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Will Novell, Dell turn to open-source M&A to grow?

The two companies are looking toward acquisitions to grow revenue, but they need to be pragmatic about what to expect from open source.

Novell was recently rumored to be shopping itself around for a buyer. The new rumors? That it's doing some shopping of its own. In this, Novell isn't alone, with Dell also looking to pick up companies that can expand its product lines, as both look to grow despite CIOs' decreasing willingness to spend. Open source may factor into both companies' M&A strategies.

As reported in Daily News & Analysis, Novell CFO Dana Russell has said the company is "interested in making acquisition in the high-growth businesses like identity security and compliance management software, data centre tools and open source software." With over $1 billion in the bank, Novell is in a prime position to buy companies on the cheap.

However, Novell should avoid its SiteScape error, viz., buying into a trendy but not yet profitable market. Identity security and compliance management are probably safe, because they're precisely the sort of "boring" markets that CIOs will pay money for in a recession.

Open source is much the same, but it depends on which open-source products it picks up. A Zenoss, Reductive Labs (Puppet), or some other company in IT management/configuration might be a smart bet.

Novell isn't alone in its interest in acquisitions to spur growth. Dell has been widely reported to have a $10 billion war chest set aside for acquisitions and, according to The 451 Group, Dell may be looking to make some significant acquisitions in the storage market:

With existing partners such as Cisco and Oracle...now priming themselves to become players in the server hardware market, Dell clearly needs to build up its portfolio to do battle with these new entrants along with its traditional rivals Hewlett-Packard and IBM. One clear way to do this would be to expand its storage software and hardware lineups since these offerings are complementary to its core server and PC business.

One way to get into the market would be to buy EMC, a current partner, but as The 451 Group notes, Dell has rarely ventured into big acquisitions--its $1.4 billion acquisition of iSCSI storage systems vendor EqualLogic in November 2007 the exception to the rule. I'd expect Dell to buy midrange players along the lines of 3PAR, Exanet, and so on rather than NetApp or EMC. Buying big would be distracting to Dell and take too long to digest and commoditize, Dell-style.

It's possible that Dell might even delve into the open-source storage market. An Infoworld reports identifies the best of the bunch, with vendors/projects like Zmanda, FreeNAS, and StorageIM in the mix.

It's doubtful, however, that any of the vendors in the open-source storage space are big enough to move the revenue needle for Dell. So, while it's SMB strategy may involve a healthy dose of open source, I wouldn't expect its storage strategy to do so...at least, not yet.

Open source could be a boon for both Novell and Dell, but each would need to be pragmatic about what to expect from open source. Currently, the most revenue either can expect from an open-source buy would be in the $50 million range, with most open-source vendors offering much less than that.

However, the one thing that open source can offer both right now is a ready supply of leads, plus branding and relevance in markets where Novell and Dell may not yet have much of either.

Follow me on Twitter @mjasay.