Chris Barton: Novell's new life in Linux

COMMENT

When Novell announced last week it was buying German Linux distributor SuSE for US$210 million ($340 million) in cash, investors swarmed and pushed the stock 21 per cent higher to US$7.35. It was a clear sign of life in a company that's been sleepwalking for some time. So what has got investors so excited? Here are three theories.

Novell can now get even with Microsoft

Novell is one of many victims of the Microsoft machine. Its networking operating system for file and print services, NetWare, once controlled more than 70 per cent of the market, but lost out to Windows in the mid-1990s and now has a measly 4 per cent. But thanks to the Linux operating system, it is hoping for a renaissance.

In August, Novell bought Ximian, a developer of Linux desktop software, for US$40 million. With SuSE it has the number two player (Red Hat is number one) in the Linux marketplace. The combination, plus high-end consulting services via Cambridge Technology Partners which it purchased several years ago, gives Novell a comprehensive set of Linux solutions geared for the corporate market.

In theory the new Novell could provide "best-of-breed" offerings in directory services, identity and resource management, system provisioning, and web application development. That sounds like a reasonable business. But even with its new acquisition, Novell remains a niche market player, and is likely to give the Microsoft juggernaut about as much trouble as a flea.

"Free" Linux is being absorbed by commercial reality

The SuSE sale shows that the rewards of the buyout, rather than the death of Microsoft, is the real nirvana for Linux companies. If you're looking to the long term, open source software like Linux needs to be good enough that businesses cough on a yearly basis for updates - a tough ask when you're dealing with a communal product. A far safer option is to get swallowed by companies such as IBM and become a Linux R&D division for big iron.

But many worry that the trend of selling out to the highest bidder is the beginning of the end for open source. And that the software of the buyout will eventually become a proprietary offering. The concern is that the whole idea behind Linux - open source, essentially an open right to use, modify and distribute software - will be lost.

On the other hand some in the Linux community say the deal puts competitive pressure on Linux market leader Red Hat by giving SuSE better access to buyers in the United States, the world's biggest technology market and Red Hat's stronghold. Competitive pressure? Sounds like commercial reality has well and truly taken hold.

IBM has bought a killer pawn in its legal battle with SCO

The most puzzling aspect of the deal is that IBM agreed to invest US$50 million in Novell preferred stock. Both companies have made significant technology and marketing investments in Linux and open source, but neither really needs the other. But they do want to make sure their investments pay off and to do that they need to make sure the future of Linux is safe.

At the moment that future is under attack by dint of a giant lawsuit from SCO (with some Microsoft backing) against IBM and a claim by SCO against all Linux users for licence fees. Preposterous as it may sound, SCO claims to own the intellectual property rights to some technology in Linux and is trying to extract $3 billion from IBM and as much as US$1399 a computer from Linux users.

Ironically SCO acquired those claimed rights from Novell - which as part of that particular deal retained some intellectual property rights itself that may make it immune to SCO's case. Confused?

Well try this logic. If Novell is immune from the SCO lawsuit and SuSE belongs to Novell, then maybe SuSE's distribution of Linux could be untouchable too. The "silver bullet" Novell and IBM are counting on is the 1995 asset purchase agreement, under which Novell sold Unix to SCO. The crux of SCO's case is that Big Blue moved proprietary Unix code into Linux and breached the terms of its Unix licence with SCO. But under an asset purchase agreement, Novell is permitted to waive potential violations of the Unix licence that was in effect when it sold Unix. Maybe IBM's $50 million buys that waiver.

Whatever the outcome it's clear the menage a trois of IBM, Novell and SuSE is treating the SCO case with disdain - which shows the market they're very confident about Linux's future.

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