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Microsoft kicks SUSE another $100m

Keeping Red Hat out of Windows shops

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The SUSE division of Attachmate has managed to talk Microsoft into shelling out another chunk of change – $100m – to help prop up SUSE Linux Enterprise Server, the Linux distro formerly controlled by Novell, and to help drive Red Hat's rival distro from Windows shops.

This is the third reseller agreement that Microsoft has inked with the owner of SUSE Linux, which is the number two commercial Linux and considerably behind rival Red Hat in terms of revenues and support customers. Number two has to try harder, and it often needs the help of a behemoth such as Microsoft, which wants to be able to demonstrate alternatives to itself in the market but also to have control over those alternatives.

Hence the original $240m deal to redistribute 70,000 SLES licenses in Windows shops, which Microsoft and Novell signed back in November 2006. That deal also included provisions to work on interoperability between Windows and SUSE Linux and their respective server virtualization hypervisors, Hyper-V and Xen.

The financial details of the deal were not available at the time, but as El Reg reported in early 2010, Microsoft got those original certificates at a 45 per cent discount off then-current list prices back in 2006 and 2007, and by 2010 most of these three-year contracts were up for renewal, and Novell had changed prices so much that it was only able to renew the contracts at 10 to 20 per cent of their original value.

Although it was not obvious at the time, Microsoft didn't just give away SUSE Linux licenses for free, but rather charged customers for the SLES support licenses. "They're competitively priced, they are not just handed out to the customer for free," explains Frank Rego, senior product manager at SUSE, the Linux division that was carved out separately from the rest of Novell after Attachmate took control of it back in April.

In August 2008, Microsoft and Novell inked a $100m follow-on deal for SUSE Linux certificates, which was set to expire. This deal was done when Novell had only invoiced $157m of the original $240m worth of certificates, and it's hard to think of these deals as anything more than a lifeline to keep Novell – and now SUSE – competing against Red Hat in places where Windows falls on deaf ears.

As El Reg went to press, Rego did not know how much of the 2008 $100m deal had been burned through by Novell and now SUSE, but he said that the new $100m deal supersedes the old $100m deal, which was set to expire in January 2012. The new $100m deal runs through January 2016.

An interesting tidbit appeared in the joint Microsoft-SUSE announcement on the new deal: only 725 customers have bought SUSE Linux support under the agreement. That's a lot of money for a relatively small number of customers.

In fact, it is so much money that it's fair to argue that Novell would have imploded without the Microsoft cash injections and sold for a lot less money than the $2.2bn that Attachmate paid to get control of it. (The net cost to Attachmate was less than half of that, however, thanks to the cash Novell had on hand and another $450m that a consortium led by Microsoft paid for 880 of Novell's patents.)

Rego says that the SUSE Linux certificate distribution deal that Microsoft did with Novell was global, and was well received in both North America and Europe. Customers who got the certificates paid Microsoft a fee for them – how much is confidential, but it is reasonable to assume it was whatever number made it beat Red Hat Enterprise Linux in Windows shops – and could thereafter engage with either Microsoft to renew their support subscriptions by acquiring more certificates or renew through Novell directly. "For the most part, we have been able to renew most of the customers," says Rego.

But obviously the revenue stream came down as Novell's prices were cut to compete with Red Hat. With SUSE Linux 11, Novell charged by the server, while Red Hat charged for every two sockets in a server for the base product, and charged a higher price for Advanced Platform, which had no CPU socket caps and had unlimited virtualization, as well.

This is a big difference when it comes to the revenue stream, and Novell's inability to make money on Linux showed it all too well. Novell admitted in February 2010 that it had not been making money with Linux and had only just broken even.

Now that SUSE is part of Attachmate, a privately held company backed by private equity firms Francisco Partners, Thoma Bravo, and Golden Gate Capital, we'll probably not have a sense of how SUSE Linux is doing financially – until they sell it. ®

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