When Red Hat announces quarterly results March 25, the news may confirm what Wall Street has suspected since November 2008: Despite Novell’s continued momentum with SUSE Linux, the smarter money remains on Red Hat’s open source strategy. Here’s why.
Check out the one-year stock charts for Novell (NOVL) and Red Hat (RHT). Neither chart is particularly impressive, but the trends are unmistakable. As the economy went from bad to worse in calendar year 2008, Wall Street lost more and more faith in Novell. In stark contrast, sometime in late November 2008 — amid heightened credit crunch concerns — financial pundits started betting heavier and heavier on Red Hat shares.
The reasoning is obvious. Red Hat is a pure open source play with two market-leading solutions: Red Hat Enterprise Linux and Jboss. And remember, the Jboss business is growing faster than Red Hat’s Linux platform business.
Oh, and Red Hat did land at the top of The Open Source 50, which tracks the most promising open source partner programs. (Although Novell landed in the No. 3 spot…)
Snapping Together Or Falling Apart?
Meanwhile, Novell is a hodgepodge of open source, closed source, home grown and acquired companies. SUSE Linux sales continue to climb. And acquisitions like PlateSpin provide promising revenue opportunities for Novell. But Novell’s latest quarterly earnings failed to impress our resident blogger.
What’s holding Novell back:
- The economy?
- Or the fact that Novell’s products really don’t snap together into a compelling enterprise strategy?
Ironically, we’ll get a clearer picture regarding Novell’s financial standing when Red Hat announces quarterly results March 25. If Red Hat has another strong quarter, it will suggest Novell may need to shed more legacy products even as it acquires and builds new ones.
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I think you are on to something with Novell being a mish-mash. Red Hat has had a focus to shoot for and has done a great job of it and Novell seems to be going over here… going over there… and not quite know what their end goal is.
Dragonbite: Happy to hear you support The VAR Guy’s reasoning.
Look at Microsoft: Their products can be hit and miss. But generally speaking, it’s easy to understand how their development tools, applications and operating systems complement one another.
Or the example at Red Hat: JBoss will ultimately become a custom application development layer on top of Red Hat Enterprise Linux.
Or an example from Cisco’s data center strategy: It’s easy to understand how network storage, network routing, network switching and soon Cisco’s servers fit together into a larger product/solutions strategy.
Back to Novell… there are a range of products — some popular, some not popular — but The VAR Guy still doesn’t see how each product ultimately makes the peer Novell products more valuable…
Novell is the company that has helped flame the FUD fire that Microsoft starts everywhere.
THey are the ‘legal’ version of Linux while the others are not because Novell has payed Microsoft for the right to use the patents that Linux has ‘stolen’ from Microsoft.
Red Hat on the other hand made sure with their agreement to underline that in no way, shape or form is their agreement any kind of acknowledgement to Redmond’s FUD against Linux (235 patents and all).
Guess which one the community looks up to for their defense of all of us (I could add others like Shuttleworth and others to this list but thats not the point) and which one they want to see fail?
Let’s hope that after feeding the flames of FUD for Microsoft that some companies have gotten wind of the community discontentment from Novell.
Karma has a way of biting you in the ass, let’s hope it takes a big bite out of Novell. Of course, ol’ Ron got a big bonus, so we can be sure he was taken care of well.
The fact that Novell is having trouble should be no surprise. Novell is still heavily dependent on revenue from their mainstay products – Netware, eDirectory and Groupwise. All have been been declining, mostly to Windows Server, AD and Exchange, before Novell ever got involved with Linux. Yes, that very same company they did a deal with is their number one competitor. Great, eh?
They have failed to provide any coherent roadmap about how Linux and open source software is going to help arrest that terminal situation. The company is still divided between the old proprietary rearguard that still brings in the money but is in terminal decline and the new open source side that is nowhere near being a competitor to Red Hat to replace lost revenue. There is no idea what is to be done with Netware, eDirectory and Groupwise, no idea how to get people using and paying for them again, no idea how they will come up with a new open source Linux-based network OS to replace Netware…….
No idea full stop.
Novell would be wise to distance itself from the anathema of Free software — a company that is suing Linux at the moment thanks to Novell’s legitimisation of Linux patent infringement. Novell should put FOSS people in charge, not ‘IP’-savvy IBMers like Jaffe and Hovsepian. Why is the latter rewarded $7 million for taking the company in the wrong direction? Shareholders deserve answers.
They need to increase sales and if the 4 online retailers that they recommend for faster and easier license fulfillment ain’t doing it for them, then they need to give up the ‘going nowhere’ strategy and go for what Ted Nugent would call a ‘free-for-all’ where small resellers can compete on a price basis with anyone of the 4 designated online Novell retailers for a chance at turning the online retailer’s Microsoft accounts back to a Novell accounts. A small reseller wouldn’t have to worry about matching the price of an online retailer, so that the enduser gets the best price and value, as their healthy margin is assured.
I think there are alot of VARs out there that will not cede margin, regardless of what O/S is installed at the enduser’s site(s). And this is what primarily determines if Novell is on its way in or out.
HurdyGurdy: Over on http://www.WorksWithU.com (the independent guide to Ubuntu), many readers are calling on Canonical to build/leverage a directory service to compete more effectively against Microsoft on servers. The VAR Guy has a call into Novell seeking thoughts on eDirectory to see where that product initiative stands. Seems like yet another product where Novell was a leader (Novell Directory Services, 1994-ish) only to fall behind MSFT.
Roy: Yes, $7 million is a lot for an executive at a company that doesn’t deliver consistent profits. And the Microsoft deal alienated many open source advocates. But Hovsepian inherited a broken company where the vast majority of revenues came from legacy products that had shrinking revenue opportunities.
What are some of the things you think Hovsepian should have done differently?
‘What are some of the things you think Hovsepian should have done differently?’
If I was him, I would respect all and any Novell salesperson, whether they work for a small or large VAR, and most importantly make sure that the VAR gets paid for selling Novell products. And if even the smallest VAR wants to call and complain about little to no margin on the software sale, the VAR should have someone at Novell to call or maybe a special phone number at Novell, because without this Novell contact and phone number, the only number to call is 1-800-Microsoft. Microsoft has all sorts of answers on how to make margins selling their network operating systems and collaboration software, even for the small VAR. This is something Novell doesn’t have, and maybe they should if they want to get away from relying on their recommended online retailers for the bulk of their business.
HurdyGurdy: Thank you for offering constructive criticism that actually adds value to the conversation. Instead of blasting Novell, you’ve done a nice job telling Novell what they need to do for partners. The VAR Guy respects your approach.
VarGuy,
If they blasted me, or showed me disrespect as a reseller, or refused to help me help my customer, or did something unprofessional to me, I would have a right to blast them, but as you imply, it is not appropriate to do so on this site. Just ceasing to recommend their product is enough for me.
So I won’t blast anyone out of respect for you and your team.
“Instead of blasting Novell, you’ve done a nice job telling Novell what they need to do for partners.”
Alas, there is little you can do with partners and little they can do for you when the wares you are selling are fundamentally broken. It is more than appropriate to do so on this site given the content of the article, and you’ve hinted at it – Novell doesn’t know what it is about. Red Hat, as a Linux company, does. List of todos for Novell:
1. Start creating the completely open sourced Linux based Netware replacement that should have been started five years ago. If that means you have to open source Netware code and port it to a Linux environment then do so. Start using OpenSuse as a means to get people interested in it. No, I’m afraid OES is not it. It’s a hodge podge of proprietary and open source that offers nothing to Novell customers but pain and no reason to move to it.
2. Make it easy for people to move from Netware to that Linux system. Give them familiar tools where possible.
3. Give people nice stuff to use in it. Come up with some nice, coherent graphical and CLI management tools to compete with Windows Server.
4. Come up with a core development tecnology and follow through with it everywhere. If that is Mono, Java, Qt or something else it doesn’t really matter right now, although they do need to pick carefully as they can’t afford to fund anything huge. There are too many disfunctional tools that Novell has. You then have an application stack in one fell swoop as well once you do this.
5. Open source eDirectory, get it to run well on Linux and create an easy way of joining a Linux client to eDirectory and LDAP. Create lots of nice management tools as well. In one fell swoop eDirectory will become the standard LDAP system within the open source world.
6. Open source Groupwise, get people using it through OpenSuse and stem the onrushing march of Exchange. In this case, getting people using it is almost as good as people paying for it and it’s worked for Red Hat.
Once all that is done then you can start working with various partners. Without this, nothing can be done.
Joe,
Novell cloud have liaised more with Red Hat.
Segedunum: Very interesting suggestions. The VAR Guy is speaking soon with Novell regarding the eDirectory strategy, so he’ll get you some answers on that. As for your other suggestions, our resident blogger will investigate Novell’s tool strategy.
The VAR Guy and several readers seem to be using the same term to describe Novell’s software suite: hodgepodge. So, it’s time to give Novell some equal time — to see if the company can articulate a tools and directory services strategy. Stay tuned. The VAR Guy will go to Novell with your suggestions and questions.
For those that missed the nuance in our recent partner program changes, all Novell partners now buy Novell products at the same front-end discount level. The smaller VARs referenced in comments here are actually on the level playing field that is wished for. Platinum and Gold partners can earn additional margin for driving the business with larger opportunities through deal registration. The online resellers referred to above do not qualify for those programs however.
Here is my two cents worth. I have been in this business for almost twenty years. In my opinion Novells biggest issue is not that it does not have more open source software but its product mix.
Most of Novell products are Enterprise class that have a long gestation period between initial contact and purchase. These product also require a large investment in training and time for any VAR much less the small guys. For Novell to drive more revenue it must continue with its Enterprise products; however, it must provide smaller VARs with products that are no brainer to sell at good margins but provide value to small and mid size business. Does a small business require groupwise no but they may want Sle with Firtsmail as part of SuSe + pack.
In the past file+ print drove netware sale. So Netware was a mass market product and it was relative easy product for any var to sell and add value. In today’s world SLE can be a mass market product but you need add other products to get the same effect that you had with Netware.
Novell has the enterprise products but it needs to develop more mass market products.
VAR to Be: Interesting stuff. The VAR Guy will be speaking with Novell about two major pieces of news in the weeks ahead. Our resident blogger will be sure to mention your constructive criticism to gather some feedback.
Scott: Outside of Novell’s own VARs, a lot of people seem to have overlooked that Novell has introduced deal registration. Was that ever announced through PR, or only through communications with partners?
VAR Guy: The deal registration and other changes were announced via press release, individual press briefings, messages to Novell partners and newsletters to a broad set of Novell and non-Novell partners. However, the emphasis was generally on things like deal registration and volume discounts which are major improvements.
What may not have been as apparent in the minor mention of “flattened front-end discounts” was that smaller VARs that may not qualify for annual volume incentives and that may not be involved in deal registration sized deals are no longer buying at a smaller discount than larger partners.
Scott Lewis: Thanks for the perspectives. We tend to spend a lot of time analyzing Novell. Some of the coverage may not be glowing. So we appreciate Novell jumping into the conversation and clarifying biz strategies, etc.
Well I just checked again and the spread between my cost at disti and the street price (CDW/TigerDirect/SoftwareRUs, etc) was less than 5% before, just creeped into the double digits, but still well short of the competitor’s offerings and still not enough margin to get me motivated to begin recommending Novell, again. I am more motivated to continue to migrate my Novell customers onto Microsoft due to the more margin factor.
The problem is that deal registration and spiffs expire or change and that gets to be a real problem if you sell a corporate enduser on a 50-user Groupwise and then 3 months later have to sell them 25 more nodes, when the specials are gone. And believe me there is no number at Novell to call if a competitor is trying to steal the business with one’s accountbase on price. The only number to call is Microsoft.
When we call Ingram and tell them we are competing against Dell on an HP deal, the help comes from everywhere and thankfully, I have never lost to Dell within my own accountbase. This is where the manufacturer, the distributor and the reseller work together to make sure the saleman gets paid. Microsoft also provides the same treatment to resellers through their distributors.
I can’t afford to lose deals in this economy.
Novell’s products, overall, are extremely well architected and eDirectory works very well for most clients.
Novell has not delivered a vision that can compete with their competitors in any product line.
Open sourcing eDirectory or even providing REAL tools to allow ANY LDAP server to be utilized to provide PAM and NSS services on Linux should have been done years ago. Can anyone tell me why SLES ship with OpenLDAP and not eDirectory? Other than the short sited thinking that people will buy eDirectory when EVERY OTHER LDAP VENDOR gives away their LDAP Directory server.