Novell's Next Stop -- After restoring order internally, Novell seeks to make amends with the channel it helped create
T.C.Doyle
In the world of information technology, Novell Inc. is a modest-sized country with a fabled past that no longer plays on a grand scale but still yearns for future glory.
This summer, the Provo, Utah-based network software company hopes to begin a new chapter in its history with great expectations. Its timing couldn't be better. Not in three years have its finances been so sound. Nor its product portfolio been so refreshed, or its management team so stable.
What better time to launch new initiatives, strategies and activities? For all its recent achievements, however, Novell has yet to complete a turnaround in the one area that is critical to its long-term future: its distribution channel. With its clout among key distributors, resellers, integrators, software developers, service providers and consultants slipping, the company is undertaking its largest channel initiatives in several years. Novell's goal: restore loyalty and commitment within the legion of companies responsible for recommending, installing and servicing software used by millions of customers worldwide.
What would seem a relatively straightforward mission has turned out to be anything but simple. For starters, Novell is attempting to rejuvenate support with partners amid a parallel effort to grow its own services and consulting business to 300 people from just a few dozen. In addition, Novell's appeal for greater commitment comes at a time when it is struggling to redefine the basic reasons why and how third-party partners engage the company.
Furthermore, Novell will almost certainly encounter in fiscal 2000 something it did not during the past two years of internal restoration and external redemption: Windows 2000, Microsoft Corp.'s cleverly conceived-albeit clumsily delivered-server software, which may obviate the need for software Novell depends on for its livelihood.
If Novell succeeds in its various undertakings with the channel, it will complete what many are already calling the most unlikeliest of comebacks of the 1990s. If it fails to garner broader support, however, Novell can abandon hope that better days lie ahead. Just keeping certain close partners motivated through next week is going to be trouble enough for the $1.1 billion software company.
A Second Act
"Novell is killing the channel," says Greg Uehling, founder and executive vice president of Devise Associates Inc., a Novell reseller and Platinum-level partner based in New York.
Uehling has been a long-time Novell supporter. He promotes Novell technologies, participates on the Platinum reseller advisory council and gives Novell permission to use his name and company in press releases and other communiques. But this month, he has all but given up on the company.
He was perturbed recently when his technicians called Novell for support on GroupWise, Novell's messaging and calendaring software package. The call was routed to an IBM Corp. team that provides Novell with an inexpensive alternative to in-house reseller support. But IBM's troubleshooters couldn't help Uehling's technicians because the support desk was running Notes, IBM's own messaging software. What really irritated Uehling, however, was an unsolicited call that his company's president received this month from a headhunter looking to fill vacancies within Novell's own consulting services group.
"They're using the database of CNEs as a recruiting tool to fill slots that will eventually compete with us," Uehling says. "I have to slap myself for why I have been so committed."
Such sentiments leave no doubt how much work Novell has to do to restore trust among the Novell faithful. Company executives know the channel has a soft spot for Novell because it pioneered so many of the conventions that define the channel today. For example, Novell's tiered reseller program with its graduating scale of benefits for incremental levels of commitments is the foundation on which countless other vendors have built their programs. Likewise, Novell's certification and education programs have been copied and adapted by every major player in the business.
But Novell executives are also aware that the channel has been taken for granted for too long. When shown late last year how badly the company had slipped in terms of channel support-VARBusiness State of the VAR Market research for 1999 reveals that Novell's flagship NetWare software is now the primary network operating systems software for 18 percent of VARs, down from 28 percent in 1998 and 43 percent in 1997-the company sprang into action. It hired McKinsey & Co., a New York-based consultancy, to assess its channel infrastructure, and it began laying the groundwork for several programs that are beginning to take shape.
Furthermore, channel executives worry that Novell is not resonating with new constituents, including e-business architects. It has launched an effort to recruit those companies, but has not connected to them. "It honestly has been a long time since I thought about Novell," says Mark Crumpacker, the former CEO of Studio Archetype who helped arrange for the company's sale to Sapient Corp. As a senior vice president there, Crumpacker says requests for Novell technology in e-business solutions just don't come up.
Undaunted, Novell remains committed to those and any other channel companies. "The channel was, is and always will be an important part of everything we do in sales," says Ron Heinz, senior vice president of worldwide sales. When pressed about Novell's future sales direction, Heinz and Bill Wall, senior director of channels marketing at Novell, insist Novell has no plans to upend its channel. Indeed, the portion of Novell sales that will go through the channel will not slip in any meaningful way from the current level of 76 percent any time before 2001.
Rejuvenating Novell
Nonetheless, Heinz concedes that amid the changes in the channel and Novell, it never hurts to provide some reassurances. He certainly would know. A longtime Novell veteran, Heinz is one of only a handful of senior executives that stayed with the company through its darkest days. That was when Novell had more than nine months of inventory in the channel and faced a mandate to stuff even more into it. The period of gloom that engulfed the company in 1997 nearly drove Heinz from the company. But then, Novell hired Eric Schmidt as CEO, who engineered a surprising comeback.
By now, Novell's turnaround is well-known. Since Schmidt's arrival, he has restored profitability, rejuvenated the company's product pipeline, restored investor confidence and helped drive the company's share price back to historic levels.
More recently, Schmidt gave his enthusiastic endorsement to a number of Novell channel initiatives now coming to light. He did so after Wall and a Novell reseller gave a landmark presentation to Schmidt and Novell's executive committee in November. The reseller, Kent Erickson, founder and owner of Logic Network Solutions, a San Diego Platinum reseller, told Novell's executives to forget about trying to make life easier for product resellers and instead concentrate on providing benefits to companies that can service Novell customers.
"If Novell treats us as influencers, they'll come out ahead. If they look to us as mere resellers, they'll be lost," says Erickson.
With additional funding, Wall hopes to complete several projects already under way and launch several new ones, too. He has increased the number of channel sales specialists he wants to train and certify from 4,800 to almost 12,000. And he has increased to 9,000 the number of systems engineers it wants to certify on NetWare 5 by January.
In six months, Wall wants to deliver a new Novell Academy Quick Train training DVD disk to 30,000 sales reps scattered across North America.
In addition, Wall now has funding for an 80-city small business seminar tour and a new initiative to deliver beta software via satellite to VARs. He also has funds for helping to launch new products geared for specific reseller markets. There is a new small-business server initiative and another in the works for remote management VARs.
Finally, Wall is creating a program for a few dozen partners to work closely with Novell's controversial consulting group. Those companies will be able to resell Novell consulting and pick up some subcontracting work, too.
"What we realize is that the percent of our software sold by the channel is not going to change. But what is changing is who is getting the sale," says Wall. "How do we engage them if their primary opportunity around Novell is service rather than product? That is the biggest thing we face today."
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Novell At a Glance:
Founded: 1983
Employees: 4,600
1998 Sales: $1.1 billion
Headquarters: Provo, Utah
Reseller Partners: 15,825 (625 Platinum, 2,700 Gold and 12,500 Authorized)
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This Month At Novell
June 7: Microsoft Corp. edges out IBM and Novell as the leading first-quarter vendor of groupware, according to analysts.
June 8: Novell delivers directory solution for integrating Windows NT server with mixed networks.
June 11: Reuters reports that CIBC World Markets set a 12- to 18-month price target for Novell of $35 to $40 per share.
June 14: Novell says more than a third of its customer base has checked for Y2K compliance of Novell products worldwide.
June 15: At the Technology Summit on Capitol Hill, Eric Schmidt says e-commerce will impact businesses worldwide.
June 16: Novell lowered its stake in Santa Cruz Operation Inc. to less than 5 percent. It previously held almost 8 percent of SCO.
Copyright ® 1999 CMP Media Inc.
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