Q&A: New Novell CEO in all-out Linux push

Novell’s new CEO Ronald Hovsepian and current CTO Jeffrey Jaffe have a lot to talk about, as the company refocuses on open-source software following an executive shakeup in June. Both executives gave some insights on Novell's strategy to use the majority of its resources - support, marketing, sales, product development and some $1.4 billion in cash reserves - to become a full-fledged Linux company. The CEO and CTO also talked about why everyone should have a Linux desktop pilot running. (The following is an edited transcript.)

What will change at Novell now that you’ve moved into the CEO post?

Hovsepian: [There are] three basic things we need to do stronger as a corporation. One is simplification. By that I mean we just have to drive a level of simplification into our business processes and our business model. We have room to improve there dramatically in the way we work with out partners and the way we run the business for our customer - really being very customer-oriented in terms of simplification.

The second piece is focus. Under focus I think of it in terms of market segments and customer segments - bringing more focus and prioritization into those pieces as to what we need to do inside the company as a second dimension.

The third aspect of it is execution. We made a statement to Wall Street that we would deliver 12% to 15% operating income by exit fourth quarter of 2008. We have to deliver on our commitments. We have to deliver on our product commitments. We have to deliver on our financial commitments. And we have to deliver on our employee commitments.

So what are you simplifying, and what is the focus?

Hovspeian: Really a couple of things. One, taking Linux as the centerpiece of what this company is capable of doing. One of the great things of what Linux brings to us is the opportunity to do things differently.

I view Linux as one of the great enablers. Linux holds a lot of things inside the distribution that are going to be very important to our customers.

We're doing two things with Linux. One is the enablement - virtualization enablement and other things like that. The second part of it is introducing a separate enterprise approach for our customers.

When you stop and think about what Linux can bring and what we're doing - we're really focusing in on creating this server-to-the-desktop story. This is really what we're focused on in the Linux dimension.

Right now, we run our Linux distribution on a zSeries mainframe, we run on RISC processors, we run on Intel processors, we run on kiosks. We run it on point-of-sale devices, banking devices. Then we have two desktops: one is a thin client; one is a fat client. That story is an enterprise story for our customers.

What can enterprises expect from the upcoming version 10 of SuSE Enterprise Linux Server and Desktop?

Hovspeian: The great part is that the Code 10 release is going to give us one single common code base across all those platforms. So why is that good for my customer? It's efficiency - operationally efficiency. Train them once, get the scale across the organization. Why is it good for us? Same reason: operational efficiency.

Now what we've done is given our customer the ability to have choice inside the market in what they can do at an enterprise level. The second thing we're doing is this enablement. What I mean by enablement is that we see the distribution being able to do a lot of pieces inside of the market.

Let's take virtualization. Our team has the most [contributors of open-source virtualization code] besides Xensource. Virtualization needs to be enabled within the kernel. That's important because virtualization is going to touch processor, memory, disk, and network. You're going to have virtualized containers moving around networks. You'll have a lot of moving pieces here that are really going to be important.

As you look at the enablement, there also has to be management. Just because you enabled something to be virtualized - now, how do you manage it? How do you do load-balancing? You have a whole bunch of questions that have to be handled from a management perspective.

So when I said focus, we're going to focus on Linux as an enabler here, and as an enterprise story. That's one piece. The second piece of the story really plays to Novell's historical DNA. With those management services, we think we can bring a lot of value for our customers, by helping them look at a mixed-source environment.

What technologies does Novell have over other Linux-focused companies to help customers use Linux?

Hovsepian: Our directory [technology] and our network heritage really give us a distinctive advantage in the market. If you look at our identity services, that's an opportunity we have at the management layer, where we do the best heterogeneous job of anybody in the market. We'll take any directory - from Sun, Microsoft, IBM and [Novell] and we can tie them all together for our customers in a meta-directory. Those are the kinds of things that we've just always classically done as a network-based company.

We see, for example, our NetWare transitioning to open enterprise services. What's exciting about it is that it's one of those management services running on a Linux platform. So it's a very logical evolution for our customers and ourselves without having to do major brain surgery.

You said that Linux gives you the opportunity to do things differently? What does that mean?

Jaffe: The only thing I might add is that we're going to take open source as the enterprise story. It might be useful to show examples of how the enterprise story enables us to take Linux to new places for us, where we haven’t been before.

The Linux desktop has historically has been used in many places: the kiosks, point-of-sale, thin clients. We think that the Code 10 desktop shipping next month is the first Linux desktop which is going to fit like a glove into a networked enterprise world.

So to that we did a careful market segmentation of all desktops. We discovered that one-third of desktops are the corporate knowledge workers, who live in five applications: Web, e-mail, presentation graphics, word processing and spreadsheet. If we just focus on those five, we think we can do an excellent job for that networked client. So, we have OpenOffice 2.0, shipping with the desktop, which is miles beyond OpenOffice 1.0. In terms of e-mail, we have interoperability with Microsoft Outlook and Lotus Notes and Active Directory. So it's really living in that full network world.

What is the state of the SuSE community?

Hovsepian: In terms of the overall community, there is a good metric to look at. It's called distrowatch.com. Over the past year, we have been doing over 30% more downloads than Red Hat… From that perspective, as part of the mindshare/market-share game, we're actually the leader. Right now with the Code 10 release, we're downloading one every seven to eight seconds.

Do I believe that our competitor [Red Hat] does a better job in the marketing dimension? They've probably captured a little bit more mindshare until recently… I'm literally tracking this thing at a much closer level of detail. Reports show we're taking the mindshare. Obviously now you have to translate that and monetize that. From a mindshare standpoint, Novell is squarely in the game.

Also, from a community perspective, we've got over 30 rock stars from my point of view who are known in the community as great innovators - whether it's Nat Friedman or Miguel de Icaza, Andreas Jeager. So from that point of view I feel really good. We're number 2 in terms of contribution of open source virtualization code; that's why we were able to ship [Xen virtualization] six months ahead of Red Hat. So when you really look underneath it from a technology and community perspective, the momentum is building for Novell right now.

How will you grow your share of the Linux market, and boost Novell's Linux revenue, which only accounted for 4% of the company's revenue last quarter?

Hovsepian: What's exciting is that we've been growing at 20% over the past quarter in our Linux numbers. Our identity services business grew in totality at 20%, while the market is growing at 11%. With Linux, we have to grow even faster, from my point of view. Twenty percent is not aggressive enough for us.

We want to really emphasize our story. Our story is not an edge server [story], where our competitor plays. For customers that are really going to make [Novell Linux] part of the core of their businesses, either in pieces of the network or the data center, the question is: Who are you going to rely on for [service and support]? Part of the reason we've won so many key accounts is our worldwide support. I've got 900 people [80% of the support group] trained on Linux around the globe. I can parachute these people into [customers'] data centers right now to help them run their businesses.

[What we also] need to do is ramp up our relationships with our partners in the channels. That's something that I think was an area of execution that we can improve on as an overall business. They're aware we're a Linux company. It's more that we have not engaged with our partners at the level that we are capable of, in terms of working with them while they're working with customers.

How important are NetWare-to-Linux migrations for the future of the company? How do you encourage customers to migrate?

Hovsepian: That growth is what's critical for us. Now we need to make sure that we continue to maintain our base business, and make that full transition. What we've seen so far is that 80% of our revenue base, in terms of our customers, have selected the OES product. So that's really nice to hear; that's a good indicator. But [with that] you can run either NetWare or Linux as the OS. What we have to do with our service account managers and our teams is to walk through these migrations with out customer. We're telling [customers] to go do your pilots, tell us what we need to do to improve product, then you do your full migrations and rollouts.

And as you know, any operating system takes multiple years to do that [kind of transition]. We're not going to force our customers to do anything unnatural. We're going to make this a joint migration with our customers. But the first step you would look for is, are they moving towards the new product? The answer is yes. Now, the question is, how do we keep the evolution going through the rest of the lifecycle.

What is your strategy for drawing new customers, besides just converting existing NetWare customers to Linux?

Hovsepian: First thing I noticed when I came in here is that we have a great relationship with our base of customers. We have approximately 50,000 customers worldwide, so we're very blessed to have that inside the business. What we've done is turned our demand generation engine, focused a higher percentage of our dollars to be spent on acquiring new customers, while maintaining our old customers with continuous communications.

But we've really focused the aspect of the aspirational part of our spending on these new market places, to the tune of roughly 70/30 - that's a focus on marketing and demand generation, specifically underneath. Behind that, you put your channel, your field bodies to be aggressive about doing that.

We're tracking new customers. In the Americas, we had 648 new customers there. You have to measure it, and have deadlines. That's the way you run a business. That's part of the evolution of our company is to really bring some of that discipline back into the organization.

Luring Microsoft desktop users to Linux has been a challenge for all Linux vendors. What is your strategy to do this?

Jaffe: It's important to be realistic about the rollout of the desktop because today the desktop is a Microsoft world. We don’t actually expect all enterprises will become Linux-based in the next 12 months.

Hovsepian: We're happy to take [customer] orders, but we're pragmatic about it.

Jaffe: But we think that the next six months are a very important time for the industry. In early 2007 is when large enterprise customers will have to make their Vista decision. Vista is going to be a very important decision for them. We don’t want to tell them to make it or not to make it. What we're telling folks… is that if you're going to make such an important decision, you should have an in-depth knowledge of the fact that for the first time there really is choice. There really is an alternative. There is something that you can get which [is] basically one-tenth the cost of Windows with the Office suite, MSRP. For a class of users - not everyone, not for the power user, but for a class of users - it has everything that you want, plus a lot of innovation.

With that backdrop, what we think is appropriate for the industry at this stage is that each major enterprise should be running a pilot. For a pilot, you don't really need the major support of the IHVs. A pilot could be 30 users, 100 users, 300 users - whatever people want. As Ron says, we'll take the orders.

But people should just get knowledgeable and understand the choice. Come February next year, you have to make the decision if you like paying 10 times the cost, and you like bloat-ware, and you want to go only Vista, and not have Linux at all, we'll respect that. But for a class of customers and a class of users, we think that if they evaluate it, the market pull will come from that.

Are pilots happening with your customers?

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