Novell sticks to its guns on future of One Net

By MICHAEL FOREMAN

SALT LAKE CITY - Despite falling revenue and a plummeting share price, Novell is sticking to its strategy of supplying the "glue" for a single, directory-enabled internet, or "One Net."

Speaking at the company's annual Brainshare conference in Salt Lake City, chairman Eric Schmidt reaffirmed Novell's strategy of establishing its eDirectory, which identifies devices and users on a network, as the platform on which net services can be securely delivered.

Dr Schmidt said the dire performance of tech stocks generally had obscured the continued growth of the internet, which would inevitably lead to more demand for the type of software in which Novell had at least a two-year technological lead.

"Everyone assumes that the internet is last year's news but the underlying strength behind what we do, the networked age, is still with us."

But sales of Novell's newer products such as eDirectory, DirXML and iChain have been slow at a time when revenue from its traditional packaged software has declined sharply.

The company's overall revenue fell to $US1.16 billion ($2.8 billion) in its fiscal year to last October, compared with $US1.27 billion in 1999, and the company's shares, which were hovering around $US30 a year ago, were trading at about $US5.20 last week.

Part of the problem, according to Dr Schmidt, is that Novell provides building blocks at a time when the market is looking for solutions.

"The key complaint against the company is that Novell has this interesting bit of technology and that interesting bit of technology, but the problem was we couldn't put it all together."

"You guys have invented fire and I want to buy cheeseburger," was how one customer had put it.

Novell now hopes its planned acquisition of Massachusetts consulting firm Cambridge Technology Partners (CTP) will give the company the solutions focus it needs.

If the acquisition goes ahead, CTP chief executive Jack Messman will replace Dr Schmidt as chief executive, but Dr Schmidt, who will stay on as chairman and chief strategist, denies that he has been kicked upstairs.

"This was my idea. For better or worse nobody put the pressure on me."

Dr Schmidt said the acquisition for the "pleasantly low price" of $266 million in shares would give the two companies a combined annual revenue of $US1.5 billion, but those earnings would be 37 per cent solutions-based, compared with the 7 per cent Novell now earns from its consulting division.

Dr Schmidt said the details would not be worked out until United States takeover regulatory procedures had been complied with in about three months.

But he confirmed that CTP would continue to operate under its own name as a separate company.

While Novell hoped CTP's 2080 consultants would help it push the One Net message, the company would also sell other vendors' products.

"There is not a presumption that this is a captive channel," said Dr Schmidt.

Whether the CTP acquisition will arrest Novell's decline remains to be seen, but there are signs that the linchpin of the One Net strategy, eDirectory, is finally gaining some acceptance in the market.

According to Mikko Valimaki, vice-president of engineering net directory services, eDirectory has built up a user base of 139 million in the 18 months since its launch.

This seems impressive, especially when compared with Microsoft's Active Directory user base of 4.5 million, but would appear to be overshadowed by Netscape's sales of 330 million licences for its competing Directory 5.

But Mr Valimaki pointed out that the figures from market research firm IDC also showed that only 12 per cent of Netscape's directory licence sales were actually in use as most sales had been made as part of bundling agreements.

As eDirectory is actively used by 95 per cent of customers, Novell is claiming an 88 per cent share of the enterprise directory market.

If eDirectory maintains this level of market share then the future does indeed look very bright for Novell - it estimates that the market for this type of software will be worth more than $US5 billion by 2003.

The software has already won some important Government contracts around the world, including an unnamed European country that has bought a licence for 33 million users.

Mr Valimaki said that as directory technology was so new, almost all customers were running long pilot schemes.

"It's a pretty long solution sales cycle and we are not doing much off the shelf like Novell used to do 10 years ago.

"It also means decisions are being made at a higher level where Novell has not been a well-known name," he said.

All of this would seem to suggest that the bargain acquisition of Cambridge Technology Partners could yet lead a renaissance of Novell, but it had better happen soon.

While Dr Schmidt is adamant that the company is not for sale, if the share price slips any further then it is Novell that will begin to look like a real bargain.

* Michael Foreman attended Brainshare 2001 in Salt Lake City as a guest of Novell.