NOV
6
2006

Novell, Microsoft, Linux Business

There's been quite a flurry in the blogosphere in the last couple of days over this and it's clear that a lot of people aren't really looking at this from the right angle.

First misconception:

  • Novell / SUSE sold out.

SUSE sold out on November 4, 2003. They agreed to be acquired by Novell, a publically traded company with all that is entailed by such. Novell does not exist for the benefit of the Linux community. Like any publically traded company, (hopefully) within moral bounds, they aim to make a profit, to increase their value and provide dividends to their share holders.

So, almost exactly three years into Novell / SUSE, how has Linux business been? Well, not great. Not terrible either, but there was much hope that Novell would be able to turn SUSE and or Ximian into a major profit center and thus far that hasn't materialized. Performance relative to Redhat has been lackluster.

So, back to the point. Somebody at Novell comes up with the idea to partner with Microsoft on some stuff. There's probably a bit of cash flowing around this deal. Novell is in the press. Linux enthusiasts may not trust Microsoft, but investors certainly do. This bumps their stock. Novell also gets some exclusivity in collaboration with Microsoft on virtualization.

Second misconception:

  • Microsoft can strike back with patents in 2012.

So, why didn't they last week? The whole bit about patents was fodder thrown to the crowd and is essentially meaningless. If anything it was thrown in to hit Redhat, their common competitor, while investor confidence is already down.

The patent clauses were the equivalent of a cold-war non-aggression treaty between Sweden and the USSR. Sweden naturally had the US looking over its shoulder in the cold-war. Novell has IBM. The patent agreement was just formalizing the obvious. Unless the IT landscape around Linux drastically changes in the next few years, MS would never dare open war with the combined forces of IBM, Novell and maybe friends like Google and Amazon and some of the major hardware vendors. They've still reserved the right to go after small-time players that don't have powerfull friends. The only thing Microsoft got out of the deal was basically insurance that in the (unlikely) case of Novell spiraling down in the next few years that it won't take jabs at Microsoft on the way down.

  • So, at the end, what's left?

Well, virtualization and Office XML documents. There, each company gets one win, and I think that was the crux of the agreement. Novell, for all practical purposes has ensured that it has a semi-exclusive contract for supported virtualization in Microsoft environments. That's will likely give a little push to Novell's market share. Microsoft also gets some of the folks from OpenOffice to support their XML format. That reopens the market for interchangeable formats to Microsoft's own flavor which may keep them from getting shut out of certain markets. At the very least it gives them some lobbying fire-power when MS Office's formats are set up as one-vendor formats. Open formats are good for the F/OSS culture in general, but they don't particularly push Novell sales (though they probably hurt OpenOffice adoption on Windows) and depending on whether or not their patches make it into OpenOffice mainline, they may give a brief competitive advantage to Novell's Linux OpenOffice distribution. On the other hand, they've not lost anything by being supported in Microsoft virtualization environments.

At the end of the day, the deal does make a good deal of financial sense. That doesn't mean that I like it, but then I don't own any Novell stock. The big loser in this deal in my opinion is Redhat and the reason that I tend to not like it is because we've got Novell and Microsoft teaming up to kick them while their stock is sinking from the recent Oracle posturing. But as Linux culture becomes more and more corporate we have to expect, whether or not we like it, that we're things get dirty from time to time and we'll see more, not less of this type of behavior in the future.

Comments

You wrote:
> SUSE sold out on November 4, 2003. They agreed to be acquired by Novell, a publically
> traded company with all that is entailed by such.

Your implicit assumption that being publicly traded automatically means that it has to let go of all ideals of open source is silly. For starters, RedHat is publicly traded and they are doing a lot better job than Novell has.

> Microsoft also gets some of the folks from OpenOffice to support their XML format.
> That reopens the market for interchangeable formats to Microsoft's own flavor which
> may keep them from getting shut out of certain markets. At the very least it gives
> them somelobbying fire-power when MS Office's formats are set up as one-vendor formats.

This sounds a lot like you are sweet talking an attempt of MS to push their proprietary format over the open ODFormat.

Naturally MS likes it when their format gains more market share. When a couple of years back OAsis invited MS to join the creation of ODF it was cocky and said no. Now it sees that the assumption that it would not be a threat was wrong and it needs to either support ODF or get people to abandon ODF in favor of a format that will not cost MS delays in shipping Office.
Supporting ODF takes too much time as its a couple of years behind in development, so they turn the tables and publish their own hoping that others get to waste a couple of years supporting their format.

Don't mistake MS Office Open XML for an open format, since it does not have any of the traits of such a format. Its basically the format MS has created over the last 15 years in Office, with all its flaws and backwards compatibilities. Which is indicated by the fact that its 6000 (to 140000 depending on who you ask) pages long.

So, while I think its a net win for OpenSource that MS made it clear we are a real competitor in the market, I doubt its in the best interrest of the users to have yet another format splitting the market.


By Thomas Zander at Mon, 11/06/2006 - 08:20

> Your implicit assumption that being publicly traded automatically
> means that it has to let go of all ideals of open source is silly.
> For starters, RedHat is publicly traded and they are doing a lot
> better job than Novell has.

As soon as it makes business sense for Redhat to do something that's not good for the community they will (and have in the past). Redhat, much like IBM, realizes that there's value in not pissing off the community. But as soon as Redhat starts doing financially stupid things for the sake of the community you'll see their executive board swapped out by the share holders. That's what I mean by selling out; the center of gravity is moved to a market that doesn't care about those ideals and does in fact have control of the company. Redhat, like Google, is afforded a little idealism since their stock has performed well; Novell doesn't have that luxury.

> This sounds a lot like you are sweet talking an attempt of MS to
> push their proprietary format over the open ODFormat.

No, I think it's crap, but it certainly makes business sense for them.


By Scott Wheeler at Mon, 11/06/2006 - 10:32

One major concern here is that Novell is now free to poison all of SUSE with code that infringes Microsoft patents. Any code coming from Novell must now be carefully examined for such infringement before being used externally. The GPL offers no protection against this in practice. (See my previous post.)

We know that they will in fact do this at least in the case of the patent-encumbered MS Office file formats. These features will only be available in SUSE. The beginning of a Microsoft fork of Linux the OS? Perhaps.

Note that Microsoft needs a proxy (Novell) to carry out this strategy. If they do it themselves they risk invalidating the involved patents as per the GPL v2 or do so explicitly as per the GPL v3.


By martin at Mon, 11/06/2006 - 11:36

There's no doubt that every piece of non-trivial software is infringing on patents. That's the nature of the screwed-up-ness of patents these days. MS doesn't need any special help to go after Redhat or Novell if they wanted to, but they haven't. There are a lot of reasons for that -- terrible PR, competing patent portfolios, etc. All of this "Now Novell can poison Linux with MS badness!" is just fear-mongering; the situation isn't radically different today than it was last week.

It's not in Novell's interest to tie their business to MS. They know this. Every IT company knows this. MS doesn't play nice and every IT company in existence is afraid of them.


By Scott Wheeler at Mon, 11/06/2006 - 14:13

How can it be "fear mongering" when Novell is perfectly open about poisoning Linux with at least:

  • Mono
  • MS Office formats
  • Virtualization Linux--Windows

These technologies are not inherently evil, but Novell can now introduce them in ways that directly infringe Microsoft's patents and, with Microsoft's silent consent, even copyrights. Also, you assume that Novell are not:

  • turning into a Microsoft tool or
  • stupid or
  • desperate

I would not bet the farm on all three options being false.


By martin at Mon, 11/06/2006 - 14:37

Scott,

you're going on at length about the general business sense (for Novell) of this deal between the 2 companies. From that angle, you are of course mostly (*) correct (not that I had needed much extra lessons in that subject anyway).

But what about the effects on the *community*, and its modus operandi?? Could you please share your thoughts about that as well?

Also important are the effects for Novell customers, current and future. Can they really have a peace of mind now?

----
[ (*)
1. BTW, even from a purely business p.o.v., Novell may soon discover the truth of "Short Term Gain -- Long Term Pain".
2. Yes, it is a misconception that "Microsoft can strike back with patents in 2012". But not a misconception as you describe it. Because Microsoft can strike at *any* time to everybody else but Novell customers, whenever they think it's good for them.
3. The deal, and how it is sold, is nothing but a hidden threat to other Linux distributors and their enterprise customers to "better use Novell", if you use Linux at all...
4. I agree that bi-lateral patent threats currently are a sort of cold war, and there is some uneasy "balance of the horrors" between different camps that prevents open hostilities and mutual annihilation for now (just like the nuclear arms balance worked out in the times of the Cold War). ]


By Kurt Pf. at Mon, 11/06/2006 - 14:25

Well, I think the community, and specifically the way it thinks of (especially publicly traded) companies is kind of broken. SUSE isn't SUSE anymore; it's Novell. Some of the individuals at Novell are just as dedicated to KDE as they've always been, but as a company we have to approach it as a company that may some times do good things for us (as they certainly have) and may sometimes do bad things for us (as I believe this last event was). We have to look at them just like we would IBM or Google and think what we're bringing to the table, how we can leverage that to get things from them that are good for us and to expect that sometimes we still won't get what we want. When we're working with businesses we have to treat our interactions like business interactions rather than thinking of them as an old friend that just kicked us in the shins.

So, on to the points:

1. They might, but they've certainly thought of that. They're gambling and they know that. I mean, Novell has been hurt badly by MS enough times in the past that I doubt they've forgotten how things can go. Their bet is that this deal will work to their advantage and from the little I know in this case, I'd be inclined to agree. But even at SAP there was always a balance between partnering and competing with MS.

2. Well, that's basically what I was saying. MS could strike last week, they can still strike this week. They can strike 2, 5 or 10 years from now. Basically nothing's changed; that's why all of the patent stuff is meaningless.

3. Yep, agree there (assuming you mean the patent parts). It's just a marketing tool. "See, we're in the clear, Redhat isn't."

4. This is connected with #2 -- the reason MS hasn't attacked Linux with patents isn't because they just haven't thought of it yet. There are a lot of reasons, I would suppose, but one of the major ones is they know there would be a backlash from other companies. The "balance of horrors" is what's really stopping things -- not the recent agreement.


By Scott Wheeler at Tue, 11/07/2006 - 13:02

As long as there will always be young promising programmers lingering around the architectural shade of Silicon Valley, Microsoft will come up with an alternative operating system that will make all Linux users come back to using Windows. I myself use Linux because I have been very disappointed by all Microsoft products and their glitches. But who knows, maybe I'm right and the next ten years will reveal a technological break-trough for this company.


By maryadavis at Mon, 05/19/2008 - 18:20