Interview: New Novell CEO Ron Hovsepian & Channel Chief Steve Erdman

New Novell CEO Ron Hovsepian and Novell channel chief Steve Erdman spoke with CRN Editor In Chief Heather Clancy and Senior Writer Paula Rooney about the company's strategy in the wake of the departure of CEO Jack Messman. Below are excerpts from the interview.

CRN: Was Messman ousted by the board?

Hovsepian: It was the board's decision to sever the relationship with Jack and (CFO) Joe Tibbets. That was the board's decision. I was not in the board meeting.

CRN: How do you want to run the ship and what are you going to do to try to make Novell a Linux leader?

Hovsepian: In terms of policy or direction for the company, I am going to really focus in on three things: one is simplification of our business—make sure that we drive a certain level of operational excellence and simplification of what we are trying to get done. That will translate into a better focus. The focus has to be on our markets and our customer segments and how we go to market, leveraging our partners, and what we need to get done with our key partners inside the marketplace. Those are things that are very critical to me as we go into the 2007 planning cycle. [Second is to] continue to really push our agenda towards our partners because they are the key to our success in the long run. The third area is just deliver on our commitments.CRN: What do you think is too complicated right now?

Hovsepian: I'll give you an example. Over the years, because we have had multiple pricing models and multiple software companies we have bought, we have maintained a lot of different pricing models. That makes it really hard or complex for our partners to simplistically come into our company, do business, and then move through selling our products. That would just be a very simplistic example that is very real that my good friend Mr. Erdman has been enjoying running.

CRN: It sounds like you have a big focus on partners. Can you elaborate on what your partner philosophy is and how you plan to improve Novell's channel relations over the next year?

Hovsepian: I do have a big focus on that. The key for us to be successful is to go through partners. The reason why is we can only touch so many of the enterprises out there in the marketplace. The partners have much greater reach. When we were doing some of the analytics on the business, [we found] only 27 percent touch our direct channel only, meaning no partner touches it. Said differently, 73 percent of our revenue touches a partner. So the heart and soul of this company goes through our partners. When 73 percent of your revenue flows through your partners, that is your heart and soul. Now what we have to do is get more leverage out of that for ourselves and for our partners in the relationship. I think there are things that we are working on and have done—like the most recent Linux rebate program, as an example, is a good partnership approach that we have taken. Steve [Erdman], would you like to comment on what you have gotten done there for us?

Erdman: The first question you asked was [about] things we are doing to simplify our business. One of the things that I would highlight as well is the specialization tracks that we are developing. So, for instance, right now our partners have readily available access to Novell-certified engineering education, but they don't have readily available classes to help them build their skills around certain business unit initiatives. Take Linux, for instance. One of the things that we are trying to do in the way of simplifying our business with specific partners is having them declare their skills and value in areas they want to participate in, and then helping them and guiding them to the right path of education, or certification. Then we are building programs and value-added and profitability metrics around those different specializations. So they are no longer viewed as generalists. They are viewed as specialists by us.CRN: Novell has done a lot of these things in the last couple of years, even under Messman. What are you going to do differently?

Hovsepian: I think we are taking it to the next step, which is more advanced training and availability, program and value differentiation around them. So Linux partners will have a different value and a different profitability metrics for us than, say, a workgroup partner. Not that one is more important than the other, but we are just going to measure and treat them differently as we go forward.

On the Linux rebate, we just came out of our midyear cycle and we had partner meetings across the Americas, and one of the things that came out of those partner exchanges was that partners would really like to have some investment knowledge to help them go build Linux practices, because they see that as a really important area that Novell is leading. So instantly, we went back and said, let's cut this reseller rebate, which is 20 percent for the VAR community, to go help them offset their skills development, make investments in their business, make investments in our customers to help us go drive the Linux business.

CRN: Novell has talked about its partner commitment for some time. What was Jack Messman's commitment to the partners, and is your commitment any greater or the same?

Hovsepian: You have talked to Jack yourself over the years on partners. I will speak for what I see in the future for us around the partners. As I said, 73 percent of the revenue touches partners inside this company. And the facts are that we will leverage more partners going into next year for more of our revenue. That is the bottom line for where this company is going.CRN: Are you going to try to get more partners or are you going to focus on specific partners?

Hovsepian: The answer actually is all of the above. As Steve appropriately pointed out, we have got more of a specialization for what our partners want to do with their businesses. We have to remember they are choosing what businesses they want to be in, and then we have to make it simple for them to do that. So to your point, in some of the more mature markets we will work closely with key partners to develop broader and deeper relationships. There may be fewer of them or about the same, where in the Linux market we want to grow that one rapidly to have more and more relationships there to keep up with our appetite for growth around that market. The theme should be around the specialization within those market segments, and that is really what we are committed to.

CRN: Why has Novell had such a hard time pushing its Linux products and how do you intend to improve that?

Hovsepian: In reality, we have actually done a good job. We have grown 20 percent. Twenty percent by any measure is actually good growth. The part where I think there is a clear opportunity for improvement is to make sure we grow faster and take more market share, from my point of view, with and through our partners. What we need to do there are the things that Steve just highlighted and our rebate program to make sure that we are enabling our partners to be more successful with the sale of our products. Additionally we are packaging the products to make sure that they meet what the customer wants in terms of the full enterprise needs. So for an example we were very partner driven on developing our Open Workgroup suite. In terms of the Open Workgroup suite that came from three partners over in Europe. What they did was say this is the market. I actually sat with them. They explained it to me. I was not as confident as they were. We did a pilot this past quarter on the Open Workgroup suite. We expected to get about $2 million in revenue. We ended up doing $8 million in revenue. And of that $8 million, $2.4 million of it came from brand new customers. So it is actually a really solid story from my point of view as to what our partners can do and the role they play in helping us be successful in driving the overall business.

CRN: One of the areas you said you want to be more successful in the future is in identity management and network authentication. Can you address that?Hovsepian: In that area, what I would highlight is a very simple relationship that would be great for you to help communicate to our partners. When you think about Linux distribution, think of that as an operating system that is a platform to enable the use of certain technologies. When you think of the rest of Novell, think of it in terms of management tools that help our customers manage mixed environments. Our partners need that to help those customers. So, against that backdrop, identity management is one of those management services. We have seen excellent growth there. The market has been growing at about 11 percent. We have been growing a total of 20 percent. In particular, our identity manager product has been growing at 40 percent. We are just seeing really great uptick in that particular product, great services opportunities for our partners. With our most recent acquisition of e-Security, that gives our customers a realtime collaboration to fill out more of the suite for the identity management service. And then we will look to do more things in that management services layer for our customers.

CRN: Microsoft has been out barking about how many partners they have captured from Novell, IBM and some others. They are putting the number at 600 partners. What is your response to that, and do you have any plans to get those partners back?

Hovsepian: I don't know the details on the numbers so I can't comment specifically. As you know, a number of partners have a foot in every camp, and that is good for their business. And I appreciate that. What I can say is that the number of partners that we have seen grow for ourselves has been excellent on the Linux side. On the ISV layer, we are up over 978 ISVs at this point from an application perspective. And then from an overall partnering perspective, we have climbed up over 2,000 at this point. So we are seeing good numbers, good growth, good retention of our key partners. What we are seeing is people expanding their businesses. When you stop and think about a Microsoft partner, their average wage rate is probably down in the $35- to $45-per-hour range, and that is going in the wrong direction for most of the partners. Their excitement around Linux is it gives them a chance to reset the bar and generate more profitability for their businesses while they help customers make that conversion to the Linux world. As we all know, the partners have made their best money when there has been sea changes in the marketplace. And Linux and open source with Novell is a real big sea change.

CRN: In terms of sales, what kind of growth are you seeing in SUSE Linux Enterprise Server, and how are you going to try to promote that more aggressively in the channel?Hovsepian: The Linux server grew 20 percent this past quarter. We do break that number out in our reports. That grew 20 percent and we'd like it to grow more, to be blunt.

CRN: What is your philosophy on OEMs?Hovsepian: We absolutely see OEMs as a key part of what our customers want. We also see it as a key need for some of the file and print capabilities in the Linux world as you go forward. To get them to that level of class of processing for file and print and storage management, Novell with OES [Open Enterprise Server] has the world-class product still. In terms of migrating the customers, we have been very consistent. We are going to let our partners and customers migrate at their own rate and pace. We are very pleased with the adoption rate right now from a contractual perspective on OES. Over 80 percent of our customers are now contracted to OES. Now we have been doing pilots and migrations. We feel really good about that. We are thankful to the partners that have helped us with those migrations.

CRN: What do you think is Novell's greatest weakness right now?

Hovsepian: I would have to say it's getting ourselves aligned to the markets we are serving. What I mean by that is, I think some of the things that have been written about our leadership have to do with focus and alignment. I am here to make it very clear that I am going to accelerate that alignment because we have got great people, we have very good products, and we have got the ability to execute successfully inside this company. Now we just have to go execute that. I think it all starts with alignment and a deep commitment to execution.

CRN: What do you mean by alignment?

Hovsepian: What I mean is, just make sure everyone has the same goals and the same focus on what we want to get done in each market segment we choose.0