META Report: Novell Faces a Critical Year - Page 1

Nov 21, 2001

CIO Update Staff

News Item: Novell announced the layoff of 19% of its workforce last week (1,400 positions) and its latest shift in strategy. Novell stated that it will achieve a new "solution focus" through accelerated consolidation of Cambridge Technology Partners (CTP), which it acquired earlier this year.

Situation Analysis: Novell's latest layoffs and reorganization are symptomatic of its continued difficulty in establishing a coherent and stable focus for its business and marketing strategies, as it moves from a product-centric approach to offering more services.

This is a problem Novell has struggled with for much of the past decade. While internal debates continue, pulling the company first one way and then another, its chances of preserving its market presence as more than a boutique vendor are at risk.

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"Novell is having trouble deciding what it wants to be when it grows up and becomes more than the NetWare and e-directory company," says META Group analyst Earl Perkins. "If it stabilizes on a direction for more than six months, it has a chance of remaining an important player."

But Novell cannot seem to settle on a coherent vision for its future, as its efforts are divided among older and newer products and a new emphasis on services. The old-line networking product, NetWare, is fading in the market in the face of Microsoft's continuing onslaught. Novell's new product set, based on eDirectory - arguably the best external Web directory in the market currently - is too narrow by itself to sustain the company at its present size.

Meanwhile, Novell's diversification into services - based on its purchase of ailing CTP - is not gaining traction despite Novell's announced goal of transforming itself into a services-based company. As a unit of a software vendor, CTP faces the same problem that IBM Global Services and all other services arms of larger vendors have: It needs to maintain adequate platform independence to retain present customers and add new ones, while also attempting to push the parent company's products.

Unfortunately, the latest layoffs are coming mainly from Novell's marketing and sales staff, which does not bode well for the company's future. Even if Novell does stabilize on a single vision, without strong marketing and sales, it will be unable to communicate that vision to the marketplace and particularly to potential new customers - which are vital to its future. If Novell is to succeed, it must break out of its present, slowly dwindling user base.

Fortunately for Novell, it still has about $500M in the bank and an excellent product in eDirectory on which to build. This will give it another year to recover, expand its focus, and establish a new direction. Currently, eDirectory, iPlanet, and IBM are the most frequent choices for companies that need external Web-focused directories. We believe iPlanet will have its hands full as Sun Microsystems absorbs the former partnership organization and tries to rebuild it into a framework. This will give Novell an opportunity to build a larger following for eDirectory.

However, we also expect BEA, IBM, and Microsoft to invest more heavily in this market within the next year. If Novell does not make a powerful push with eDirectory and execute on a strong strategy to build on this new flagship product, it will find itself marginalized by the giants - or possibly acquired by one of them. So far, the products Novell has built on eDirectory in the single sign-on and other security and access areas are entering already crowded markets where Novell will have difficulty establishing market differentiation.

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