Friday, February 18, 2005


So now Nat and co. are working on YAGS (Yet Another Groupware Suite). This smells a lot like Mono. Novell is open sourcing 200,000 lines of Netmail code. I guess that makes the Netmail price list obsolete. If you already paid for Netmail, then I guess the joke is on you. Why aren't you laughing? Novell never did make any money from Netmail, so I guess they decided to open source it, so hackers can augment it and maybe lots of people will start using it, thereby killing one of Novell's three revenue pillars, Groupwise? If YAGS is so cool, and free, why on earth would I re-up my Groupwise license?

This raises a fundamental fiscal question. Why do commercial software vendors like Novell adopt the open source model? What is the financial gain to be made by giving away your software and source code? I can think of only two reasons:
1) Sell services, not software
2) We suck, maybe some kids can help us out

Let's start by noting that Novell's CEO, Jack Messman, replaced Eric Schmidt when Eric was forced out by the board as part of Novell's purchase of Cambridge Technology Partners a few years back. Jack ran CTP, a consulting and services firm, and the idea behind that deal was that selling services is more lucrative than selling software. Ever since, Novell has been quietly shifting its business model to a service-oriented one. Eric has a PhD in computer science, Jack, well, not so much. I think Jack probably has a G.E.D. or something (or maybe it was an MBA from Harvard, which seem to be about a dime a dozen these days). Lucky for Jack, though, he hired Chris Stone to do all of his heavy lifting, then sent him to business school when things started to go wrong, and fired him when things started to go more wrong. Jack is running out of people to fire. The main problem with this strategy is that it's simply not paying off. Despite several recent huge acquisitions, Novell's revenue is flat, and in fact in FY 2000 it was $1.62 billion, and after spending hundreds of millions on acquisitions since then, in FY 2004 it was $1.66 billion. Compare that with Microsoft, which tallied revenues of $22.96 billion in FY 2000 and $32.19 billion in FY 2003 (most recent FY). That's nearly 50% revenue growth (compared to NOVL's < 3%) during a recession, folks. To paraphrase a popular slogan, "who do you want to work for today?"

As an interesting aside, Jack Messman's base salary ($1.1 million) is higher than Sun's Scott McNealy ($104K), Microsoft's Bill Gates ($903K), Microsoft's Steve Ballmer ($909K), Google's Eric Schmidt ($554K), Yahoo's Terry Semel ($601K), and Apple's Steve Jobs ($0). Can someone please slap whoever said "you get what you pay for"? Update: Jack gave himself a nearly $1 million bonus this year for his stellar performance. NOVL employees: did you get a 100% bonus too? If not, maybe you should consider working for Microsoft.

Notice how Novell hasn't offered to open up the source to any of its software cash cows like Groupwise or ZENworks? The company jewels, the software that sells, remains locked up. What is being opened up are the products that never made a dime in revenue for Novell, likely in the hopes that some smart young hackers will figure out a way to make them difficult to integrate into an enterprise environment. Then Novell can sell you a bunch of "services" so that you can use your "free" software. Open source company? Um, nope.

Make no mistake, despite the earnest-sounding "make software, not money" mantra constantly spouted by Nat and Miguel, Novell is a publicly traded company, and as such is presumably trying to turn a buck. They're not in the open source business because it gives them the warm fuzzies. They're in it because they think they can extract more cash from their customers by selling them "services" and "solutions" than by selling them software. You need look no further than Jack Messman's resume to see that this is true. Say what you will about Microsoft, but at least we all know where they stand. Here's a box with some software in it, pay me $50 and it's yours, and you probably won't have to pay someone $150/hour to help you make it work.

A more cynical view of Novell's open source ambitions is that they don't think they have the in-house talent to compete with the likes of Microsoft. I tend not to subscribe to this view, mainly because I worked for Novell and know from experience that they have some top notch software developers in Provo. Remember that it was this bunch of "redneck hicks" in Utah (which would be the flyover state Novell is in) that produced the legendary security and stability of the Netware platform. I think the problem is that Novell's Massachussetts-based management simply can't believe that Utahns can be, and are, extremely smart. From what I can gather, the executive committee views the developers in Provo as a captured labor force, who can be ignored and otherwise mistreated because they have nowhere else to go in Utah, and most won't leave Utah for cultural reasons. They ignore the fact that a lot of these guys are really sharp, and when they complain about Novell's direction, they probably have a valid point. The result is rampant cynicism within Novell, and the promotion to high levels of people who say yes sir. One thing that surprised me about Microsoft is that "counterculture" flourishes here. If you think a Microsoft product sucks, you're encouraged to speak up, and your feedback is actually considered seriously, assuming you have a valid alternative and are not just whining.

So what does this mean for you, as a business decision maker? It means that with open source "solutions" you don't really have any idea what your costs will be. Software = free, configuration = ??, support = ??, etc. And that's if you're lucky enough to get the 16 year old kid who wrote your software to put down his iPod long enough to answer his cell phone, and quit worrying about losing his virginity.


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