Can he save Novell?

Eric Schmidt probably wasn't the first person Novell's board thought of when it started looking for a leader. But after almost a year-long search, the former Sun Microsystems visionary is exactly who the pragmatic, buttoned-down, Utah-based networking company picked to restore its rapidly fading luster.

9 min read
CNET News.com Newsmakers
May 31, 1997, Eric Schmidt
Can he save Novell?
By Margie Wylie
Staff Writer, CNET NEWS.COM

Looking at Schmidt's credentials, it's no surprise that Novell was thrilled he took the job. For 11 of his nearly 14 years at Sun, Schmidt oversaw nearly every software division of the company, including most recently, its networking arm.

But in 1994, after years of deadlines, late nights, and indigestion, Schmidt, at the tender age of 39, attained a distinction many engineers and scientists work a lifetime for: chief technology officer. As CTO, Schmidt was in charge of "strategy," research, and vision. Still, after a couple of years in a position some people would consider the best job in the world, Schmidt seemed frankly at a loss as to what to do with himself. "I'm CTO," Schmidt said in an interview with NEWS.COM late last year. "Sometimes I think that stands for chief talking officer or chief traveling officer."

Schmidt seems more a doer than a talker. The Beach Boys promise of California sun lured Schmidt from native Virginia to the San Francisco Bay Area for a post-graduate degree, where he later joined Sun Microsystems in the early 1980s. At the company's energetic young campus, which often bore more resemblance to a frat house than a business in those days, Schmidt managed a Sun software division and was the brunt of Sun's first two now-legendary April Fool's pranks. It was in Schmidt's office that the original pranksters assembled a VW Bug during the wee hours of the night.

Those days, however, are gone at Sun, where each year's prank appears successively more staged than the last. And now, Schmidt will be showing a deadly serious side as he takes on Novell. Once the undisputed king of the network and the start-up that dared beat Microsoft out of an entire category of the computing industry, Novell is faltering. Stock prices that soared and repeatedly split in the late 1980s are today hovering at the abysmal price an Internet IPO might expect (somewhere around $8 per share at this writing). After a disastrous series of acquisitions and then divestments, plus the relentless competition from Microsoft Windows NT, Novell is still standing, though on shaky legs.

Last week the company laid off 15 percent of its European workforce and may this week announce a layoff of up to 20 percent of its domestic employees, according to a Computer Reseller News report. If it's a challenge Schmidt wanted, it looks like he's gotten it.

NEWS.COM interviewed Eric Schmidt earlier this month about his jump to Novell and his aspirations for the company. We also picked his brain about his life while he was still at Sun and have included video clips from that interview.

You were at Sun for over 13 years and had risen to the position of chief technology officer. Why take a job with a struggling company a lot of people have written off as a has-been?
Schmidt: Because I obviously don't agree with that view. Novell is a company that is very well-positioned to be a leader in network services. For me personally, I had worked at Sun for almost 14 years, loved Sun, loved working for Scott [McNealy], but frankly I'd done all the things I could think of doing at Sun. I wanted to work in network services, and here's the biggest company in that space that could actually use me.

NEXT: Focus, focus, focus  

Age: 42

Claim to fame: Prospective knight in armor to Novell

Schmidt's law: "Bandwidth will win."

Recent revelation: "There's no cafeteria in this office...but, hey! I'm the CEO! I can fix that."

CNET News.com Newsmakers
May 31, 1997, Eric Schmidt
Focus, focus, focus

Where did Novell go wrong, and how can you fix it?
The company embarked on a strategy of growth through acquisition that was essentially disastrous. The company bought somewhere between 15 and 20 companies, depending on how you count. The theory was to aggregate to be big enough to compete with Microsoft. Unfortunately that strategy didn't work. In particular WordPerfect, which was an extremely large acquisition, cost a lot. Then the revenue collapsed for various competitive reasons within a year after the acquisition. And so, unfortunately, both the USL acquisition, which was the Unix acquisition, and the WordPerfect acquisition then were very painfully unwound by Bob Frankenberg. That whole episode cost the shareholders quite a bit of money.

The important point here is that Novell has returned to its networking roots. No matter what happens we're not buying WordPerfect again. We're going to focus on core, outstanding networking services.

You mean the biggest company in that space that isn't Microsoft?
Well, it's actually bigger than Microsoft in network services. Everybody somehow assumes that Microsoft is going to eat everybody's lunch. It's become a canonical wisdom of the industry, but the fact of the matter is that Novell has done very well in network services. It's simply that the last couple of years, with all these acquisitions, have been very distracting. So my answer for Novell is focus, focus, focus.

What do you focus on?
Basically, making the Netware platform a premier network services platform. And then focus on all the services that we want to build, like directory and security and single log-in and collaboration, on multiplatforms--not just Novell, but also Windows NT and Unix as well.

Who is Novell?
It's the leading network services company. And we need to define that in a way that has meaning for you.

Novell started out as a Utah-based, mostly Mormon company. Now the workforce is split between Silicon Valley and Utah. Does that create an internal culture conflict?
In my experience there are cultural issues within the company but they emanate from acquisitions, not religion. While it's true the company started out in Utah, it's since become a global company. There's more than 1,000 people in San Jose, which most people don't know about. The first question I've gotten is: "Are you moving?" And I say: "No, there's more than 1,000 people here in San Jose." I think, in fact, the executive staff are split half and half between Utah and California. My experience has been that Mormonism, as you put it, has if anything been positive, because the Mormon culture is a very strong, collaborative, supportive kind of culture. In a company that's going through tough times, it's a good culture to have. Also Mormons, as a gross generalization, are very dedicated and hard-working. I think it's a good fit.

Should more of the workforce be in Silicon Valley where the action is?
It's a big enough company that we can have people in both places. If we do this right, we can get the best of both. The problem with Utah is that it's isolated; the problem with California is that it's hard to keep a stable staff. The benefit of Utah is that it's a great place to live and people work very hard; the benefit of California, of course, is that you are completely tied into the Net, in just an incredible way.

This company is fundamentally run out of California, and I think that's very important. I think what you are going to see is Utah being primarily an engineering and development site, and the executives and their business decisions being made here in San Jose, and that's probably the right balance.

So, Novell has a great product, a good installed base, but isn't growing at the rate you'd like. What are its competitive problems?
The summary of Novell's competitive issues is Microsoft, Microsoft, Microsoft. The fact of the matter is that Windows NT is doing well. There are situations where people are finding that applications run on Windows NT and not on Netware, and that's the competitive challenge. The way you address that is that you build a better product in a space that we do well in, as a services platform. We're not saying that NetWare is better than NT; we're just saying that as a services platform.

Most anyone who does anything network-related seems to be looking towards the consumer space. Is that in the future for Novell?
Anything is possible in the future, but right now we need to focus on our core business. If you do any of the textbook management analysis, they tell you that if a company is encountering difficulties, either because of previous strategic decisions or changes in executives or what have you, the most important thing to do is to get your core business stabilized and go from there. Scott [McNealy] understood this intuitively, and so when Sun ran into trouble in the early 1990s he really focused down. So consumer products sound great, but let's do that next year, not this year.

NEXT: Taking chances

CNET News.com Newsmakers
May 31, 1997, Eric Schmidt
Taking chances

It took a long time to find a replacement for Bob Frankenberg [who left almost a year ago]. Are you taking a chance here?
Of course. Anytime you take a CEO job in a company whose revenues are not growing at some astronomical rate, you are taking a chance. For me personally, I looked at this as a perfect alignment of what I wanted to do, and to be quite honest, I'm quite happy here. I'm not trying to dismiss the serious competitive problems the company has, but from the standpoint of working in the domain I care about, this is a perfect alignment.

Are you prepared to run a company of this size?
Well, I don't think I have a choice. I appear to be running it. I think so. I had run a number of operating divisions at Sun, which is not at the same level. I had not been chairman of a board, I had not done a shareholders meeting, but now I've done those and they don't seem to be that out of line with what I've done in the past. The hardest thing so far has just been the size. We have lots of talented engineers who actually have opinions and they send them to you. You really want to be disciplined to think them through and listen to them. I've always been very collaborative both internally and externally.

From my perspective, more communication is good. I'm very nonhierarchical. I'm trying to get everybody to be very passionate. The Sun culture was very aggressive: lots of arguing, lots of strong positions, and I prefer that. It means to me that the company is alive. I was initially worried about that and then I found myself in a meeting where we were discussing a very important issue. Once everybody felt comfortable, it was just like Sun. I felt much better. Great cultures develop great products.

Wall Street seems to like the thought of you leading Novell. Why do you think that's so?
I suspect that Wall Street is reacting to the fact that the company appeared to be leaderless for sometime. I'm pretty well-known and the theory is that I can develop a winning strategy for the company and bring some revenue growth back. Wall Street doesn't like surprises and so here's a definitive answer. Someone they know and so forth. And I should say that Sun seems to be doing just fine without me. And I'm very loyal to Sun as well.

What about that loyalty? Does your arrival give Novell a shot at stronger Sun partnerships?
I hope so. I talk to the Sun people all the time. We're all friends. I have a commitment from them, and they have my commitment, to work together. We have a lot of joint customers.

What do you get if you haul Novell's stock out of the dumpster? What's in this for you?
For me it's the intellectual challenge. I do this because I love it. In my years at Sun I was always approached with: "Would you like to do this or that?" and I'd say: "No, because it doesn't look very interesting." This is actually very interesting, very challenging. I like the people, I enjoy the customer base, I enjoy the strategy area. As long as that continues, I'm going to be psyched as I can be.

But no move to Utah?
I spend a lot of time in Utah, and I'm looking for a house to buy there. The point is that I have to be both places and who wants to live in hotels? Trust me, if you're going to have a second home somewhere, Utah would not be a bad choice. I'm a skier.