Novell & Ximian: A Microsoft Narrative

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Although the percentage of revenue derived from its client operating systems and office productivity software has been in decline for the past three years, for the fiscal year 2003 the two divisions combined still represented 60% of Microsoft’s revenues. It therefore seems fairly safe to say that its flagship Office suite and Windows operating systems are more than a little important to the Redmond-based software giant. But for the first time in a long time, Microsoft is actually facing some competition in both areas; Linux or Java based desktops as competitors to its Windows operating systems, and thin client/open source productivity packages versus its Office suite.

It’s in this context that we believe that Novell’s acquisition of Ximian is most interesting. We’ve been observing threats real (Linux) and emerging (SuSE Linux Desktop, SimDesk) over the past several quarters, and have even seen Microsoft bested in a high profile selection by a competing Linux offering. The loss of business in the City of Munich was especially difficult given the fact that after significant discounting Microsoft appeared to be the low cost bid, and that CEO Steve Ballmer wasted a personal visit trying to close the deal.

But despite the loss, Linux and its office productivity suites remain a very distant second with Microsoft still playing a dominant role in both markets. For its part, Microsoft recently secured a big win with the Department of Homeland security in a $90M pact. And lest one forget, Microsoft got to where it is in the market by chewing up and spitting out vendors like Corel and coming from behind to overtake Lotus. The way they got there may have rankled, but who said life is fair?

So what does the acquisition of Ximian portend in this context? Given Novell’s traditional difficulties in marketing, it may yet amount to nothing more than a conversation starter at LinuxWorld. But with Dell, HP and IBM on board Novell has at least enlisted some allies. And with the acquisition of Ximian, Novell has thrown itself solidly behind Linux – SCO or no SCO – as the foundation for an attempted comeback.

The merger has the potential to be very interesting. Execution as always will determine its success; Netware, apparently, is to be phased out in favor of Linux, but >GroupWise will eventually be merged with the Ximian assets. But the combination of Novell’s solid identity management and networking abilities withXimian’s collaboration and messaging assets may lead some departing Novell customers to reconsider. Because, challenges or no, the combination has potential.

We’ve been hearing grumbling from customers for some time now around frustrations with Microsoft, usually concerning licensing. But in the absence of an alternative perceived as viable the grumbles usually never amounted to more than that.

But with a quiet trend beginning to emerge, in which areas of the market long ago ceded to Microsoft come under attack once more, one has to ask: with the increasing number of vendors and open source projects throwing their hats into the ring, isn’t it likely that between them they’ll produce at least a “Good Enough” solution? From some combination of KDE, GNOME, IBM, Novell/Ximian, OpenGroupware, Open Source Applications Foundation, Red Hat, Sun, and SuSE isn’t a competitor – if not multiple competitors, likely to emerge?

We think so. We’re not contending it will displace Microsoft – they’ve switched gears from the low cost to the feature/function message quite smoothly and have solidified their hold on the power user end of the market. But nor does a competitor have to – “good enough” computing is a message that plays well to cash strapped IT managers, all the more so if the software’s compatible with Microsoft’s, as Ximian’s is.

This is the key difference between the market of 2003 and say, 1996. With a much larger and diverse market to sell to. replete with stratified and distinct user categories – competitors no longer have to match Microsoft bell for bell and whistle for whistle. Because for some people, there are only so many bells and whistles that can be used – the rest are mere overkill. And ultimately, the power users don’t represent the volume play.

So whether or not Novell/Ximian ends up being “the” challenger remains to be seen, but it’s certainly an interesting new contender to watch.

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