Microsoft vision gives rival reason to smile

By MICHAEL FOREMAN

Mention the subject of Microsoft.net to Novell chairman and chief executive officer Dr Eric Schmidt, and his eyes immediately light up.

"It's one Net," he says, smiling broadly. ".Net is one Net. Thank you, Microsoft."

The implication is clear. He would like us to believe that by promoting .Net, Microsoft will deliver customers into the hands of Novell, whose outwardly similar one Net strategy is further developed.

But we've been here before of course. This year, Novell's party line was that the appearance of Windows 2000's Active Directory would benefit Novell by getting users to accept the directory concept, as embodied in its NDS e-directory.

But how similar are the two strategies? Novell has pledged to do for the internet what it did for networks, but Microsoft is promising a revolution, of the same magnitude as Dos or Windows.

"Microsoft's never been accused of not having a broad vision, but the first question you want to ask is, when does Windows.Net ship?"

Bill Gates is talking about five or six years for the .Net vision to unfold.

"That is a long enough time to make any changes you need to. We did not with one Net set out to announce a five-year plan."

Historically, Novell has earned its living from making up the shortcomings in Microsoft's operating systems. The Business Herald asked what would happen in five years if Microsoft succeeds with . Net? Would there be a place for Novell in a .Net-dominated world?

"Well sure, but the problem I have with your question is that you've got your priorities wrong.

"The non-Microsoft part of the industry has being doing .Net for a long time. That's what the whole Java model is about, what the one Net model's about, so they need to fit into our architectures, and they will be forced to.

"So the answer to your question is yes, but not necessarily in the order that you said it."

It has been a tough year for Novell - a familiar experience for Dr Schmidt. who is once more faced with the responsibility of turning the company around. Two weeks ago it was forced to lay off 16 per cent of its staff to cut its costs in line with reduced revenue.

This development added weight to an industry rumour that IBM was about to take the company over, but Dr Schmidt is quick to scotch this idea.

"That rumour occurs in the second week of every August. I think it's related to a stockbroker who is on vacation."

He also denies the widely held view that Novell's decline in fortunes was due to Windows 2000 eroding Novell's sales from its rival Netware operating system before income from the newer One Net-based products filled the breach.

"Some of that's true, but we have not yet seen the impact of Windows 2000. What happened is that on January 2, which was the first business day after Y2K, our channel revenue declined. Since then it has stayed at a much lower level.

"It doesn't appear to be due to competitive pressure and that's important. People want you to believe that, but the data doesn't support it. The data says that the customer buying preference has changed."

But Dr Schmidt admits Windows 2000 is bound to pose more of a competitive threat in the long run

"I would expect it to. Historically what happens is Microsoft brings out a product that doesn't work very well. The adoption cycles are relatively slow and Microsoft then improves it until it's more or less fixed. It just takes a few years."

So will Novell weather the storm or will further restructuring be required?

"What we have said is that that restructuring was what was needed to get our costs in line with this new revenue model and we will grow out of that. Having said that we generated quite a bit of cash last quarter, about US$150 million, so it's important to remember that this is not a situation like a dot.com.

So far, Australia and New Zealand, which account for about 5 per cent of Novell's business, have emerged largely unscathed from the restructuring with only three jobs being lost in Australia. Revenue here has bucked the worldwide trend by growing by 15 per cent in nine months, but Dr Schmidt says the market behaves like any other.

"There's always this notion of the local market, but the customers have exactly the same problems and exactly the same opportunities. In my case, aside from the time change and the fact there's a 17-hour airplane flight, it's a perfect place to do business. I check in to my hotel here, I do my e-mail, I do my voicemail. There was a time when that was actually hard. The romance has gone."

* Michael Foreman travelled to Melbourne to interview Dr Schmidt as a guest of Novell