What does this news mean to Novell's web server revenues?
(Assuming they exist because they didn't last quarter)
==============
IBM Says See Ya to Netscape Server Software
By Cory Johnson and Mark Gimein
SAN FRANCISCO -- The bad days for Netscape (NSCP:Nasdaq) just got worse.
IBM (IBM:NYSE) is set to announce Monday that it will begin bundling the freeware Apache server with its newly released WebSphere line of application servers and software. The deal appears to be a blow to Netscape, which has collaborated with IBM to market its server products.
"There is no way this is good news for Netscape," says Roger McNamee, a fund manger with Integral Capital Partners. "I think this could knock the stock down three points."
Netscape has seen product revenues decline from $85.7 million in the December quarter to $77 million in the April quarter. Losing IBM's customer base could mean even more pain.
Netscape's Enterprise Server and Microsoft's (MSFT:Nasdaq) IIS are in a competitive battle with Apache. But Netscape's product usually sells for many thousands of dollars, while Microsoft has often given away its IIS server for free.
Currently, 49% of Web sites use the free Apache software, according to the monthly Netcraft Web Server Survey. The largest companies, however, have been less willing to rely on Apache. In a SiteMetrics survey of companies with more than $1 billion in revenue, Apache's share of servers fell to 25% -- behind Netscape's 35% share.
IBM Vice President Paraic Sweeney said in an interview that the company would participate in the further development of the Apache project. He said Apache's scalability and open standards were major factors in IBM's selection of the server software HTTP server software like Apache is a vital component of all Web applications; a complex e-commerce system typically includes an HTTP server, which communicates with a user's browser, and an application server, which handles complex interactions between Web applications and back-end workstation and mainframe systems.
The HTTP server is especially important because control of that server is seen as the key to sales of related server-side software. A sale of a server with Apache won't bring any immediate revenue to IBM but offers IBM customers a lower entry price. It also offers IBM more income on the back end -- because IBM, not Netscape, could generate the service revenue.
Brian Behlendorf, a leader of the team that originally developed Apache and now vice president of Web applications at C2Net software, said that because Apache is based on publicly available source code, it's actually a safer bet for large corporations that don't want to rely on a single vendor for support.
"Having the source code is the difference between buying a house and renting an apartment," said Behlendorf. Nonetheless, the lack of a big-name sponsor has hindered the adoption of Apache and Apache-based servers by large corporations, according to Behlendorf. "Large Fortune 500 companies need a brand name they can rely on and refer to. People buy Microsoft because it's certain to still be around in two years," he said.
Netscape is currently in the throes of transforming from a company that gives away client software to a company that sells server-side products. That transformation largely depends on the support of big-name vendors like IBM, which can sell Netscape's enterprise software to its big corporate clients. IBM's new ability to sell a combination of its own WebSphere line and the free Apache server will make that harder. Netscape's SuiteSpot software suite, which includes the company's application software, is currently bundled with most IBM workstations, according to a Netscape spokesman. IBM's Sweeney said that, in the future, IBM will offer customers a greater range of software options.
"Apache is dead-center in Netscape's value proposition," said Paul Ambrose, CEO of WebLogi, a competitive software maker. "Given a choice between this and a stick in the eye, if I were Netscape, I'd take the stick in the eye."
Some Netscape analysts on Wall Street were surprised by the news. One, who wanted to call his clients before he got quoted in the press, said, "This could kill Netscape's stock price. Apache is a better product, and with IBM pushing it ... it's gonna kill Netscape. "
McNamee, who is long Netscape, says that this news shouldn't really affect the share price. "But in this market, who knows," he says. "In the final analysis Netscape will live or die on the quality of its products. I'm still long because I think things like this don't matter."
Netscape spokeswoman Andrea Cook, who said she wasn't aware of IBM's plans to adopt Apache, said that Netscape has a strong relationship with IBM. She doesn't think that IBM competing with Netscape in some areas would change that.
"We're pretty comfortable with the notion of co-opetition," said Cook,
using a word that has recently been prominent in Netscape's vocabulary.
"In the short term, there's no question this is a negative for Netscape," Nick Moore, a fund manager of Orbitex. "In valuing Netscape a few months ago, you would've set the browser value at zero and the server business as the valuable part of the company. Now you're going to have to subtract from the server business. Now that the company is valued as a portal company, who know what this will do for stock price? But it ain't good. It's one of the credible shorts rather than a credible long."
***
Mark Gimein is a reporter for The Industry Standard, a weekly newsmagazine
covering the Internet economy.
|
