Novell's Window of Opportunity

No other company has benefited more from Windows 2000's (Win2K's) late arrival than Novell. In March 1999, Novell shipped NetWare 5.1 after an open beta program involving 490,000 people. NetWare 5.1 adds the tools necessary to integrate with Win2K to form a heterogeneous networking environment. NetWare 5.1's tools have garnered a series of positive reviews in the trade press.

NetWare 5.1 builds on the 5.0 release, which Novell released in September 1998. Novell refined the new network operating system (NOS) based on customer experience. NetWare 5.1 adds the NetWare Client for Windows 2000 Professional (Win2K Pro), NetWare Enterprise Web Server 3.6, the NetWare Management Portal, NetWare Web Search Server, NetWare FTP Server, NetWare News Server, NetWare MultiMedia Server, ConsoleOne, Windows NT Server 4.0 Service Pack 4 (SP4) changes, and Novell Directory Services (NDS) 8. Novell also added support for Microsoft Office 2000 to NetWare, including features that use NDS to leverage Office, support for Web folders, and the Web Distributed Authoring and Versioning (WebDAV) standard for file usage on the Internet. Additionally, NetWare will ship with a five-user version of Oracle8i, IBM's WebSphere application deployment framework, and Halcyon Software's Instant Active Server Pages (iASP). Novell's goal for NetWare 5.1 is to interoperate fully with Win2K, offer NetWare users a better Win2K and Office 2000 experience, and provide the best-of-breed platform for managing a heterogeneous network.

Nevertheless, Novell is a company with a problem. According to International Data Corporation (IDC), one in five NetWare users will replace their server in the next year and 85 percent of these users will choose Win2K as a replacement. Novell estimates that NetWare servers control 11 million seats, and all NetWare versions control about 80 million seats. IDC estimates that in 1999, NetWare has 4.8 million servers deployed and NT has 3.1 million servers deployed. Only about 14 percent of the NetWare-installed base has moved up from NetWare 3.0 and NetWare 4.0 to NetWare 5.0.

If the growth trends that Daniel Kuznetsky (program director of operating environments and server software at IDC) measured continue, by 2002 the server market will have 5.3 million NetWare servers vs. 6.2 million Win2K and NT servers. The old IT axiom to never throw anything away is especially true of systems and system software. Of all the OSs, Kuznetsky found that only NetWare had a higher than 10 percent replacement rate. When asked for the reason for replacement, NetWare users say they're moving to Win2K and NT for application services. Users move to NetWare 5 to consolidate onto larger servers.

Novell also has an opportunity. With NetWare 5.1, Novell moved further up the road that Win2K must travel on its way to broader acceptance in the NOS marketplace. The painful transition for NetWare was migrating from NetWare 4 to NetWare 5. Novell reports the migration from NetWare 5 to NetWare 5.1 to be painless. For administrators, the upgrade from NT Server to Windows 2000 Server (Win2K Server) is the painful one—especially when redesigning large and complex domain structures. Laura DiDio, senior industry analyst for Giga Information Group, said that for the first time, Giga is hearing complaints from some large Microsoft customers about Microsoft's premium support for migrations to Win2K. NetWare stands to benefit if Win2K falters. For more information about Microsoft's market strategy, see the sidebar "Microsoft's Windows 2000 Strategy."

Novell holds another advantage in the maturity of NDS. Microsoft built Active Directory (AD) into Win2K, so only Win2K servers and clients can fully use it; NDS 8 runs on NetWare, NT, and Sun Solaris. Vendors have versions of NDS for Win2K, Compaq Tru64 UNIX, and Linux slated for release in first or second quarter 2000. Both Novell and Microsoft provide comparative NDS and AD information. To compare this information, go to http://www.novell.com/advantage and http://www.microsoft.com/ntserver/ nts/exec/compares/ntsandnwcomp/1_abstract.asp.

Novell's unique opportunity is to make NDS a standard. At Comdex/Fall '99, Novell announced the creation of NDS eDirectory and NDS Corporate Edition and support for other NOSs. Novell now gives NDS away to companies with fewer than 100 seats, although Novell should have started this practice a year earlier. And Novell prices NDS very aggressively.

If you think of directory services as a product or a component of the OS, then only market share is important. But if you think of directory services as a framework, then the vendor with the best-integrated application wins. If I were Novell, I would give NDS away in cereal boxes to get pervasive market penetration. However, Novell needs to romance, in earnest, every independent software vendor (ISV) the company can.

Novell is a company that missed the client/server revolution by not developing an application server platform. Novell has rewritten NetWare 5.0's kernel to support SMP but has made only some core processes multithreaded. NetWare also has problems with scalability, which is essential in application servers. So, NetWare is in need of reinvention.

Eric Schmidt, Novell's chairman and CEO, says the company is entering a new phase as it begins to concentrate on the Internet market. NetWare is already one of the NOS-friendliest Internet platforms around. In January 2000, Novell announced several services that let NetWare improve security and mobile access to the Internet.

This year's Novell 2000 model bears no relation to the Novell of a decade ago. Gone is the noise about NOS warfare. Gone, too, is Novell's WordPerfect (to Corel), and the suite wars have ended. Now, Novell has Schmidt at the helm, and he is making sure that the company is executing solid and innovative technology. Novell closed its past fiscal year with a $345 million fourth quarter, closing the year with a 17 percent increase over 1998 for total revenue of $1.27 billion and beating the street's estimates for earnings. NetWare revenues were up 24 percent to $659 million for the year, and Novell's ZENworks grew 39 percent to $315 million. This performance had Schmidt on the short list of the most important CEO jobs that opened up in 1999.

NetWare might not win in the application or database server marketplace, but this NOS is more than just a file and print server platform. In Schmidt, Novell has someone who can make the deals to keep Novell a serious player in the NOS market. Schmidt has about an 18-month window to achieve this goal.