In-Depth

The Attacker's Advantage

With Novell emerging as a Linux powerhouse, CEO Ron Hovsepian sets his sites on Microsoft.

• By Ed Scannell
• 09/01/2006

Ron Hovsepian takes charge of Novell Inc. as President and CEO at a critical juncture in the company's long and sometimes colorful history. Over the past couple of years, Novell has mostly transitioned its sizeable user base from Netware to Linux, refocused its business around services delivered through partners instead of directly, and invested heavily in cutting edge technologies like virtualization -- all this just to make up ground on Linux market leader and arch-rival, Red Hat Inc. As if that weren't enough, Hovsepian aims to cut a slice of desktop market share from Microsoft, something not attempted by anyone with conviction for years.

Hovsepian arrived as Novell's President of North America in June 2003. Prior to that, the 45-year-old executive spent 17 years at IBM Corp., holding several management positions, including worldwide general manager of distribution industries, as well as manager of global hardware and software development, sales and marketing.

Hovsepian and Jeff Jaffe, Novell's CTO, sat down with Redmond Editor Ed Scannell to discuss a number of topics, including his plan to walk into the lion's den known as desktop Windows.

Redmond: More than any other company, you're going after Microsoft on the desktop. In doing so you're fighting a war on two fronts -- Microsoft and your competitors in the open source world, most notably Red Hat. Are you equipped to do that?

Hovsepian: This is all about the discussion with the customer and what they want to do inside their shop. It's also a discussion around value and innovation. We have positioned ourselves as the enterprise Linux play ranging from the desktop to data center using the exact same code base. This is a really important differentiation for our users. The customer can apply where the value best fits for them. We believe customers will go through a conversion, not a migration, on their desktops in going from Windows XP to Vista. As much as they [customers] would like to believe it's going to be a simple migration, Microsoft has rewritten big chunks of their code. Second, users are also going from 32-bit to 64-bit as part of that conversion, and we have already made that commitment to 64-bit [on the desktop] two years ago.

Novell CEO Ron Hovsepian believes his company can steal desktop share from Windows thanks to multiple delays of Vista and a common code base in SuSE Linux 10 that runs on handhelds to host systems.

How long is the window of opportunity open for you to succeed here? I suppose the Vista delays and long evaluation cycles IT shops will need to assess Vista works on your behalf?

Hovsepian: If the customer does an honest evaluation based on value and innovation for what they need, I believe Novell will compete very well. That analysis has three parts to it: The cost of our desktop software, which is one-tenth that of Microsoft; the manageability of that environment and we have done some very competitive things there; and the training of the user base. The development team here, particularly those working on the desktop, has focused on what I call innovating around equivalency. They have given users the "like experience" of Windows, but have innovated in areas to give users a better experience. Our search paradigm [in SuSE Linux Enterprise System 10] is one example.

People have talked about the killer app for Linux on the desktop but it never seems to come. Will it be more like a killer collection of bundled technologies at this point?

Hovsepian: I'll take you down a different road on that topic. It is going to be killer value. The value will involve some of the innovation we have talked about, but as various industry segments mature what customers value changes over time. Think about the progression from VisiCalc to 1-2-3 to Excel. Those were three different products that had different reasons for succeeding and none of them were necessarily innovation driven. Our value equation will be linked around "it's good enough." I think users will be happy with the technical innovation at a $50 price point. To me that is a hell of a story concerning value.

Jaffe: It's called it the attacker's advantage. If you look at the history of computing there have been numerous times where technologies came along and supplanted other technologies that were better. A big part of the reason was people did not want proprietary and they wanted lower cost. When TCP/IP came along, for instance, it was not better than SNA at the time but it was open and gave people choice and so people went for it. When HTTP came along it was not the first hypertext approach or the best, but it was open and it offered choice.

But will "good enough" technology be good enough to displace something as entrenched as Windows in large numbers?

Jaffe: When Windows [3.0] came out that was a different paradigm in terms of how you approached your desktop. It was a significant step forward. But if you look at the user interface paradigms we are introducing with our desktop, like XGL graphics for Windows management techniques like displaying multiple windows and searching through those windows, that is a different metaphor for how one can approach the desktop. I can't predict when but with new metaphors like this you will see productivity changes that will give people reasons to move to a Linux desktop.

How committed are you to Groupwise. Some critics believe you're better off dumping it for something with more economic potential.

Hovsepian: In any software business it's important to know who your customers are and how to maintain those relationships. Looking across Novell, we have about 50,000 customers worldwide and I view [Groupwise] as an important part of our customer base that we want to maintain. Groupwise is a very rich platform in terms of the code base. What is exciting about what Groupwise can do is, we are the only vendors who can deliver this [capability] on Linux. We are the only one who can give you a rich client and back-end experience on Linux. Lotus just announced something on Notes and so they have awoken to the reality of Linux, which is great.

And the beauty of open source is you can compliment Groupwise in other areas as to how you expand the footprint. We feel comfortable investing in Groupwise but also leveraging what the open source community is doing with other pieces that work with Groupwise.

Where is your focus on applications going to be?

Hovsepian: Our focus will be helping users work with mixed-source environments. We believe the market will evolve over time and have both proprietary and open environments. That is very important in terms of where the market is going and where we have to be in terms of supporting the users. When you deal with desktop users the conversation has to be about choice.

How is the migration from NetWare to SuSE Linux going?

Hovsepian: The answer is it never goes as smoothly as you would like it to. But the good news is 80 percent of the customers have actually now contracted with us to go to OES [Open Enterprise Server] over time. We have surveyed about 400 users and seen a good uptick among those interested in doing pilot programs. We expect this to be a few years of transformation.

Some Novell users and analysts were happy to see you come into this job, but believe you have a limited amount of time to establish faster growth. Do you have a self-imposed time frame for getting that done?

Hovsepian: Absolutely. There is an inner sense of urgency that I come with naturally. What I feel good about is that our Linux business grew 20 percent last quarter, the identity business grew 20 percent -- and that market is only growing at 11 percent -- our systems management and management services associated with that grew 9 percent. What we're managing now is the decline in NetWare as we migrate customers over. So what you see when you put those two pieces together is flattish to negative growth at different points in time. That is what we're dealing with as part of that transformation. But our financial position is strong. We are cash flow positive, we have a balance sheet that holds $1.4 billion of cash and of that net convertible is $700 million. I do have a self-imposed timeframe but I can't go into detail on that yet. What I will say is I am looking through a set of glasses that says profitability is the first filter, and revenue growth is the second.

Generally, how do you see Microsoft as a competitor these days? Do you see any weaknesses you can exploit?

Hovsepian: Novell has a history of focusing on Microsoft as a competitor, so my reorientations to the team centers around customers. In that spirit there are two things that are really important -- namely giving customers' openness and choice associated with how and where they spend their IT dollars. Openness is counter to what that corporation [Microsoft] wants to do in life, and choice is also counter to what they want to do. I would even argue that value is, too. So against that backdrop we see their cycle times elongated and this is where the power of the open source community really kicks in. Look at the innovation of this new desktop [SLES 10] we have cranked out, and the cycle times we are able to get because of the meritocracy of open source and open standards. I really think the elongation of their cycle times compared to ours is a big issue for customers.

What did you learn in your years at IBM that you can apply to Novell's competitive situation today?

Hovsepian: Two big things. One was having come into IBM as it was peaking was a good learning experience because you then went through the whole downside and then the whole revitalization of the company. So both the cultural and business experience of going through that has been invaluable to me in my role here. Second, it reminds me to stay focused on the customer, employees and shareholders. It's that simple: don't over think it, Ron, keep it very simple and focused. This is that becomes my decision filter.