usnews.com
Business & Technology 6/15/98
I survived Microsoft
Novell's geeky new CEO aims to prosper in Bill's
world
BY RUSS MITCHELL
Outside the computer business, few people have heard of Novell Inc. It
didn't have to be that way. Only a handful of companies ever had a real
chance to vie with Microsoft for leadership in the software industry, and
Novell was one of them. But Novell blew it.
Now the company is fighting for a second chance--not necessarily to
thump Microsoft but simply to live in Bill Gates's world and to prosper.
The rest of the software industry will be watching closely to see if even
this modest aspiration is achievable in the face of Microsoft's ever
growing dominance.
Not long ago, Novell was considered a goner. It had lost direction; its
winning momentum had been halted by Microsoft and, more to the point,
by its own strategic blunders. Its share price sagged pathetically as the
stock market soared; even the market's bottom feeders were repelled.
Then, about a year ago, the company hired Eric Schmidt, a highly
regarded, slightly geeky 43-year-old with a computer science Ph.D., to
head the company as chief executive officer. Schmidt, who has boyish
looks but showed a steely will in his 14 years with Sun Microsystems,
performed the usual turnaround drill at Novell: He reduced the work force,
lopped off marginal businesses, and replaced some top executives.
Schmidt's essential contribution, though, has been to focus the company's
energy and attention on its true strength: computer networking. And now
that Novell is once again turning out products worthy of its heritage, with
its finances back on solid ground, Schmidt is trying to make sure
customers--present and potential--are paying attention.
While Microsoft spends millions on marketing and its CEO's face is
universally known, Schmidt is going the grunt route, logging 250,000 air
miles in the past year, half of them on Novell's little corporate jet. He's
embarked on a grueling schedule of one-on-one visits with top executives
at corporations around the world. With the intensity of a political
campaigner, Schmidt is trying to make the case that Microsoft isn't the
only game in town. Progress has been slow but sure. The conventional
wisdom has gone from "Novell is dead" to "Hey, they're not dead yet,"
Schmidt says with a grin.
To understand Novell's hallowed place in computer history, and why
anyone would care if it lives or dies, you have to go back to the early
1980s, when personal computers were new and a young Gates had yet to
begin wearing suits and combing his hair. In 1983, Utah-based Novell
launched a business that wired PCs together into small networks, a radical
idea at the time. With a PC network, users could share the same printer or
store files on a common machine known as a server. Just as Microsoft
wrote the operating system to run the computer itself (the system that
evolved into Windows), Novell wrote NetWare, an operating systems
software to run the PC network.
For a while, life was dandy for both Microsoft and Novell as the market
for PCs boomed. Novell, led by the legendary Ray Noorda, built a near
monopoly of its own--at one point, more than 80 percent of PC networks
were controlled by NetWare.
Direct hit. Then Microsoft built a new, industrial-strength operating
system for corporate computing, Windows NT, fitting it with networking
capabilities. Novell might have reacted by building on its networking
strengths; the commercialization of the ultimate network, the Internet, was
right around the corner, after all.
But Noorda, then pushing 70 and suffering short-term memory loss,
looked backward and chose to compete with Microsoft on the desktop. It
was a grudge match with Gates--and a costly one. Novell spent $1.5
billion to buy the already outmoded DR-DOS operating system, versions
of the Unix operating system, and applications software like WordPerfect.
Distracted by the acquisitions, which went nowhere, Novell missed the
Internet boom. "We had disconnected," says NetWare creator Drew Major.
It's Schmidt's job to reconnect Novell to its networking roots. So far, so
good. He has continued lopping off Novell's weak parts while introducing
new networking products at a rapid rate. In May, the company reported a
quarterly profit of $19 million on $262 million in sales, compared with a
loss of $14 million a year ago. Late this summer, Novell plans to issue a
major software upgrade for its flagship product; NetWare 5 should rev
sales and profits even higher.
So why aren't investors cheering? Last week Novell stock was trading at
about $10 per share--stuck where it was just after Schmidt became CEO,
and barely above its liquidation value. The main reason for the low price:
Microsoft. Its Windows NT, fitted with the network operating system that
theoretically could wipe Novell out, is on a roll. NetWare's 59 percent
market share is being eroded at an average rate of 3 percentage points a
year. How could Novell possibly continue to compete against a
steamroller like that?
Not going away. Schmidt finds himself constantly responding to more
polite versions of that question along the campaign trail. On a recent trip
to France he repeated his stump speech: that Novell's NetWare is a
specialized system and as such is a lot faster than the network software
tacked onto Microsoft's general purpose NT. And because Novell's
NetWare uses resources more efficiently, firms need less hardware and
fewer people to run it.
In fact, Novell claims, it's cheaper for companies to use NetWare and NT
together than it is to rely on NT alone. "I tell people: Go ahead, buy NT,"
says Schmidt, adding that it would be foolish not to acknowledge that
Microsoft is the "atmosphere" that the rest of the industry breathes. No
surprise that Novell under Schmidt is a spectator and not a participant in
the antitrust action against Microsoft. "We don't paint a target on our
chest like Sun and Netscape," he says.
Microsoft disputes the criticism of NT's networking capabilities, of
course, but Schmidt is winning business anyway: The France trip yielded
a big order from the Michelin tire company.
Ace in the hole. One advantage Novell enjoys that even Microsoft
doesn't question--not now, anyway--is its superiority with a key piece of
software called a directory. Phil Easter, a Novell customer and technology
strategist for Greyhound Lines, calls Novell's directory its "ace in the
hole." Very simply, a directory keeps track of who's on a PC network and
what kind of hardware and software they're using. Curiously enough, a
seemingly obvious idea like a PC directory is a new concept in corporate
computing. That's why every time rank-and-file workers need access to a
new database or have problems with their computer, they have to wait for
some central-office computer support person to show up and fix it for
them.
Novell's directory could serve as a new strategic platform for network
services as companies try to squeeze value out of the fact that their
employees, suppliers, and customers are all linked electronically. That
creates the chance for Novell to sell lots of new network applications
software. The company recently released something called BorderManager,
which helps companies connect their internal networks to the Internet
more quickly and efficiently, and ZENworks, which uses the directory to
let the computer support folks fix problems remotely, by computer, from
a central location--cutting down the cost of having to dispatch them by
foot.
Microsoft seems genetically predisposed against allowing another
company to create a new, competing platform on which to build
applications--witness its reaction to Netscape's browser. Indeed, it plans to
release a directory of its own, bundled free with NT 5.0, now due for
release sometime in 1999.
Ticking clock. Networking has never been one of Microsoft's
strengths, and a focused Novell could remain the technology leader. But a
bundled NT directory, pumped by Microsoft's marketing machine, could be
hard for a lot of companies to resist. So Novell is under tremendous
pressure to create momentum and market share for its own products before
NT 5.0 is released. Schmidt and his lieutenants figure they have some
time. Software sales are expected to go into remission next year while
companies rush to fix their year 2000 computer problems. Novell
Marketing Director Michael Simpson figures that gives Novell a couple of
years before NT 5.0 becomes a real threat. "That's not a window of
opportunity; it's a barn door," he says.
Schmidt says the main reason he took the job is that he sees networking
as "the biggest opportunity that's going to happen over the next 10 years,"
and Novell, properly managed, is one of the companies best positioned to
take advantage.
Despite a regular commute from his home in Palo Alto, Calif., to
Novell's headquarters in Provo, Utah, Schmidt insists that he's having fun.
But the CEO life "is not all it's cracked up to be," he says. As Schmidt
dozes off on Novell's Hawker jet at 38,000 feet, his shirt bunched up
around a road-meal paunch, a bag of Beanie Babies for his daughter under
his seat--the amends of an absent father--it's easy to believe he's telling the
truth.
IT'S ALIVE!
Apple snaps out of its coma
BY RICHARD FOLKERS
It's been enough to test the faith of even the most fanatical devotees of the
Macintosh computer. Beset by mind-boggling mismanagement and ditched
by a growing number of software developers, Apple Computer has been
on the brink of disaster for most of the 1990s. In fiscal 1997 alone, the
company lost $1 billion and its market share fell below 4 percent,
compared with 16 percent a dozen years ago. Rumors of Apple's
impending sale have come and gone. Without a savior like Oracle, the
Mac seemed doomed and an all-Windows world appeared inevitable.
But like a TV soap opera actress emerging from a coma, Apple seems to
have miraculously regained consciousness. Two quarters of profits, a
streamlined product lineup, and surprisingly stable leadership under its
interim CEO, cofounder Steve Jobs, suggest that the Cupertino,
Calif.-based computer maker may be around a while.
Under Jobs, Apple has concentrated on computers, killing off such
products as the Newton personal digital assistant, scanners, and digital
cameras. Last month, the company unveiled the iMac. Featuring a
retro-chic, all-in-one design--with a partially translucent blue-and-white
case that holds everything but the mouse and keyboard--the iMac looks
kind of like a molar. It is fast (a 233MHz microprocessor) and boasts a
built-in, 15-inch monitor, 33.6-kbps modem, 24x CD-ROM, stereo
speakers, and Ethernet networking capability. Debuting in August, it will
be priced at $1,300.
Snow job? Not everyone thinks the iMac will be a runaway success in
an era of sub-$1,000 computers. "The PC market is about price
performance," says Roger Kay, senior research analyst at International
Data Corp. in Framingham, Mass. "You can't snow-job [consumers] with
a clear plastic case. A sexier, prettier product won't bring everybody back."
But Apple is confident that the iMac's impressive ease of use will attract
first-time computer buyers. "A plug in the wall, a plug in the keyboard,
that's it. You're ready to go," says Mitch Mandich, Apple's senior vice
president of worldwide sales.
Apple also has made some strides on the software front. It recently
convinced Intuit to reverse plans to drop Mac versions of Quicken, a
popular financial management program. The company also is planning a
major revision of its Macintosh operating system that will incorporate the
current Mac OS and Rhapsody, an operating system Apple had under
development. The feedback from a recent developers' conference was
"absolutely overwhelmingly positive," says Mandich. Even games may be
returning to the Mac. At the May E3 (Electronic Entertainment Expo) in
Atlanta, the recent Mac resurgence "had a major warming effect" among
game developers, reports Andrew Gore, editor in chief of Macworld
magazine.
So, does all of this mean that Apple might possibly resume the battle
with Microsoft for supremacy? Many analysts think different, to borrow
Apple's grammatically challenged advertising slogan. They expect Apple
to remain a strong niche player with perhaps an 8 percent market share.
"We want to be relevant," says Apple exec Mandich. Relevant and cool.
Sounds like a goal. |
