Historic Microsoft, Novell Pact Aimed To Boost SUSE Linux Business

At a press conference in San Francisco Thursday, the CEOs of both companies said they have been crafting a far reaching pact over the past six months that will result in improved interoperability between Windows and Linux and that contains a new "patent covenant" that will free their mutual customers from potential legal liabilities when deploying joint Windows-Linux solutions.

Perhaps most surprising is Microsoft's commitment to distribute 70,000 coupons for SUSE Linux Enterprise 10 subscriptions to its customers that want to use Linux in Windows environments. As part of the deal, Microsoft and Novell also pledged to align their sales and marketing engines to promote use of Windows and SUSE Linux together.

Microsoft CEO Steve Ballmer said the two companies will remain rivals in the operating system and applications software business. But he emphasized that cooperation on all fronts -- technical, legal and business -- will grow business for both companies since most customers mix and match open source software and proprietary software at their sites.

"It's a set of agreements that will really help bridge the divide between open source and proprietary source software," Ballmer said. "It will greatly enhance the interoperability between SUSE Linux and Windows and it creates an IP bridge between the open source and proprietary source business models."

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The pact, Ballmer said, is only possible because Novell sells and supports proprietary software as well as open source software and has a patent portfolio of its own. Red Hat, in contrast, supports only open source software and the general public license that governs the development of Linux.

One Novell partner was shocked when he first got wind of the deal. "My first reaction is that Red Hat is in serious trouble, but Novell needs Red Hat around so that they don't become the only player in town," said Paul Anderson, president of Novacoast, a large Novell partner. "It's very strange."

Together on stage with several mutual customers and partners, Ballmer and Novell CEO Ron Hovsepian said the extensive technical cooperation planned will enable faster adoption of next generation virtualization, management and document format technologies in the next generation data center, both executives said.

For instance, the companies agreed to improve interoperability by enhancing and optimizing performance of Linux workloads on Microsoft's virtualization platform and conversely, virtualized Windows workloads that run on SUSE Linux Enterprise 10's Xen-based virtual platform.

But additionally, the two pledged to collaborate on Web service management and develop solutions that will help customers more easily manage, automate and provision distributed applications and virtualized workloads in mixed Windows-Linux sites.

Finally, the two pledged to make their respective Active Directory and eDirectory more interoperable and build translators between Microsoft Office and Novell's OpenOffice 2.0 implementation in SUSE Linux Enterprise Desktop 10.

Microsoft and Novell have sparred for more than a decade in the software market and in federal and international courts related to antitrust concerns and IP issues. But last April, Novell's Hovsepian -- who assumed the role of CEO in June -- called his former customer, the CIO of Wal-Mart, turned Microsoft COO, Kevin Turner.

He told Turner that Novell and Microsoft faced the same problem: meeting the needs of mutual customers who demanded solutions to the littany of interoperability problems affecting Windows and Linux, the two leading operating system platforms in the world today. The two companies agreed to meet, and met in May, Hovsepian recalled. As part of the pact, Microsoft will invest an unspecified amount of money for funding the engineering and sales and marketing efforts, including the distribution of the SUSE Linux coupons. After completing the joint Linux solution to be used by mutual customers, Microsoft will enjoy a recurring revenues stream for certain IP components used in the joint solution.

Some observers rejected the notion that the deal is Microsoft's knee-jerk reaction to Oracle's announcement last week that it would develop and support its own derivative of Red Hat Linux.

"It's a broad agreement that is going to have deep ramifications on the interoperability between Windows and Linux for a long time to come," said Al Gillen, a research vice president of systems software at IDC. "It is difficult to fully predict where this will go, but it represents perhaps the most significant shift in Microsoft's thinking we have seen in the past five years."

Hovsepian said Microsoft's agreement to solve the sticky patent issues and redistribute coupons for SUSE Linux server demonstrates the sincerity and depth of the software giant's openness and commitment to its customers. And that has far reaching implications for the software industry, he said.

"The two companies represent longstanding competition in the marketplace but also longstanding respect in the market," said Hovsepian. "We're two very solid companies ... and this announcement gives our customers interoperability and peace of mind."

At the event, representatives from customers Goldman Sachs and the city of Seattle and partner Hewlett Packard said the agreement will make it less expensive and less complex for them to develop and implement mixed solutions in heterogeneous environments.

"This is truly a breakthough and it can take interoperability to a next level [and enable] heterogeneous environments that really work together," said Shane Robison, executive vice president and chief strategy and technology officer at Hewlett Packard, who was on hand. "The next generation data center vision depends on interoperability that facilitates virtualization and automation. Without interoperability it is very difficult to fully exploit virtualization and automation. We can do it but it's difficult without interoperability."

Observers say out-of-the-box interoperability may eliminate some of the integration services needed. But it will also pave the way for ISVs, solution providers and systems integrators to develop and sell joint Windows-Linux solutions in the marketplace, most predict.

It may also ruffle feathers among community hardliners who view Microsoft and proprietary software as the problem open source is attempting to solve, analysts added. But it will have value in the market.

"The broader industry is clearly going to step back and take significant notice of this announcement. While some companies, and competitors in particular, are likely to dismiss Novell's tact and attempt to position it as a negative -- for example, that Novell is a sell-out, or as a move to give Novell a competitive advantage -- I believe that how Novell and Microsoft work together, could have deep impact on the overall interoperability story," IDC's Gillen said.

Ballmer said the pact does not signify any major shifts in the operating system or applications market. But his words on Thursday conveyed a major turning point for the world's most successful operating system company, which once dismissed Linux and open-source software as an unworthy competitor and unfriendly to business.

"We're still competitors. Let's make sure you can get a version of Linux that respects our IP," said Ballmer. "I don't think it's a big general phenomeneon going on. I like to think of Novell as a proxy for the customers."

"As CEO, I recognize Linux .... we have customers who use Linux [and other technologies] to run their business and they demand strong interoperability," Ballmer said.

Still, even Microsoft's chief legal counsel painted a broader picture of the significance.

"We had to build a patent bridge between proprietary and open source. We built that bridge and that's a histotric thing for our industry, a bridge that respects the needs of both business models and respects IP rights of people and companies," said Brad Smith, Microsoft's chief legal counsel. "Every customer who purchases a subscription for SUSE Linux Enterprise will get not only service and support from Novell but a patent covenant from Microsoft."