Excellent link to NOVL's CEO (Dr. ERic Schmidt) presentation to shareholders on April 7, 1998. MSFT is also mentioned in the presentation, and I suggest you read through the entirety of it slowly and carefully. IMHO, Bill Gates repects Eric Schmidt more than many of you can ever imagine. Just food for thought, and diversification of you MSFT gains.
novell.com
Good investing,
QuadK
Report of the Chief Executive Officer: Dr. Eric Schmidt
What I would like to do is talk a little bit about networking and what we have been doing with the company. I
have been in the company for a year and I'm very pleased to be here. I'm very pleased to represent the
company in all of its many initiatives and endeavors. It's interesting that everyone is obsessed with the year
2000 and, when I look back in history, the year 2000 is not such a big deal. The year 1900 saw in the
preceding 10 or 20 years the invention of the automobile, the diesel engine, the airplane, and the electric light
bulb. All the changes that created the industrial age that we have all benefitted from and all we have to deal
with is the implications of the Internet. Pretty serious.
The Internet is a pretty big deal. Statistics indicate that 65,000 Web pages are created per hour right now. The
estimate is about 1.5 million pages per day. Current estimate is that there are 320 million Web pages in the
world. No one actually knows that number because the most accurate search engines are only accurate to
one-third of the number of pages. This Internet or network lifestyle that's creating an opportunity for us is
extremely large. One of the interesting statistics is the growth rate of people buying airplane tickets over the
Web. I don't know if any of you who came here did that, but the compounding rate is a factor of five over the
next year to a $6 billion industry with all sorts of implications for how people buy and travel.
It goes on and on, and the thing that I have discovered in the last 12 months is that everywhere I look
networks matter. That's what we're about and the good news is that's what everything else is about, as well.
The network is becoming the centerpiece of every unique activity that seems to be interesting. And I don't just
mean in terms of the Internet. I mean in the way that people use networks for business productivity, personal
entertainment, constituencies, financial investments. All of that. Networks really matter a lot. and what I
realized is that, in fact, as this network phenomena occurs, something changes and the thing that occurs is that
there is a new face of networking. That new face of networking is not a single face, it's not an interface, it's a
human face. In fact, it's as many human faces as there are connected to networks with all of the implications
of what humanity means. The crazy ideas, the interesting experiments, the new paradigm that we have created.
And that is the opportunity that Novell has.
We find ourselves extraordinarily well positioned to benefit from the wide spread adoption of networking both
today and in the 21st century. Networks really do matter. They are probably the single most important thing
that we will be doing in our lives to change society. In fact, the networks that we build, which are based on
the principal of intelligent interconnected networks, are where the value is. It's where the creativity is and it's
where the real opportunity is.
When I showed up, I tackled a number of problems. The first problem, which was a surprise to me, had to do
with our business model. And, as Dennis highlighted, the issues that we faced involving cost structure,
inventory - those kinds of things - were very painful. And we had to do this both in terms of expenses and
headcount. We had to do a big restructuring in the channel. We got all that done very quickly. The advice to all
of us was: it's going to be painful, get it done quickly so we could then go about the business of growing our
business, growing our profits, and bringing back shareholder value.
This also meant, for example, that we had to take literally hundreds and hundreds of product initiatives. Many
were interesting but not particularly relevant to the core networking vision of the company, which my
predecessors initially developed and built an enormous franchise for. And we are returning to that model. It's
clear to me that the opportunity is really around a networking platform. It's around the NetWare brand and all
the services that run on top of that.
So, what we had to do was to establish some priorities: marketing priorities, product priorities, and
organizational priorities. We had to develop a much more rigorous structure in how the organization was
managed, what its deliverables were, and how we accounted for things. And we have been working that
through as fast as we can. In general, things look pretty good. We have been able to ship at least one new
product every month. What I realized fairly quickly in talking to customers is that many of them are
extraordinarily loyal but they had been waiting for products that had been promised for sometime. And all we
had to do was ship products that they had wanted and, indeed, we have begun that.
What's clear to me now is that we are doing a product driven transformation of the corporation. The
corporation was represented by products which were innovative in their time, but based on protocols which
had gone out of favor. Other initiatives had moved in and the company had not moved with it. The changes
that we have made and the leadership of the team that you see before you have brought that.
We are now in a situation where for the next six months we are shipping more new products than at any time
in the history of the company. We are beginning to go through a product cycle that will reposition the
company to the right places in terms of the Internet and the center of modern computing, modern networking,
and modern technology. So we are we on the right path. We're not done, we're not even half way through.
Are we shipping products which people covet? Are the products those that our customers care about? Does the
value that these products create make a difference to the corporations?
So, for example, BorderManager - a product which has ten times greater caching in IP protocol performance
than any proxy cache competitor. It's an unbelievable product. It makes your network ten times faster if you
buy one. The payback is immediate. Take a look at FastCache, one component of Border Manager that just
does the caching function. Following GroupWise 5.2, we just announced GroupWise 5.5 beta. Again, the
reviews have been awesome. The phrase has been, "GroupWise surges with 5.5." Of course, the code name
was Surge.
ManageWise 2.5, the dominant player in managing physical layer and small business and NetWare servers.
Again, a very successful product for us. Perhaps the most strategic products are NDS for NT. NDS is our
directory. All of the analysts and all of our customers say that we have the only directory that matters and we
also have the only directory that works. We are engaged in a lot of fun with Microsoft over NDS for NT.
NDS for NT runs very well on NT and Microsoft initially withdrew support over it because of the competition
with Active Directory. Then they reversed themselves for numerous reasons including wanting to work better
with us.
This product is interesting because it allows our directory message, which is the killer strategy in the company
today, to provide real customer value. We are going from being a tactical part of people's networks to being a
strategic issue for the CIO. And we are doing that with, for example a product called ZEN Works. ZEN stands
for Zero Effort Networking and it's a product which uses the directory tree, wanders through the network and
allows Chief Information Officers to better manage their assets and reduce their total cost of ownership.
Now, the numbers here are pretty staggering. All of the estimates indicate, for example, that ZEN Works plus
NetWare use 69 percent fewer staffing to do the same functions as our competitors' products. And you go,
"No big deal, it just fewer people." It turns out that 3/4 of the cost of information technology are people
related. It's a huge benefit that we get from doing this. And, of course, NetWare 5 is by far the most
significant product this year and the highest priority in the company. The NetWare platform accounts for
roughly 2/3 of our revenue. NetWare 5 moves the platform to the TCP/IP platform, and you go, "Well you
know it's kind of interesting we're moving from one protocol to another." Once you're on TCP/IP, all of the
scalability and other platform principals that the NetWare platform has always been known for -performance
and scalability- become possible in the TCP/IP world. People covet this.
We have had some fun. We announced our Java server performance. Java server performance is 2 * times
faster on NetWare than it is on the Microsoft Java VM, and the Microsoft Java VM until our announcement
two weeks ago was the fastest on the planet. So it gives you some sense of the technology innovation that the
corporation has been able to apply to this new and very, very fast growing space. And that's what we are so
excited about. So, universally, customers say, "We trust and rely on your products and we're confident that
you could do this. You have to deliver the products." And that's been our initiative and you can see we are
delivering it and it's going to get even better over the next six months.
The core strategy is really around cost of ownership. As much as I like to talk about products and initiatives,
the fact of the matter is the average executive customer wants to know in what way do we solve their problem.
And you heard from John's comments that we have repositioned the momentum of the company by virtue of
our move into the Internet, the new products coming out. And our next big initiative is all around marketing
the message of how we solve the networking and marketing problems that people have in their world.
This is why our products matter and this is why Novell is relevant again. Take a look at Border Manager. I
mentioned earlier we have one million people using Border. Border is a product that shipped in September of
last year. So one of the benefits of Novell and one of the interesting things about it is that when we get these
products out, the channel and the structure that again was built over many years is an enormous asset. I mean
can you imagine if we were a start-up what people would be saying about our million users? You get the idea.
This new face of networking as we have articulated it accommodates the depth and breath of what people
actually experience on networks. The problem that you have if you're on a corporate network or if you're part
of a university or government or whatever kind of network you're on is, in fact, you have relationships of
different kinds. You have ones based on geography, ones based on security, ones based on clubs that you're a
part of, ones based on special training. And it is those relationship that constitute what we call your digital
persona. And you go well, I don't really quite know what that is. But think about it, on networks you have to
have rights and responsibilities and access and security that's just at the same level if not more so that you
have in real space.
The issues in cyberspace around security and scaling and authentication are just as important, if not more
important, because networks contain so much important information. And, of course, because they are
networks you can, in fact, have a tremendous impact. If you're a person who is thief, you can go in and steal
a million things rather than one thing and so our customers recognize this and they see the directory as the
platform to build this on and this is where our leadership begins.
The technologies that enable this are the ones you see here on the chart. Whether they are document
management or various applications, all the various protocols that people like myself care very deeply about
and things like Internet access. And this, offering this solution, this complete solution is what Novell is all
about.
With ZEN Works, we can, in fact, control and administer remote clients so we can make sure people are using
the right software in the right way. When we wonder around from machine to machine, the software that you
need becomes available to you without you even knowing about it. A huge breakthrough for many of our
customers. And, of course, what's interesting is that if you ask the customers what their problem is, they say
charitably, "This is what my network looks like. It's a complete mess." And one of the surprises for me over
the summer was in talking with customers. I would talk about the technology that I have described and I
would say, "Well, what do you want us to work on?" Just as kind of a sanity check. And they would say,
"Yes, we are very interested in this Internet thing but, you know, our real problem is that the Internet activities
also have to coexist with security access, servers, mainframes, and so forth that you have all sold us over the
last 15 years."
So, in fact an integrated approach, a cross platform approach, a total solutions approach is how you solve this,
and the way we achieve this is by using the directory. Literally, we take the information that is now spread out
throughout entire companies. One person told me that they counted that there were 120 different places where
information about a specific employee needed to be and, as you can imagine, the information is corrupted,
wrong, and so forth and so on. By having it in one place we get an enormous cost savings and an ability to do
new things.
I personally believe that the directory as a phenomena is as important as the SQL database business was 15
years ago. If I told you 15 years ago that companies will take this relatively strange query language called SQL
and they will put all of their corporate data in it and then it will become the most mission critical part of their
corporation, you would have said, "You don't get it Eric." But, in fact, that's what happened. At the time it
wasn't obvious to people that that will occur. It's clear to me now in talking to our customers that the notion of
a directory that controls the intelligent network is the most significant platform opportunity ahead of anyone
that isn't controlled by an existing monopolist that is available in the industry as a whole.
We are fortunate to have the majority market share. Some estimates have it at 2/3; some estimates have it
higher. All based around NDS, Novell Directory Services. So by doing this we have an opportunity to
compete with Microsoft in an interesting way. Microsoft has a product called Active Directory. Their current
directory solutions are so bad they don't even talk about them. And this new product, which of course they
have announced but doesn't actually exist yet, is receding in the future for numerous scalability, technical
issues, and so forth and so on.
So our sense within the company is that we have a window here. There's a period of time during which if we
move quickly and, of course, that's what we are doing as quickly as we can, we get these products out, and
we get customers excited about them. Of course, they have to work and indeed it looks very good there. Then,
of course, we have a much, much stronger opportunity to go and complete the solution based on this new
model based on the directory.
So, in that sense, NDS is a single service on the network that promises to deliver a unified network experience
for you. And I don't think that you want your digital persona - who you are on the network, your
relationships, what you do, all of your information - tied to your desktop. I think you want to be able to
move from place to place. The future is a mobile future. So this is, of course, what NDS does and that's why
it's so central to our strategy.
Let me conclude by talking a little bit about the assets inside the company. I think that one of the great delights
from my perspective was discovering the very mini assets that exist within the corporation. I began, as you
could imagine, by wondering the hallways of engineering and I would wonder up to somebody and say,
"Well, what is it that you do that's better than anyone else." Of course, engineers always give you an answer
to that question and the list was pretty impressive. And we have worked during this period of time to get this
product road map established.
What was more surprising to me was the strength of the channel and the brand, which again is a many, many
year phenomena and something for which I view myself as having inherited this enormous good. Eighty-one
percent of Fortune 500 customers use Novell products, in particular, NetWare. It gives you an idea. Can you
imagine a software company having that as its objective based on the products that we're describing. It's
incredible. So, the loyalty, the commitment, and, in fact, what people say is over and over again, "We love the
products. We need you to restore the viability of the company, and we need you to get your marketing focused
around the issues." Again, I think John has demonstrated to you they will buy a lot more product. That's the
psychology that exists in the market today.
I hope that what we have done in my brief comments and the comments from Dennis and John is indicate that
there is a new face of networking. That this new face of networking is very much defined by the products and
strategy we are doing. That Novell is extremely likely to be the defining and or dominant force in that space.
And that opportunity is right before us and we are pretty excited and pretty charged up to do it.
If you think about it, the best way to predict the future is to invent it and that's exactly what we are doing.
Thank you. |
