Can open source still save Novell?

When Novell releases its fourth-quarter financial results next week, industry observers will be looking for signs of whether the company's big bet on Linux is starting to pay off.

So far Novell has had little to show even though the Linux market is booming. Industry watchers say Novell needs to more forcefully pull away from its proprietary software roots to win over open source supporters.

"I can't find any other companies that have . . . leveraged an open source and proprietary model and been successful at making money at it," says John Enck, a vice president and research director at Gartner. "We remain skeptical on how a company can make money on open source other than services and maintenance."

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When Novell releases its fourth-quarter financial results next week, industry observers will be looking for signs of whether the company's big bet on Linux is starting to pay off.

So far Novell has had little to show even though the Linux market is booming. Industry watchers say Novell needs to more forcefully pull away from its proprietary software roots to win over open source supporters.

"I can't find any other companies that have . . . leveraged an open source and proprietary model and been successful at making money at it," says John Enck, a vice president and research director at Gartner. "We remain skeptical on how a company can make money on open source other than services and maintenance."

At the start of last year, CEO Jack Messman said the company's acquisition of SuSE Linux would help turn Novell around within two years. But with those two years almost up, the company continues to struggle. In the third quarter, Novell reported revenue of $290 million, down 5% from the $304 million it posted in the year-earlier quarter. Earnings plummeted 90% over that period. And earlier this month, Novell said it was slashing its 5,800-person workforce by 10%.

Novell declined requests for interviews, but in published reports Messman has dismissed the flagging third-quarter numbers as a "one-time glitch" and has said the company's Linux strategy is on track.

Still, the company has struggled when it could be cashing in on an exploding Linux market. Linux servers posted their 12th consecutive quarter of double-digit growth in the second quarter of this year, with revenue growing 45% compared with the same period a year ago, according to IDC. By contrast, Microsoft Windows Server revenue grew 14%.

Click to see: Revenue shift