At Novell’s annual BrainShare user conference, CEO and President Ron Hovsepian sat down with Network World Senior Editor Deni Connor to talk about the Novell-Microsoft interoperability agreement and how it’s helping Novell attract customers with mixed operating system environments.

How did the Novell/Microsoft deal come about?

I called Kevin Turner, COO of Microsoft, who was formerly CEO of Sam’s Club and prior to that he was the CIO at Wal-Mart. So I called Kevin and asked him to be a customer again and I had this conversation about interoperability and Kevin responded wonderfully to it. The rest of the senior executives on the team called me the next day and we began this march of trying to put a customer-driven relationship together.

Wal-Mart had been a Novell NetWare customer?

Correct. A long time ago, but not presently. Kevin had already left Wal-Mart and become CEO of Sam’s and now COO of Microsoft. I called him because he understood this conversation of interoperability intimately. And that’s what got it going. And in terms of the Wal-Mart part of the agreement, they really wanted to drive the interoperability. They were front and center on what they wanted to get done.

Because they were a Microsoft and Linux environment?

It’s a combination. They have some Microsoft applications, and they have some Unix applications, and they have some new things they want to write, and they are looking to really take advantage of a blade server at the store and some other technologies.

So you made a statement Monday that the deal means stability for Novell. What did you mean?

There was a dimension of stability in two arenas. Most importantly is the customer, the second is the employee, and then there’s obviously an economic part of the $240 million that Microsoft committed to Linux, which we think is great. But more importantly, it’s giving us new customers and that’s what we need. We’ve now gotten Wal-Mart, AIG, Credit Suisse, HSBC and Deutsche Bank. We’ll be announcing others as time unfolds. And then there’s a bunch we just haven’t announced publicly either that have happened behind the scenes.

So it gives you an opening into some of these environments for your services that you wouldn’t have had before?

Exactly.

Like the ZENworks Orchestrator or Identity Manager?

You’ve got it. I need a footprint by which to have that conversation.

Is there anything to the notion that Novell caved in to Microsoft’s dominance with these customers in making this agreement?

From my point of view, no. The reason why is the customers that wanted to stick with Novell have stuck with Novell. The ones who didn’t and went with Microsoft would have gone with Microsoft in general. So the real question is: What’s the win when the two of us battle? Is that bigger than if the two of us work together? My fundamental premise was that I could accelerate their market and my market by working together.

If you look at Novell’s financials, even though there has been a huge increase in Linux revenue, the company’s revenue from Linux is still quite small, pretty much the same as that from NetWare.

NetWare revenues are actually bigger as a percentage of the business. The difference is we plan for NetWare to have some erosion and we plan for Linux to have good growth. Just to give you some of last quarter’s data: We give two metrics, the recognized revenue and then an invoicing metric, which is a leading indicator of what’s coming. It’s not revenue we’ve recognized, it’s revenue we’ve booked. Inside of the recognized revenue, it was 46% growth on the Linux revenue and our invoicing revenue grew 659%. So off the charts and that’s because of this joint relationship. The relationship gave us three things: great relevance to the customer because of the technical collaboration agreement, it gave us the differentiation we needed with the customer that was dealing with a mixed source environment, and the third benefit was that we were able to leverage their ecosystem with our ecosystem.

This technology agreement seems almost one-sided to me – that Novell is doing all the development to make its products interoperable with Microsoft. Other than Microsoft saying they will let SUSE Linux run as a virtual machine under Windows, it seems that that is the only technology development they’ve done.

It’s actually been a little more than that, so let me help open that up for you. Under the technical collaboration there’s virtualization, WS Management and the OpenXML translator. In virtualization, for instance, you have to tune those environments. We are building a joint lab and Microsoft has committed a number of people to the development. Microsoft has made an investment in the OpenXML translator. Microsoft wanted to do that work and outsourced it to Novell. We turned it into an open-source project.