How the proprietary world can cope with open source: Learning from Novell

Several years ago I was at Novell while the company struggled with a difficult dilemma: How to grow revenues with its then-primary cash cow (NetWare) was declining at an 11% annual clip, a rate that was accelerating. The company responded to this decline by acquiring SUSE as a way to hold down NetWare losses, porting NetWare services to SUSE Linux (Open Enterprise Server), and shift to the Linux growth engine to replace NetWare.

The strategy has worked, though not as fast as Novell would have liked. That is due, in part, to waiting until the last minute to make the switch. (It's difficult to cannibalize oneself, so I'm not being critical when I say that.) It's also in part because open source was still in its commercial infancy when Novell made the move, making it harder to monetize the acquisition.

Even so, I believe that Novell's SUSE acquisition points the way to how proprietary software companies can hedge their current strategies with a bet on open source's future:

• Acquire an open-source competitor. This may sound like anathema, but it's actually a very pragmatic solution. It's a way to bring open-source DNA into a company; to get hands-on experience in a real-world open-source laboratory. Keep your friends close, and your enemies closer.


• Keep the open-source competitor as a separate subsidiary. The idea is to nurture the open-source product over time and learn from it, not to have it directly undercut one's proprietary product revenues. Let market pressures do that.


• If open source doesn't take off, you've wasted money on the experiment, but your fat proprietary profits will atone for that. If open source explodes, it's exploding to your benefit on your income statement. The idea is to have the proprietary products' decline be balanced out by the open-source products' increase. It's a delicate balancing act, but Novell has shown that it can work.


• If this seems like too much, try offering an open-source product as a low-end "gateway" product for one's "high-end" proprietary products. This is IBM's strategy with Geronimo/WebSphere. It's not a bad strategy, though I think it underestimates and undercuts the open-source competitor. I don't lose to my proprietary competition because I'm "low end." In fact, I win on that point. The proprietary world can't hide behind that facade for much longer.

All easily said, and much harder to do. The reality is that the primary battle to be one is within the walls of your own company as the proprietary and open-source cultures collide. But that's the point: you want that battle happening inside the company rather than at your expense outside the company. Buying into open source is a way of convincing customers and prospects that you have a long-term open-source story to tell them even while sustaining and prolonging your proprietary maintenance revenue streams.

The one thing that you don't want to do is over-manage the open-source project you acquire. Let it grow and let it compete. By having it internal you learn how to bring some open-source tenets into your proprietary development processes, you stave off mindshare loss, and you provide for future growth through open source.

If you're one of the few proprietary companies that hasn't started to feel the pinch from open-source competition, consider yourself blessed. But very few fall into this camp.

Sound reasonable? Or am I paying too much attention to all the unborn chicken voices in my head? I'd love to hear whether you think this sort of an approach can fly.