Conventional wisdom about IT vendor takeovers is completely missing in Novell Inc.'s US$210 million cash deal to purchase SUSE Linux AG. That makes me uneasy.
The bright side of the picture, as painted by Novell, is clear. The move is a signal that NetWare does have a path to the Linux platform. Novell's purchase in August of Boston-based Ximian Inc. points in the same direction. Novell and Ximian are now working on a way for Microsoft Corp. .Net applications to run on Linux, Unix and Windows and on developing a Linux desktop. And, yes, this is a real challenge to Red Hat, the leading Linux distributor.
Aside from this emphasis on Linux, a $50 million infusion from IBM Corp. endorses Novell's relevance. As Earl Perkins, a Meta Group Inc. analyst, said, "This means Novell's got a dog in the hunt."
But what kind of hunt is it?
As a rule, IT vendor takeovers aren't easy wins unless you're looking at big reductions in head count, juicy customer order books or expansion into revenue-generating areas such as consulting services. Those don't seem to be in this deal. Another aspect I find troubling is simple geography. This deal spans multiple time zones and aims to integrate different cultures, mirroring the situation in the misfiring DaimlerChrysler merger, which seems to have benefited only airlines flying between Detroit and Stuttgart.
Linux offers a great IT model for users, but the business model for vendors is unclear. Red Hat made just $5 million on sales of $106 million last year. SUSE is privately held, so figures aren't available, but if Novell is after Linux credibility, why not assemble a team of Linux developers to port NetWare's administration and management features to the open-source operating system?
If this is a plan to nab support from customers frustrated with Microsoft's licensing policies, great -- but that isn't a business strategy. While this takeover is the work of new executive blood at Novell giddy with new cash in the bank, it faces the same hazards as previous Novell takeovers, such as Unix System Laboratories/UnixWare. Indeed, this could be one of those deals that's good for the customer, good for the technology, but bad for the acquiring company, which fails to see the expected money flow in.
A purchase of Red Hat would have positioned Novell as the leader in Linux and generated the kind of excitement that leads to real shifts in market value. As it is, SUSE makes out well (it's getting more than $500,000 per employee) and Novell buys some more time.
The next couple of years will determine whether this is a visionary or stopgap move. In the meantime, the real moneymaker will be the airline that flies the Salt Lake City-to-Nuremberg route.
- Pimm Fox is a freelance writer in Santa Barbara, Calif. Contact him at firstname.lastname@example.org.