Why Novell lost its mojo

From the moment corporate computers were first strung together in networks the potential of network operating systems became clear. Novell rode that wave better than anyone for years, but the launch of its flagship NetWare 6.0 - even before the atrocities in the US last Tuesday - seems to have been accompanied by something of a whimper. Suzi Kerridge asks what's gone wrong...

Remember Novell - the Utah-based vendor known for classics such as NetWare, Novell Directory Services and even tech executive par excellence Eric Schmidt? Most of us do. But over the past few years the company has undergone change - many would say its been slowly declining to the extent that today you could be forgiven for thinking it has fallen off the IT map.

Where did this once great company go wrong? Those more cynical would say Novell could almost be mistaken for a British company - great technology, but unable to exploit it fully.

In a recent Bloor Perspective column appearing on silicon.com, an analyst wrote: "[Novell] continued to go through these patches of indifferent performance despite having some of the strongest infrastructure products available in the marketplace. It is still a business in transition as it attempts to break free from the shackles of its NetWare past and re-invent itself as a network service solutions provider."

Novell's take-over of Cambridge Technology Partners (CTP) for $266m is its big chance to push itself into services - the latest buzzword for success. This is seen - inside and outside the company - as a key piece of the jigsaw. Understandably Novell wants to be able to talk business to customers instead of mostly technology.

The only danger is that the two companies - rather than complementing each other - take away from what the other does. Pundits have even been heard talking about the blind leading the blind.

What's more, the deal comes at a time when CFOs across the wider economy are tightening their purse strings, post-late 1990s bubble.

Then add Novell's inability to convey why its products should be used.

Andrew Parker, an analyst at Forrester, said: "It's marketing has been lame recently. But it's more an IBM-style approach whereby technology is excellent but use increases as its quality spreads through word of mouth. This is not a very effective strategy, to put it mildly."

Clive Longbottom, analyst at Quo Circa, agreed: "Novell's marketing is horrendous. And if Novell wants to make money out of services it has a lot of competition."

Nearly 50 per cent of IBM's revenue now comes from services. Compaq is also making money for itself in this area, a fact not lost on the high-ups at HP when they made a move for the Houston-based company. Compaq's acquisition of Digital and Tandem brought 38,000 consultants.

However, despite Novell's ambitions there is a strain of thinking that CTP is a dog that has had its day.

"Cambridge was strong three to four years ago," said Ian Bramley, managing director at Software Strategies. "It was a hot stock and very effective at doing large client/server projects with a fixed time/fixed cost strategy. It was very attractive to customers and offered limited risk."

But the accusation is that the company has never coped with rise of ERP packages and web development projects.

CTP soon became known for its high turnover in management and financial troubles. The $266m price tag on CTP does not seem high, added Bramley, but it "reflects a distressed buyer and a somewhat distressed vendor".

Even Novell's peers claim it was a case of too little too late. Anil Gadre, general manager of Sun Microsystems' Solaris division - the same Sun the respected Schmidt had on his resume before Novell - said: "Schmidt tried hard to re-invent the company as a directory services company but it was too much to attempt without a large consultancy service. During the dot-com heyday Novell's share price did not rise that much [compared to other companies] as services are so highly valued. It couldn't pull it off."

And now it could mean that the CTP takeover serves only to help existing Novell sites.

Whatever happens with assimilating the CTP team long-term, it should also be pointed out Novell isn't a single product company. It is also no minnow in relation to the rest of the software industry.

But the industry is scattered with players who in various ways have gone up against Microsoft (NetWare versus Windows NT, in this case) and usually suffered to varying degrees. (AOL, Apple, IBM, Netscape, Oracle, Palm, Real Networks, and Sun, to name a few.)

How will Novell turn itself around? No one knows for sure. And don't ask Eric Schmidt - he shot off in the direction of search company Google in August.