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Microsoft plays recession card with Novell

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Linux and open-source companies have made much about how the recession is creating opportunity at the expense of proprietary and licensed-based software as IT budgets are cut.

For proprietary and license-charged, read Microsoft and Oracle.

Now, Microsoft is attempting to exploit its controversial relationship with Novell to ride this recessionary wave. The objective is to maintain Windows' place in the server room by propping up Novell's SuSE Linux against rival distros.

The software giant claimed Wednesday there had been a doubling of business related to its relationship with Novell during the last six months. Playing the recessionary card, Microsoft said that as companies look for "value," they are "signing on for the interoperability and intellectual property peace of mind solutions" offered with Novell.

Microsoft said that with Novell, it had signed up more than 100 customers - double the rate of the first two years. We are seven months in to year three of the companies' relationship, so the implication is that 2009 is going to be a big year. Microsoft said the companies had sold more than $200m in certificates for Novell's SLES support and maintenance to more than 300 customers since the companies reached their agreement in November 2006.

This is a very odd and self-justifying announcement, designed to re-sell a deal that's been questionable and that saw Novell's chief executive actually partly apologize for earlier this year.

Reading between the lines, the data points suggest the deal is within - or possibly slightly under - the original expectations.

In November 2006, Microsoft agreed to shift 70,000 of those SuSE Linux certificates worth a total $240m. It then committed to a further $100m, potentially bringing that value to $300m, so any number Microsoft claims are well within the relationship's original goals. Putting that in perspective, Novell lost more than $200m during a single quarter - it's quarter ended April 30 this year.

Microsoft didn't amplify this in its statement, it just referred to the 100 new customers who'd "signed" up in the last six months. It's not clear, meanwhile, whether this rate is double the rate of the first two years as a whole or whether this is twice the rate of the first six months of the previous years.

Also, the uptick is squarely at odds with industry server sales: IDC reported server revenue and unit sales in the first quarter of this year were the industry's worst for more than a decade. Revenue across all server types fell 24.5 per cent while unit shipments dropped 26.5 per cent.

What is likely happening is that customers who've purchased SLES certificates from Novell or Microsoft during the last three years are finally activating them. If you've already paid for something and IT spending has been cut, why not use what you're now entitled to?

Microsoft can live with this. A win for SLES helps keep Windows in the infrastructure layer as it's not been replaced for Linux, with open-source code like PHP and applications such as Drupal running happily on Windows. The IP protection is misleading and irrelevant. The real benefit of the deal is the interoperability between Active Directory and SLES to provision and manage Linux systems.

But it is unlikely that customers are picking SLES for this reason. And judging by Novell's first quarter, they aren't buying SLES at all. They are buying Red Hat. Novell's biggest Linux competitor reported fourth-quarter revenue in March up 17.5 per cent to $166.2m.

Again, that makes any uptick in customer adoption more to do with the fact that organizations have purchased SLES certificates and now - minus budget - are activating them in.

Which doesn't really make this a victory for the relationship with Novell as such. It provides further proof that low-priced - or, in this case, pre-paid - is the driving force as customers scramble. If there's any benefit to Microsoft, it's holding its ground in the server room and not getting consolidated out for Linux in general and Red Hat in particular. Linux is seen as cheaper.

And that's why Microsoft is talking "value" through interoperability with SLES instead of engaging purely on price. ®

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