Novell attempts to put its pieces together to make business sense

Novell is a survivor. Despite repeated engineering reorganizations, corporate restructuring that has resulted in all-new executive faces or seatings, an anemic spin-off (Volera), an acquisition that is taking a long time to complete (Cambridge Technology Partners), technology-oriented sales forces, and another revamp in packaging and messaging, the company`s fiscal year 2002 revenues still managed to be $1.13 billion (compared to $1.05 billion in 2001), with a net loss of $0.68 per share (compared to $0.82 per share in 2001). Novell does have viable products, significant customers, and money - a significant feat, considering the current brutal economy for technology vendors.

But Novell faces formidable challenges to compete effectively. The market in which the company initially gained prominence (i.e., the network operating system - NOS) is gradually becoming irrelevant in the relentless move by technology to a more modular-style infrastructure, where file, print, directory, and authentication services can be offered by individual products. In the directory services market, where Novell is a leader, competitors and standards are rendering basic directory services as a commodity. As infrastructure gains increasing prominence during application development due to (future) Web services, Novell`s former channel, the NOS buyer, no longer makes the key decisions; that role is relegated to higher levels in the organization, where Novell`s credibility is challenged. The services market also continues to evolve and shift as companies retrench, consolidate, and reconfigure sourcing needs.

Novell introduced its one Net strategy several years ago, but outside of the committed Novell customer base, it met with little recognition or adoption. The initial emphasis of one Net was not tied so much to business solutions as to technology "bundles." While bringing some consistency to Novell`s engineering initiatives, it did little to convince buyers that Novell had solutions they wanted to buy. The new executive team has outlined a two-pronged market approach: 1) hold the line against further deterioration of Novell`s presence in the enterprise; and 2) introduce a consolidated portfolio of business solutions to enterprise executives rather than engineers, focused primarily on security, identity management, and services. The company`s recent announcements attempt to rebrand, repackage, and repurpose Novell product sets into business solutions focused on four specific areas or pillars, as outlined below.

Novell`s SilverStream acquisition in 2001 was its attempt to rectify the absence of an application server platform, first for Netware users but actually targeted as a transition for NetWare customers from "NOS thinking" to NetWare as an application server platform. SilverStream technology has also been useful in efforts to integrate identity management and security offerings within Nsure. Novell`s exteNd Application Server, Composer, Director, Workbench, and Broker messaging products, while technologically sound, represent a challenge to a sales force accustomed to NetWare selling. The channel for those sales is the developer community, already saturated with Java development tools and about to be made more so by entrants such as IBM, BEA, Oracle, and Microsoft. The Ngage consulting services arm of Novell will help, but in its current form and pricing, Ngage will be attractive primarily to the Novell faithful.

Novell is placing much emphasis on (future) Web services through its expanded involvement in the standards process and its view of Web services as a means to deliver those underlying technology standards to enable business function outsourcing. Although such efforts are necessary for vendors wishing to be considered a viable contributor to Web services` success as a development and integration environment, the overall Web services market (moving from the current application server market) will nonetheless be dominated by IBM, Microsoft, BEA, and Sun. Novell is not likely to be perceived as a capable and complete provider of Web services application development and integration, though the Web services standards effort will benefit from its technical expertise.

Novell Nsure consists of Account Management, BorderManager, DirXML (the metadirectory), eDirectory, iChain (the Web single sign-on product), Secure Access, SecureLogin (single sign-on), and the newly delivered user provisioning solution known as Nsure Resources. Novell`s crown jewel is its eDirectory, arguably the best in the business and the bar by which other directories often are measured for feature and function. DirXML is also considered one of the leading metadirectory offerings in a small but influential market. The company is attempting to market the Nsure solution set as "secure identity management," bringing together expertise in the directory, integration, and security to compete in the hot identity management market. With Nsure, Novell has perhaps its best chances for moving beyond the traditional NetWare customer base, but it must contend with name recognition against well-known security players such as VeriSign and RSA and entrants in the user provisioning market such as BMC, CA, and IBM, as well as with the dispersed buying channels within most enterprises for "identity management" needs (e.g., the department deciding on a user provisioning tool is often NOT the department deciding on a single sign-on or delegated administration tool). Although Ngage consulting will help Nsure to be sold as a solution rather than as point products, the sales cycle for such strategic deals will be a long one. Novell has the technology for delivering secure identity management - the means to deliver it is now the goal.

Nterprise consists of Novell`s GroupWise, iFolder, NetMail, ZENworks, NetWare, and Small Business Suite products. Novell continues to have a stable and profitable e-mail franchise with GroupWise, with about 30M active users, most of whom are in small and medium-size businesses. Novell must aggressively pursue next-generation collaboration technologies (e.g., instant messaging, teamware, Web conferencing) to keep the installed base from straying to other suppliers, and thereby tap into a nice upgrade stream. By YE03, Novell will have credible offerings in the space. This will appeal to the installed Novell base but will do little to create new business opportunities, and will be viewed as part of the company`s strategy to hold its base. In addition, users` recent frustrations with Microsoft`s licensing policies will continue to help Novell.

ZENworks is Novell`s advanced, full-featured, and competitive application for software and configuration management, and it accounts for 8%-10% of Novell`s annual revenue. It is considered by most to be superior in feature and capability to Microsoft`s Systems Management Server. The concern for Novell remains continued, seamless integration with Microsoft Active Directory as a back-end directory instead of eDirectory. This may be addressed with a workaround that involves a runtime version of eDirectory between ZENworks and Active Directory - doable but hardly elegant. With the advent of Microsoft .Net, such integration will be a continually moving target for Novell. It has been able to deliver interoperability to date, but the company still finds itself reacting to Microsoft, just as most of the Windows administration/management industry currently does.

NetWare remains the "cash cow" for Novell, though the company has taken the correct steps to gradually wean itself from that dependency. NetWare Version 6 has proven to be more successful within the Novell client base than originally believed, though this may be as much a result of economic conditions as technical superiority. NetWare licensing losses to Microsoft have slowed to a trickle, and a major part of the Novell sales strategy is still to protect the installed NetWare base from further deterioration. One intriguing aspect of future NetWare development involves creating NetWare functionality and performance on a Linux kernel - this might prove to be more attractive to a non-Novell customer and, if it can be delivered quickly, may ensure continued presence of Novell in the application and operating system side of the enterprise.

Novell acquired an effective consulting arm in Cambridge Technology Partners (now rebranded as Ngage), but at first, it did a poor job describing the value of Ngage under the Novell umbrella. META Group was initially concerned regarding whether Novell would be able to retain Cambridge`s staff and whether the acquisition would disrupt existing and potential partnerships with other consulting partners. Those are no longer concerns. The original markets for Ngage (e.g., solutions business) have been abysmal due to the economy, and the new focus for Ngage will be solution engineers for the Nsure and exteNd offerings. Recent organizational changes have combined Novell`s Consulting Services group with Ngage and have also moved all training products and services under the Ngage umbrella. This removes some of the confusion among potential Novell customers about who they should speak to for what type of consulting service.

Novell and two of its consulting partners (PwC [now IBM] and Deloitte & Touche) have also announced joint plans for the consultants to use and sell Nsure to their clients. META Group sees an opportunity for Novell to build other Nsure tools for Ngage and Novell`s consulting partners to use and sell. This could prove to be a strong marketing channel for Novell, giving it the direction and future growth that it seeks.

User Action:

Users should have no concerns about Novell`s financial stability. Although it has been struggling in recent years, the company has a strong bank balance despite the weak IT economy, thanks to NetWare and increasing Nsure sales.

Current users of Novell products should not worry about product support going forward, particularly for NetWare and related product areas. Any fears of NetWare disappearing as a result of rampant Microsoft Windows 2000 or .Net adoption are unfounded. The decision process regarding migration will focus more on administrative and cost savings factors than on vendor viability.

Enterprises in the market for identity management or related infrastructure pieces that Novell Nsure provides should not hesitate to put Novell on their vendor lists for proposal, though Novell`s strongest plays remain in directory and directory integration.

While existing Novell customers may benefit from the exteNd offerings, Novell`s foray into the application server and Web services development environments will be niche efforts, at best, for non-Novell customers.

The Nterprise product portfolio has proven Novell applications (e.g. ZENworks, GroupWise), but potential buyers should note that ZENworks represents the most attractive offering for current non-Novell customers. Novell will successfully integrate with Windows 2000, XP, and .Net, but we do not expect it to be simple or quick to deliver changes as the environments evolve.

Ngage is becoming a viable consulting service for the new Novell offerings, and some confusion surrounding its capabilities is clearing. Yet users wanting immediate, large-scale identity management service needs should consult Novell`s partners to use the Nsure solution set.