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As NetWare falters, Novell pins hopes on Linux

Novell's NetWare operating system isn't the dominant force it once was, but industry observers believe Novell's Ximian buy could spark a comeback. One analyst says that combining Linux and NetWare in the enterprise could create a powerful combination.

Novell Inc. has been fighting a decade-long slide. Its once dominant NetWare product has been losing market share, to the point that some analysts are ready to call the company irrelevant. But with its recent acquisition of Ximian Inc., Novell is pinning its future on the coattails of Linux, a strategy that some say could finally mark Novell's return.

NetWare, the network operating system from the Provo, Utah-based company, has been losing market share for years. According to the Framingham, Mass.-based research firm International Data Corp., Novell slipped from providing 19% of the new licenses shipped in 1999 to 11% in 2001. Though IDC has not yet made figures available for 2002, Al Gillen, a research director for the company, said that last year's numbers followed a similar trend. In that same period, rival Microsoft Corp. increased its market share from 37% to 49%.

"Novell has been marginalized to the point of irrelevance," said Laura DiDio, a senior analyst with the Boston-based research firm Yankee Group.

In the last decade, DiDio said, Novell has lost top staff, many of whom left to work for competitors like Microsoft Corp. It has lacked leadership and a strong public face. The company never responded adequately to the threat Microsoft presented and therefore lost out to the software giant when it targeted the server market, she said.

Microsoft has gained popularity in the enterprise because it is better at running applications, Gillen said. Novell attempted to address this shortcoming by integrating IBM Corp.'s WebSphere tool set with NetWare, but the effort was not successful, Gillen said.

Now Novell is in the midst of dusting itself off. The company has learned lessons from its past errors, said Ed Anderson, vice president for enterprise platform services with Novell. He said that its future success depends upon ensuring that customers better understand its products and feel comfortable with the company's strategy.

The newest addition to that strategy is Linux. On Aug. 4, Novell announced its acquisition of Boston-based Ximian, which helps companies use Linux on desktops and servers. While Anderson admitted that Novell has lost some important talent over the last few years, he said the Ximian acquisition has infused the company with some of the top thinkers in the Linux market.

The company's beta of NetWare 6.5 is now available for Linux, and Gillen sees it as a positive step. This is a significant shift for Novell, since not long ago it considered Linux a threat to NetWare. Enabling NetWare to run on Linux allows the company to extend its focus beyond the NetWare kernel, Gillen said.

"These are really important moves on the part of Novell. It is no longer in such a dangerous position," Gillen said.

Novell's goal is not to attack Microsoft head on, Anderson said, but to add value to the Unix, Linux and Microsoft environments that its customers have already deployed.

But two questions remain: How well can Novell integrate the expertise it acquired with Ximian, and how well can it execute on its new strategy? DiDio is not convinced. She claims Novell hasn't adequately leveraged its 2002 acquisition of Web services provider SilverStream Software or its 2001 acquisition of consultancy Cambridge Technology Partners Inc.

"Novell's track record of execution over the last 10 years has been spotty at best," she said.

Despite her lack of faith in Novell, DiDio is still impressed with its technology. For companies already running NetWare, there is no reason to abandon it because, even with its drastically shrinking market share, the company's other products -- such as ZenWorks -- remain competitive in their markets.

Last year, Novell garnered more than $1 billion dollars in revenue, and the company has money in the bank. DiDio said that the company's stock price is not as high as that of its competitors, but she said that even if its Linux bid lands flat, it can live off of its existing customer base for some time to come.

She said enterprises should not fear that Novell will suddenly disappear because, even with its problems, it remains a viable business.


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