Novell Reinvention Continues With SilverStream Deal

IBM's stunning reversal of fortune and current level of success may be a lofty goal for the once-dominant software maker, but Novell is nevertheless disregarding the odds and making aggressive moves. The latest such move is its deal to acquire SilverStream for $212 million. The acquisition represents the key component of Novell's plan to be a leading Web services force. Last year SilverStream, despite its size, became a key player the area of Web services and Java-based application server technology. The company jumped out to an early lead in the Web services market last April, launching its eXtend integrated services environment, which includes SilverStream's eBusiness Integration Server, ePortal and application server products.

SilverStream, however, faced an uphill battle against larger competitors such as Microsoft, IBM, BEA Systems and Sun Microsystems. Meanwhile, Novell officials had been hunting for a small Web services player in the market that would make a solid merger partner when they discovered SilverStream.

"With this acquisition, Novell not only acquires world class technology products but we also get an organization that has been in this market since the early days of e-business software," said Novell CEO Jack Messman said during Monday's conference call.

SilverStream CEO David Litwack, who will become a senior vice president at Novell upon completion of the deal, says the merger will create a "formidable new player in the Web services market." Messman believes the addition of SilverStream will allow his company to compete with "the big boys," such as Microsoft, IBM and Sun, and become a leader in the Web services space. Messman also took shots at the competition for hyping Web services but not delivering.

"We services has been incredibly hyped and a number of companies have used it as a marketing tool," Litwak says.

The deal was the second major acquisition for Novell in two years. The software company merged with IT consulting firm Cambridge Technology Partners last year. Messman, then CTP's CEO, took over at Novell and helped focus the company on building solutions rather than simply selling software.

Novell officials now see the company as having a powerful three-pronged approach with CTP's business solutions expertise, SilverStream's Web services technology and Novell's networking and security heritage. Messman says Novell's security strength will be vital with the addition of Web services technology, and boldly criticized competitors, namely Microsoft, for being lax on security.

"Trustworthy computing is something we've been doing for 20 years, not something we discovered as a marketing ploy a few months back," Messman says.

Novell is also taking its new creed of "support anything, anywhere, anytime" to the market and promoting its cross-platform, heterogeneous approach to technology that the company hopes will attract partners and developers. Novell vice chairman Chris Stone, who left the company in 1999 after a lengthy stint and then returned this spring, says he committed to embracing open standards and J2EE Web services after coming back to Novell, and that the SilverStream deal delivers on that promise.

"I got tired of the knock [against Novell that we don't have a good developer story or any developer story," Stone said during the conference call. "Well, now we do."

Novell is still recovering from a tough 2001, where it suffered a backlash from its channel partners, poor financial results and layoffs, but the SilverStream deal may keep Novell moving in the right direction. Analyst firm AMR Research says the SilverStream deal "provides a reasonable story for a comeback" and shows Novell is "taking a significant step forward to let us know that it wants back in the game."

Messman acknowledged the company still has progress to make in the channel. Novell recently introduced a new partner program and began naming enterprise accounts to reduce channel conflict between Novell's direct sales force and partners, which had become rampant.

"We built Novell on the back of the channel, but we lost our way and we did some things four or five years ago that we shouldn't have done," Messman says. "We didn't do a very good job managing [the direct sales force."

Messman, however, insisted the SilverStream deal will bring new value to Novell partners and pledged to repair the channel.

"If there's one thing we've learned," he says, "it's that we need to get the channel back in shape."