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Examining Novell and Red Hat: Page 4 of 10





Novell Financials




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Customers committed to open-source software will likely avoid proprietary solutions in favor of open-source equivalents. Sure, SuSE Linux will remain open source, but part of Novell's strength is its bundling of eDirectory and other Novell solutions. If these solutions use proprietary code, the open-source software value proposition is clearly missing.

Truth is, it's tough to be both an open-source and proprietary-source company, and Novell's adoption of SuSE as a business unit indicates that Novell doesn't think its business model is materially different from SuSE's. Such fence-straddling is worrisome. History points to one of IBM's success factors with the PC being the spin-off of the PC unit, geographically and politically remote from the New York offices. The proprietary and open-source models are no less different from each other than the minicomputer and microcomputer.

Truly disruptive innovation is typically "competency destroying." That is, the same processes and procedures that maintain the status quo usually don't work in the new, disruptive business model, and vice versa. Because Novell has chosen to keep SuSE as a business unit, the company will face lots of conflict management in the upcoming year, as the goals of open-source and proprietary-code staffs diverge so dramatically.

Although Novell has built credibility by shipping products on or near schedule, questions remain about how the company will resolve competing product lines, such as GroupWise and Open Exchange, and how it will revitalize its tepid partner network. Novell hasn't disclosed plans regarding the specific products, but with regard to the partner network, Nugent says, "it's our goal to make it vibrant."