March 21, 1997 10:00 AM ET
Novell perched at a crossroads
By Larry Aragon and Lisa Wirthman

  Promises, promises. After Robert Frankenberg stepped down from the top post at Novell Inc. in August, interim Chairman and CEO John Young promised to do "whatever it takes" to get the company back on track. But on the eve of the company's Brainshare user conference next week in Salt Lake City, Novell has yet to gather a head of steam.

This week's naming of new CEO and Chairman Eric Schmidt should fire up Novell's engine. But if an early interview with the former chief technology officer of Sun Microsystems Inc. is any indication, he appears content--for now at least--to simply chug along.

"I think [Novell's] strategy is in pretty good shape. It sounds like a boring answer, but it's true," said Schmidt. "We're going to stay the course and just execute better."

Schmidt declined to specify how he plans to clarify Novell's muddy message to users and resellers. As for the Internet--where Novell has been chastised for not executing a coherent strategy--he said the company does not need to change its current course. "We have good Internet products," he said. "We just need a strategy to get the message out."

A new partnership with Netscape Communications Corp., which the companies announced today, may only confuse the message further. (See "Novell, Netscape spin off 'Novonyx.'")

Despite his pledge to stay the course, Schmidt faces several challenges in transforming Novell from a slow-growing file and print services provider to a major Internet player. Two key challenges: Getting the company's own products out the door more quickly and acquiring hot new Internet companies or technologies.

Right now, Novell is losing ground in the enterprise battle. Companies running mission-critical distributed applications now choose Windows NT and TCP/IP over Novell IntranetWare more than 75 percent of the time, up from 45 percent three years ago, according to market researcher CIMI Corp., of Vorhees, N.J.

"Once a company loses the mission-critical apps, it gets confined to the workgroup as nothing more than a file and print server," said CIMI President Tom Nolle.

Despite a loyal installed base of 60 million NetWare users and $1.1 billion in cash reserves, many current customers don't think of Novell as they are planning Internet or intranet projects.

"Novell has been pigeonholed into one area," said Tim Downs, vice president of data processing for Printing Inc., in Wichita, Kan. While Downs continues to use NetWare for file and print services, he put his Web servers on NT. "We've been doing the Web a lot longer than IntranetWare has even been around," he said.

Novell's ongoing vision, which it has been unable to turn into reality, is to transform itself from a company that relies primarily on its network operating system to one that offers a breadth of networking services and products.

The first step is to make people aware of the company's stability--including sales of 250,000 IntranetWare servers last quarter, a user base of more than 7 million users of its GroupWise groupware, and 40 percent year-over-year growth for its ManageWise network management software, said Vic Langford, vice president of Internet strategies at Novell.

Looking forward, Novell aims to show business customers how to utilize the Internet for their networks. "So far the focus has been on return of investments for PCs," said Langford. "Now it's time to step back and think about the whole network."

Prior to Schmidt's hiring as CEO, Novell President Joe Marengi said he wants network operating system sales to decline to 40 percent of Novell's total revenue by the year 2000--down from the current 65 percent--with sales of services and collaboration software grabbing 25 percent each, and the remaining 10 percent coming from areas such as education, support and consulting.

To reach that goal, Novell must turn its clock to Internet time.

"They didn't turn on a dime like everyone else did to embrace the Internet," said Pierre Hulsebus, sales manager for Entre Computer Services, a Novell reseller in Grand Rapids, Mich. "Novell may have good products next year, but history shows that the ones that can't keep up fade away."

In the seven months Novell spent searching for a new CEO, it has done little to keep up. The launch of its "new" IntranetWare platform in the fall was little more than a repackaging of the latest version of NetWare with the company's Web Server software.

And according to one user, the main Internet component of that product doesn't work properly: Novell's IP/IPX gateway, which enables IntranetWare users to connect to the Internet, will not pass Internet Post Office Protocol 3 E-mail, said Hulsebus. So far, Novell has not been able to fix the problem, he added. Novell officials were unavailable for comment on the problem.

Moreover, an upgrade for IntranetWare, originally planned for this spring, may be delayed until the end of this year, Marengi said.

Novell's "Border Services" strategy, which it will officially unveil at Brainshare next week, also has been lagging. Novell released early access versions of the firewall, proxy caching and virtual private networking services in the fall, and promised to release them as part of an IntranetWare upgrade. Commercial versions of those services are expected this spring.

"I remember Novell saying that it would have a complete new face" after Frankenberg left, said Hulsebus. "But there's nothing really productwise that has been a real winner."

Meanwhile, Novell continues to frustrate customers waiting for major new products. Its Workstation Manager for NT, which synchronizes NDS (Novell Directory Services) with NT, was about three months late when it finally shipped this month. A port of NDS to NT--originally scheduled for the end of 1996--may slip to this fall, Marengi said.

Another trouble spot for Novell has been its dreadful relationship with developers. The company tried to host its first-ever developer conference in December but canceled it after less than 500 developers signed up, according to sources close to the company.

As bad as things have been for Novell, some experts believe the company's fortunes could take a turn for the better. "Up until now I'd say they were doing a really poor job," said Jon Oltsik, an analyst at Forrester Research Inc., who has been harshly critical of Novell. "But I think they have an opportunity to re-invent themselves as an Internet company with Schmidt at the helm."

Not only does Novell get a visionary in Schmidt, it gets someone with hands-on experience building companies: While at Sun, he hatched numerous startups, including JavaSoft, and was a key proponent behind Java.

Schmidt "has a wealth of experience with Java," said Patrick Harr, Java product manager for Novell. "He gives us instant credibility as a key provider of Java technologies for networking."

Schmidt "has to invent something" to rebuild the company, said Oracle chief operating officer Ray Lane, who said he turned down the Novell CEO job. "And, really, his best bet is to acquire something" in the Internet space, which Schmidt knows inside and out, Lane said.

In addition to strategic relationships with large companies such as Netscape, Novell is looking to acquire technologies from third-party companies "that can help us fulfill our vision," confirmed Langford.

Some examples: security technologies to control Internet access, provide single sign-on capabilities and enable certificate management, along with messaging and telephony services that complement Novell's product line, he said.

Novell's efforts should get a boost from its partnership with Netscape and closer ties to Sun. Customers can expect to see strong synergy among the three companies, which all support similar development strategies based on Java clients and servers communicating through a Common Object Request Broker Architecture-based infrastructure.

Novell's new NDS implementation of JavaSoft's JNDI (Java Naming and Directory Interface) is one example of how the companies' development efforts are already in sync. When it ships in the third quarter, Novell's JNDI implementation will enable developers to write directory-enabled applications to a standard interface that can access NDS on the back end, said Novell's Harr.

Novell still looks to NDS as its ace in the hole. Now that Microsoft Corp.'s Active Directory (a feature of Windows NT 5.0), has been delayed until early 1998, Novell could win big if it can deliver NDS for NT first, joining NDS for SCO Unix and versions of the directory for Solaris and HP-UX due later this year.

"NDS is really starting to pay off for them, to the point where for a lot of large organizations, NT domains just can't compare," said Chris Meyers, systems analyst for CPA firm James Moore & Co., in Gainesville, Fla. "We had one client with 50,000 users that went straight to NetWare 4.1 specifically so they could use NDS."

But many skeptics, despite Schmidt's hiring, have yet to be convinced of Novell's latest turnaround promises.

"I'm not a believer yet; I was burnt too many times," said Joe Antol, a Novell user and private investor. "If [the deal with Netscape] comes off, you can be sure I will support Novell in the same fashion I did going back to pre-Frankenberg days. But if they're blowing smoke on this one, then for sure they're buried."

Additional reporting by Steve Hamm

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