Novell tries to stop the bleeding

On the eve of Networld+Interop, the largest network technology trade show of the year, Novell (NOVL) is actively searching for a successor to recently ousted CEO Robert Frankenberg. But the question remains: what is the company doing to stop the bleeding?

Interim President Joe Marengi, who was promoted from his position as head of the company's sales force, may have the toughest sell of his life on his hands.

Novell officials insist that finding a new CEO will not disrupt the company as it moves to shore up the perception that its technology may be largely irrelevant in the Internet age. In a recent interview with Marengi, the new head of the company insisted that the main problem for Novell is that no one knows what the company can offer.

"I think the Board of Directors recognized we need to be much more aggressive as a company, to really just go for it," said Marengi.

A much-publicized high profile $20 million advertising campaign in the coming months may leave people with the company's name on the tip of their tongues, but will that translate into renewed hope for the company?

"The immediate future looks kind of bleak," said Jon Oltsik, an analyst with market researcher Forrester Research. A recent report also shows that the company's wounds may be far deeper than a simple marketing malaise.

The survey, completed by Forrester, chronicles a Novell user base at its wits' end. Based on interviews with 50 large corporations using Novell, the report noted that 72 percent of the users interviewed have no plans to include the company in Internet or intranet rollouts. Only 12 percent said they would include Novell.

"People aren't waiting for Novell to get its intranet act together: they're moving," noted Oltsik.

That is a problem for Novell. The company is making every effort to be a huge player as intranets are implemented within companies. At the recent debut of IntranetWare, a bundling of existing Novell technology with some Web services, Executive Vice President Steve Markman said "the future of the company is at stake."

Added Marengi: "The network operating system (name) was developed to delineate a niche. That's emerging today into an intranet."

In fact, the company has staked its future on four distinct brand names and technology areas: IntranetWare, ManageWise, which is a series of network management applications, GroupWise, a messaging application, and NetWare Directory Services (NDS).

Marengi said NetWare will be unwrapped from its proprietary past and given standards-based protocol support as soon as this month, when native IP (Internet Protocol) support will be available for users to test on the company's Web site.

A major launch of the latest version of Novell's groupware product, GroupWise 5.0, took place last week in New York City.

Novell still retains a technological advantage with NDS, a technology that allows users to easily access information no matter where it resides on a network. But because of what Marengi dubbed "a proprietary vein" within Novell, the company's timing may be too late as it takes NDS cross-platform.

The Forrester report notes that only 20 percent of Novell users interviewed have installed NDS. The company is also having trouble taking NDS to Microsoft Windows and NT. Microsoft will not release access and security APIs (application programming interfaces) for NT to Novell.

"Conveniently, they are the pieces they know we have a leadership in" with NDS, claimed Vic Langford, Novell's executive vice president and general manager of Internet and intranet services.

NDS running natively on NT is still scheduled to roll out in the first half of next year. When the NT API's are released, Novell will simply add them to the product, according to Langford.

Novell has long waged a war with Microsoft, and those battles remain with the growth of NT as both a file and print and application server. Even as NetWare is subsumed into IntranetWare, the NDS battle remains. This may be where there is the most hope for the networking company.

"Windows NT still doesn't execute in the networked environment the way NetWare does," Marengi said.

International Data Corporation (IDC) statistics show that Novell's NetWare had about 60 percent of the server network operating system market versus Windows NT in 1995. IDC predicts NetWare will be overtaken by NT in 1998, although it will retain a significant base. Year 2000 sales of NetWare are expected to be over 1.3 million units, according to the market research firm.

But analysts say Novell has not been able to gain a foothold in the developer community for NetWare-based applications, even as NetWare has gained stability as an applications server. "Think NetWare, think file and print" is the message users are left with when they look for NetWare apps.

"Right now, Novell appears to have lost its way in the corporate messages it presents," noted Dan Kusnetsky, an analyst with IDC.

Forrester's Oltsik said the company should expect 18 to 24 months of diminished returns, with revenue falling 25 percent. They will have to use pricing, bundles, and attractive upgrade packages to retain their installed base, he said.

After that, with an Internet market that is still developing, Oltsik believes the company has a chance as a network services provider. Marengi concurs, saying the company's game plan is for "NDS to be the meta-directory for the Internet."

A services focus for Novell would rely on content management, security, and authentication, according to Marengi, noting that the company would not be "everything to everybody" as a services provider.

Only time will tell if the messages coming from Novell will get through, but Marengi is quick to note Novell's mistakes as well as its unfortunate ability to keep its technology a secret.

"The bottom line is the company has learned," Marengi said.