Novell builds new foundation on Net services

In a move to heal the damage from a series of fiscal problems and executive shuffles, Novell today unveiled a new strategy to focus on the nascent market for Internet-based services.

At the company's annual BrainShare user conference here, Novell showcased products that will fall under its so-called directory-enabled Net infrastructure model, or "Denim." With the new plan, executives say the company has moved from being a competitor of software giant Microsoft to a pioneer in the Net-based services market.

Previously reliant on sales of its Netware server-based operating system, Novell is now restructuring its focus to showcase its directory services software. Such software essentially serves as a "phone book" for networked computer users, systems, software and attached devices.

This new focus could re-establish the company as an integral software provider for the Net, if it succeeds in implementing its new strategy effectively, analysts say.

Skeptics wonder whether Novell can articulate a hard-to-understand batch of technology as a panacea for what has become a disorganized web of networks and information. As has been the case throughout Novell's history, the answer lies in two classic weak spots: marketing and execution.

"I think Novell is saying all the right things," said Jamie Lewis, chief executive for the Burton Group, an industry consulting firm. "My question (is) how they're going to deliver. What's behind the message now?"

Market figures show why Novell needs to make the switch. Microsoft's Windows NT captured 38 percent of the server-based operating system software market in 1999, with Linux in second place at 25 percent. NetWare was relegated to third place with 19 percent, according to market researcher International Data Corp. (IDC). Various Unix entrants placed fourth with 15 percent of the market.

Historically, Novell was a leader in the server operating system market, but the company's chief executive, Eric Schmidt, says that focus is now "last year's story."

Saying his company is taking the "next step" after restoring customer confidence and building new technology that people want to buy, Schmidt said Novell's new ambitions are simple.

"I like to think of it as we're building the fabric of the Net," he said.

Novell also has to keep its NetWare core customers pleased. The company just released a version 5.1 upgrade to the operating system and plans to incorporate new features for chip giant Intel's forthcoming high-end 64-bit microprocessor, called Itanium. "Contrary to rumors, the NetWare franchise is growing and customers are happy," Schmidt said.

But Novell hopes to avoid engaging in any type of operating system war by creating a market based on its directory software and associated applications. Similar to a database, a directory can be a central point for network administration, security and synchronization with other systems on a corporate network or the Internet--a market that could be huge given the explosion of Net-based computer usage.

"There's a new battle here," Steve Adams, senior vice president of worldwide marketing for Novell, told a packed hall of Novell loyalists. "Net services becomes our mission."

"Denim" essentially represents Novell's umbrella term to explain to its customers and employees what the company's focus is. Microsoft has had its own challenges adapting to an increasingly Net-based software market.

Wall Street has been receptive to Novell's revised message. The company is trading at nearly double its 52-week low. When it bottomed out, it was trading in the single digits--a far cry from today's close of $31.38.

Analysts said that indications such as the company's use of Denim to explain a wide array of esoteric technologies is a good step. "They used to be all over the place (in their marketing)," said the Burton Group's Lewis.