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Microsoft-Novell: Has Their Deal Made a Difference?

It was just over a year ago that Microsoft partnered with Linux vendor Novell, turning the Linux world on its ears.

The companies now claim that they've signed 30 new customers to the deal, including Costco Wholesale Corp., Southwest Airlines Co. and the City of Los Angeles. How much impact the deal actually has had on the marketplace is, however, still up for debate.

The deal between Novell and Microsoft allows interoperability between Windows and Linux and provides a patent covenant, ensuring Microsoft will not sue Novell's SUSE Linux users over alleged intellectual property infringement by open source applications.

The total value of the deal was pegged at approximately $348 million by Novell and includes $240 million from Microsoft for SUSE Linux Enterprise Server (SLES) "certificates" that Microsoft may either use, distribute or resell.

In a statement sent to InternetNews.com, Novell noted that as of the end of the third quarter of Novell's fiscal year, it had invoiced more than $105 million in SUSE Linux Enterprise certificates through the business collaboration with Microsoft. That figure, according to Novell, exceeded its target for sales after one year.

Aside from the good news, analysts are split over the impact the deal has had on the market.

"It's making Novell appear to be a serious play in the high end of the Linux market," Gartner analyst George Weiss told InternetNews.com. "The derived and deferred revenues from the certificates are now passing from the somewhat to the significantly noticeable market-impact stage, and the relationship between Microsoft and Novell seems to have more resilient legs than many were willing to concede and cause market changing dynamics."

Pund-IT analyst Charles King said it's still too soon to tell how the deal has affected the OS market, though for Novell the results seem to be positive. King cited the fact that during the first nine months of 2007, the revenues from Novell's Open Platform group (of which SUSE is a major part) have increased by more than 50 percent from the previous year.

"This can't be traced directly to the company's deal with Microsoft, but the agreement may have had an impact," King told InternetNews.com. "The financial effects for Microsoft appear negligible (or so company CEO Steve Ballmer has said), but the Novell deal arguably paved the way for the company to pursue other agreements with open source players."

Illuminata analyst Gordon Haff sees little impact.

"Overall, it's hard to see a lot of impact to date in the sense that there haven't been major market share shifts among any of the major players," Haff said.

451 Group analyst Matthew Aslett is on the same side of the fence, noting that the overall impact of the agreement has not been as great as people might have expected, or feared, depending on their point of view.

"Microsoft's purchase of $240 million worth of support certificates for joint customers produced a boost for Novell's Linux revenue, but it doesn't appear to have had any impact on Red Hat's business," Aslett told InternetNews.com.

A Red Hat spokesperson was not immediately available for comment.

Beyond the business impact there is the interoperability side of the equation to consider, as well.

"There could still be some long-term impact from the interoperability initiatives around virtualization, as well as systems and identity management, but it could be some time before customers see the results," Aslett said.

Regardless of what impact the deal has trigged in the marketplace over the past year, ultimately it's about meeting market requirements.

"The fact is that the vast majority of businesses do not want homogeneous IT infrastructures," Pund-IT analyst King said. "Instead, they want to be able to better and more easily manage their IT assets no matter what hardware or OS platforms they buy.

"Microsoft and Novell deserve congratulations on their one-year anniversary, but the needs of Linux and Windows customers are as much responsible for the partnership as the companies themselves. "