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Just how much turmoil is there at Novell, and does Schmidt have a handle on it? That's the $64,000 question for Novell watchers. Schmidt granted Network Computing an interview in late June, shortly after the company had announced its second-quarter results and a new corporate structure. We met in Novell's new, stylish campus in San Jose, Calif. Many offices near Schmidt's are still empty, rendering the walk from the reception area to the conference room ghostly quiet--not a great sign for a company wishing to be seen as at the heart of the Internet revolution.

Schmidt's first order of business was to discuss the results released in late May. On May 2, Novell had said it would fall short of analyst expectations and got hammered by the market as a result. The company lost about 60 percent of its worth and has yet to recover any of that value. The cause, Schmidt said, was lower-than-expected channel sales, primarily because of a restructuring of the way Novell handles its sales. Direct sales, he said, were just fine. Yet there is more here than just a hitch in the running of the sales force. The release of Windows 2000 and continued strong interest in Linux have given customers reasons to consider alternatives to NetWare. Although Schmidt is the first to say that the company's future is to find revenue streams other than NetWare, he also readily admits that NetWare and related offerings generate the vast majority of product revenues.

With that, the stage was set for our discussion. What are the new revenue opportunities, and how will Novell go about capitalizing on them? The answer, according to Schmidt, is as plain as the company's new structure. Novell is realigning around four business groups. The Net Management group is responsible for existing enterprise products. The Net Directory group will push NDS as eDirectory and associated products, while the Net Content group will push content-services products, such as Internet Caching System. A fourth group will provide customer services. While there's no doubt Schmidt is excited about the opportunities for each group, it's the directory services that make his eyes light up.

The applications cited by Schmidt for eDirectory are by no means trivial. He listed Fidelity Investments and CNN among those using Novell's directory products as the underpinnings for their Web-based customer offerings. No doubt this is a very new market for Novell. With the exception of its caching products, Novell is not accustomed to its products being on the outward, revenue-generating side of computing systems. This, in fact, is one of the few problems to which Schmidt will admit. Despite a headlong effort to market to upper management, Schmidt says, Novell is still not seen as strategic enough to provide products at this level. eDirectory is mature enough for almost any customer; it's a matter of getting in the door to say so.

A good number of users, however, tell a different story. Our readers' comments often center around the perception that Novell is unfocused and delivers products that are immature, inadequately supported or lacking necessary support tools. Schmidt bristled at this notion. The lack of tools for directory and metadirectory applications, for instance, he called an industry problem. A lack of support staff for NDS for Linux he chalked up to the fact that the product was just barely released.

Throughout our talk, his focus was on the maturity of core products in each area; he tended to brush aside discussions of tools and ancillary products. Such an attitude is reasonable for Novell's enterprise products, where the tool set is mature, but surprising for the directory and content groups. By Schmidt's own admission, the service-provider market is a new nut that Novell is having trouble cracking. He rested hopes for that market on the new alignment of the company.

Schmidt cited rapid growth as a bright spot for Novell's professional-services group. Many of Novell's new products are too complex for customers to go it alone, he pointed out. Indeed, the only way to implement some of Novell's complex products, with their weak tool set, is with the help of professional services. While banking the future on complex products like eDirectory is plausible, it's at odds with Schmidt's expectation that channel revenues will recover. eDirectory is unlikely to see channel-based sales for years, and Windows 2000 and Linux will undoubtedly continue to eat into Novell's channel sales. Whether direct sales of complex products and associated services will make up for weak channel-side sales is anyone's guess.

While Novell has entered new markets aggressively, Schmidt does not expect to augment internal efforts with significant acquisitions. Apparently still stinging from the WordPerfect and USL purchases, Novell makes only small and infrequent acquisitions these days. Novell's product lines are complete enough to be strategic as far as he is concerned; now the goal is to convince Novell's target markets of it.

Send your comments on this article to Art Wittmann at awittmann@nwc.com.