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Inside Novell: a vendor dossier
Are its best years behind it?

By Jon Bernstein

Published: Wednesday 06 February 2002

Novell could have had it all - at least that's what many people thought a decade ago. Here, Jon Bernstein charts the ups and downs and current opportunities for this well-known software vendor.

Once upon a time Novell wanted to be as big - no, bigger - than the mighty Microsoft.

So serious was it, the company set about putting all the pieces in place to compete head to head. For MS DOS read DR DOS, for Windows 3.1 read UnixWare, for Microsoft Office read WordPerfect Office, for Exchange read GroupWare, and for Lan Manager read NetWare 3.11.

Welcome to 1993. Back then Ray Noorda, the firm's elderly boss, was going to supplant Bill Gates as IT's hero/anti-hero and Novell was going to be a household name in households that didn't even own a PC.

Unfortunately just as quickly as this 1990s fairy tale began it was over. By the end of 1995 Novell had ditched its personal productivity suite, the Unix experiment was failing and it was struggling to maintain leadership in its one dominant area, the network operating system.

Noorda and company may not have lived happily ever after but six years on - and almost as many chief executives later - Novell is still here and could yet prosper. A new version of NetWare hit the streets last autumn and the company boasts blue chip clients including Lufthansa, Royal & Sun Alliance and Virgin Trains. More pertinently, Novell has a very real chance of becoming the de facto provider of directory services, an essential tool for network managers.

There's no doubt, however, that it has been a rough ride getting here. Going from a $2bn company in 1995 to a $1bn company in 2001 takes some doing especially in an industry that until the last 18 months could do no wrong. The truth is Novell was unfortunate enough to get in Microsoft's way.

While Noorda had dreams of taking Gates on at the desktop, Gates wanted the server. Lan Manager (the precursor to Windows NT) was merely a NetWare copycat but Microsoft engineers were setting about creating a network operating system that was easier to install and manage than its more popular rival and - crucially - was built around the jobs the network was designed to do. Where Novell built its reputation on resource sharing, NT was all about the application.

Steve Brown, Novell's regional director, concedes this was when it started to get tough. "Five years ago small companies would buy 5-user licences [of NetWare] for file and print services. With the advent of NT people said, 'I'll buy the application first and then buy a Net server. But I won't then buy NetWare too'. So we lost out to the sub-25 person company." And subsequently to larger companies too.

"The assumption," continues Brown, "was always if you wanted to write a server application for NetWare you had to write an NLM (NetWare Loadable Module). It wasn't the easiest way to write an application and we understood that."

In this changing landscape, however, lay the seeds of potential recovery.

Traditionally you would find pockets of NetWare dotted around an organisation, linking 10 PCs to a printer in accounts payable or letting the marketing department share common files. The inevitable consolidation onto one operating system meant larger networks and a bigger management overhead. Directory services were the answer.

NetWare Directory Services (NDS) saw the light of day with the introduction of NetWare 4.0 in 1994. It let the IT department upgrade the network, support desktops remotely and manage rights, permissions and linkages across a web of PCs and devices. It was a welcome addition to the network manager's armoury but only if he was working in a NetWare-only world.

Until Novell could deliver two things - critical mass and cross-platform support - NDS would disappear with NetWare's shrinking market share.

To their credit, successive CEOs understood this underlying paradox: directory services could only succeed if Novell distanced it from NetWare. This took time. Today, eDirectory, the latest iteration of NDS, runs on multiple platforms including Linux, Solaris, Tru64 and - most intriguingly - Windows NT and Windows 2000. (Microsoft, it goes without saying, has a competing product but, typically, Active Directory assumes the world is Microsoft-only.)

According to Rick Berends, technical director of network integrator Lankind, eDirectory is a solid product. "In a pure Windows 2000/Windows XP environment Microsoft is best for policy and Novell is best for application management. If you are talking about adding Windows 95 and Windows 98 to the mix then Novell does a better job on policy too."

Impressed he may be by the technology but Berends, who has been working with NetWare since the mid-1980s, believes Novell has a major problem. "Is the directory part of the infrastructure? If so how the hell will anybody make any money out of it?"

By adding additional functions at a premium, counters Novell's Brown. Security, managing ASP relations and providing store and back-up for you laptop via the internet are just three examples.

Nevertheless, net directory services revenue for Novell's most recent quarter total just $11m, a miniscule amount for a one-time $2bn company. The question remains: can directories sustain a company the size of Novell?

If Novell can deliver the other part of the puzzle - critical mass - the answer is maybe. The platforms it supports today are impressive but eDirectory must become universal. It needs to become as pervasive as SSL (secure sockets layer), for example. Hardly glamorous but a licence to print money nonetheless.

"Novell could be the internet directory," says Lankind's Berends but will come up against vendors keen to protect their patch. A more likely scenario, he believes, will see Novell absorbed into a bigger company. Computer Associates, IBM and Sun - to name but three - would all be interested in getting hold of eDirectory.

"Ray Noorda wanted to go face to face with Microsoft," recalls Novell's Brown. "Subsequent management said that's not what we should be doing. [Oracle's] Larry Ellison and [Sun's] Scott McNealy want to be number one. I don't think we can be number one."

Unless, of course, it's under a different name.