Bruised Novell plans one Net bounce back

We're going to improve our marketing. No, really...

Brainshare report "It's a new tactic of Microsoft to try to stop us," cried Novell's COO Stewart Nelson as the power for the whole city of Nice failed just before the start of Novell's Brainshare meeting. But it's not Microsoft that's Novell's problem right now; it's Novell's own failure to sell enough that is plaguing the company, as the recent profits warning showed. It seems that the pesky customers don't have problems that can only be sorted out by upgrading. Of course they're not deserting much either, but that's not much consolation.

Nelson says Novell is at the beginning of the third phase of its history. Phase one from 1984 to 1996 was the age of the LAN, where network administrators were the target. Phase two was the era of network management, when the enterprise network was the focus. The third phase is the era of network services, and servicing the Net-based economy. He hastens to add that this doesn't mean the end of NetWare - that would remain the foundation - but Novell is trying to do to software what Cisco had done for Net hardware.

Novell's problem, he admits, is that it hasn't talked about this in an interesting way. Although Novell seems to have sorted out a viable strategy and is now executing it, CEO Eric Schmidt says it has "taken too long to get to this point". Right.

Novell claims it supports more than 80 million users worldwide, that they have 3.8 million servers, and that 405 of the Fortune 500 companies are Novell customers. The company insists that Linux is growing at the expense on Unix, not NetWare, so that wasn't an explanation for the financial woes. When we asked whether Novell had been stuffing the channel again - a favourite trick some years ago to "make the numbers" - we were told in no uncertain terns that this was not the explanation either. It looks as though the blame is going to be heaped on the backs of the now-departed marketing team, and the wrong channel strategy. eDirectory revenue hasn't started to produce any revenue yet because it will take one to two quarters for pilot cycles, but the pipeline is full of directory deals, Schmidt said. A cheery factor was that in heterogeneous environments - and essentially all were for Novell - the deals were bigger. Nelson dismisses the view that Novell's price increase at the end of October had adversely affected revenue.

Novell - industry standard marketing black hole

Novell has been talking about doing something about its marketing since the days of file-and-print - and either it's done very little about it, or fluffed it again. Many believe that when Microsoft kindly provided such a long window of opportunity for Novell before it produced Windows 2000, Novell blew it by not marketing successfully enough during this period. Schmidt did remark that he thought Microsoft's single platform solution would not work in the future. He was relaxed about NGWS and said he was "looking forward to seeing it when it ships". In retrospect, it seems that Y2K folly also took the focus away from network upgrading last year - and that anyway, Novell's stuff just worked and its pragmatic users weren't going to upgrade until there was a business reason to do so. Well, Windows 2000 finally arrived - Eric Schmidt quipped he was still waiting for what was promised for Cairo - and still Novell is in transition, with the prospect of further transition to limitless storage and infinite bandwidth over the next five years, he noted.

Schmidt does seem to have sorted out the product focus and has emerged with a better strategy for the Net economy, with what Novell calls "one Net" being at the centre. Although it is late - with a resultant negative financial impact - there may be an upside because Novell seems to have found (some would say stumbled) into a marketing idea that is simple to put across and sounds good. It is also something that Microsoft cannot achieve because it woefully lacks networking experience and has a non-adaptable and flawed design for Windows networking. It's some time since Novell came up with an idea that looked as though it had the potential to win new customers, but one Net could just be it. Schmidt said - with a trace of surprise, it seemed - that "one Net was wanted by everyone". If so, then the problem is how quickly Novell can translate the idea into revenue.

The message, not the medium

Nelson said that Novell was getting over talking about what he analogised as the plumbing in the Novell Jacuzzi and was [at last] trying to concentrate on the hydrological experience - what Novell makes possible, rather than how its done. It's a novel idea for Novell. It's pursuing the objective of getting NDS accepted as the industry cross-directory (and telling people about the significance), and clearly hopes to get IBM to join Compaq on this. In the medium term, Novell should gain from this ability - particularly when the limitations of third-party efforts to make Microsoft's active directory cross-platform are appreciated. Big banks are beginning to perk up interest, because typically they have three dozen or more directories and no doubt many sleepless persons worrying about integrating information and data integrity. Novell's message is that its one Net design can take over from the old directories, so that they can gradually be phased out.

Much confidence is being put in "proven-leader" Steve Adams, the new marketing supremo, but it will take at least another quarter before any actions he takes could have a significant impact. Schmidt said that Adams was sorting out what he had inherited at the moment, but that there would be "marketing and support dollars for the channel, which was why it was screwed up last year". Nelson admitted that there was indeed a training problem for the channel, but that this was being rectified. This all sounds like a pretty honest admission, but changes won't come until under-performing and over-performing areas have been identified. Nelson said that Adams would be supported financially if he showed a need for a bigger budget, but there can hardly be a doubt that Novell needs to spend substantially on marketing. At least Novell seems to have realised that there can be no significant effect on marketing without leadership. Schmidt admitted that Novell had historically been too product oriented, and that internally had not been coherent from a marketing perspective - but at last it had a simpler message.

Novell is doing marketing things - it has an over-subscribed series of meetings throughout EMEA, in conjunction with IBM, when some 10,000 people will be told about what the companies can do in eBusiness and eDirectory. Nelson wants to make marketing a core competency at Novell, and will be embarking on a major advertising campaign "this quarter" (before the end of July - it has funny quarters) in the major financial and business press. Failing to tell the CEO mob that there was someone out there other than Microsoft has always been a Novell weakness: founder Ray Noorda was steadfastly reluctant to spend anything on advertising. Perhaps in the future, if a CIO wants to go with Novell, at least the company's business leader might be familiar with the Novell brand.

Fortunately buzz words come and go quite quickly: in Novell vogue at the moment are phrases like "not providing the metrics to CFOs and CEOs". It's jargon for their not understanding technology, with the sub-text that Novell doesn't seem to have a generalised cost-benefit analysis of committing to Microsoft rather than Novell. Nelson said he saw an opportunity to grow the market - but the reality is of course that the market is growing very nicely, whatever Novell does. The question is whether Novell has momentarily stumbled, or has been more badly hurt than is realised. We shall find out a bit more next week when the gags are off and it announces its financial results.

Questions about Novell's finances had to go unanswered because the company was in its quiet period, which must have been a relief after the warning and the dive in the share price to around a quarter of what it was some months ago. Schmidt said he never comments on the share price, but did observe that "It goes up and down". In a rueful aside, Schmidt noted that Wall Street "works on a 90-day shock clock". Schmidt did say that "The company is absolutely for sale - one share at a time, through your local broker." Maybe he's getting his one-liners from Scott McNealy.

Schmidt also said that the issues that confronted Novell were tactical and not strategic, so they are easier to fix. Shareholders who believed in the one Net strategy "would be happy", but it was the middle of the debate so far as how long it would take for this to show in revenue. It was clear enough that Schmidt had become very conscious of the need to generate more revenue, particularly in new areas. ®

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