Inside the Microsoft-Novell deal

Summary:Microsoft's upper management seem keen on the adage 'keep your friends close but your enemies closer' — particularly in the case of Novell

The uproar in the open-source community caused by proprietary poster-child Microsoft's deal with Linux provider Novell shows no sign of abating. For many, it's a betrayal of the fundamental ethos of free and open software — a pact with the devil. But even though the arrangement is seen by some open-source enthusiasts as on par with wartime collaboration with the enemy, in reality, community-developed providers are only secondary targets.

In line with the old saying that the enemy of my enemy is my friend, experts claim the deal is really about joining forces to pursue Unix and the mainframe. If Novell can gain an edge on rival Red Hat, the leading Linux distributor, then that's all good for Novell.

"Both Novell and Microsoft have one target that they're absolutely dead focused on and that's the data centre. It's where the two have a common enemy and it's about wanting to push the mainframe and Unix out," explains Laurent Lachal, open-source research director at Ovum.

As a result, even though the two companies have spent the last decade battling each other, Novell's chief executive Ronald Hovsepian found it in himself to approach a contact at Microsoft last year, after a boardroom shake-up in June 2006 saw him replace then incumbent, Jack Messman.

Hovsepian's aim of starting a dialogue was aided, however, by some of Microsoft's major financial services customers making it clear that they were going to use Linux whether the vendor liked it or not. The reality is that enterprise customers want the vendors to start playing nicely together in order to deal with the resultant interoperability issues.

Organisations such as Goldman Sachs, Credit Suisse, HSBC, Deutsche Bank, Wal-Mart and AIG Technologies have since purchased coupons from Microsoft that provide them with a one-year subscription for maintenance and updates to Novell's Suse Linux Enterprise Server (SLES), along with a mix of priority and standard support services.

As part of the five-year arrangement between the two suppliers, which was announced in early December 2006, Microsoft agreed to pre-pay Novell $240m in return for selling on 70,000 SLES coupons per annum at an unspecified price. This equates to 350,000 coupons by 2012, and Microsoft had already sold three-quarters of its 2007 quota to the five companies listed above by March.

As Michael Goulde, a senior analyst at Forrester Research, points out, while part of the appeal could be that customers are obtaining discounted services, they all also have mixed environments and "are relieved to see co-operation between two important suppliers rather than continuing to have them criticise each other and point fingers". But he adds: "Novell can only recognise revenue at the point that the customer starts using the coupon, so revenue is the thing to track to see how quickly customers are really taking this up."

Terms of the deal
Meanwhile, under the terms of the deal, Microsoft will also officially recommend Suse Linux to its customers, while at the same time creating a joint research facility with Novell. The aim here is to have personnel from both organisations work together to improve interoperability between the open-source operating system and Windows and to create new products in three areas: document formats, virtualisation and web services.

In the first instance, the two companies will enable Novell's OpenOffice and Microsoft's Office users to share documents more smoothly. One of the mechanisms for doing this is by making translators available to improve interoperability between Microsoft's OpenXML format and the industry standard Oasis OpenDocument Format for Office Applications (ODF).

While this part of the agreement would appear straightforward, IBM has been critical of the underlying motivations. Goulde explains: "[IBM is] concerned that people are going to be lulled into thinking that it's a reasonable approach to use a Microsoft format and then simply convert their documents into ODF as required. But if you go with the Microsoft specification, you're still locked into Microsoft and the concern is that at some point, you'll end up getting stranded and not be able to convert back to ODF at all."

In the area of virtualisation, meanwhile, the two vendors have agreed to come up with a Windows-based offering that simultaneously runs Suse Linux as a guest operating system. Staff will also develop web services to make it easier for customers to manage physical and virtual servers in a mixed Windows and SLES environment, while likewise enabling Microsoft Active Directory to communicate with Novell's eDirectory.

Forrester's Goulde sees this chunk of the deal in particular as reminiscent of the one Microsoft struck with Sun in April 2004, even if the latter was motivated by settling anti-trust litigation rather than by taking on common enemies.

Although there are obvious benefits to Microsoft, Novell and their customers...

Topics: Tech Industry

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