the deal's impact on Red Hat but speculated that it can't be good news for Microsoft.

"Will this start the consolidation wars, with HP or Dell trying to snap up Linux companies to compete with the more unified IBM and Novell/SUSE/Ximian partnership?" asked Anthony Awtrey, vice president at I.D.E.A.L. Technology, a Linux solution provider based in Orlando, Fla. "At first pass, I'd say this is a powerful endorsement of open source and Linux. This makes significant changes to the perception of the value Novell brings to the market in competition with Microsoft."

It is to be expected that open source proponents would bless Novell-SUSE deal. More interesting is the take of some Microsoft-centric solution providers.

One mid-Atlantic Microsoft certified partner, who asked not to be named, said he was stunned by the news. "I'm desperately worried about Novell's acquisition. This gives them a Linux server story in a spot where Microsoft has been struggling to compete. If Novell can bridge its still-large installed base of NetWare and this new Linux stuff, and integrate with Active Directory -- which they can via Samba -- they have a story," he noted. "The fact that you can now connect Linux and Windows environments without the CAL [client access license] implications is, or should be, frightening to Redmond. This is Microsoft's worst nightmare: a dedicated competitor that hates their guts and has the resources to fight."

Barbara Darrow contributed to this article.