The InternetWeek Interview -- Eric Schmidt, chairman and CEO, Novell
Is Novell Directory Services the cash cow Novell has been looking for? That's what chairman and CEO Eric Schmidt is betting on. A pragmatist and technologist, Schmidt says Novell needed to reassess its strengths-even if that includes a niche market rather than the broad network operating systems segment.
Schmidt told InternetWeek executive industry editor Saroja Girishankar that the recent NDS endorsement by Cisco legitimizes the directory in the eyes of most enterprise customers. In fact, Novell will capitalize on the momentum generated by the Cisco endorsement and earlier deals with Lucent Technologies and Nortel Networks to deliver more products and a new version of NDS, that can manage tens of millions of users, in the next two quarters.
Schmidt also plans to dig into the service provider market.
The coming year will tell whether Schmidt's strategy-which capitalizes on Microsoft's delayed rollout of Active Directory-will give Novell enough leverage to drive its NDS stake into the corporate and service provider grounds.
InternetWeek: What does Cisco's endorsement of NDS mean for users?
Schmidt: Cisco has a very large market share in routers and switches, and a lot of our customers have been requesting an integration between NDS and Cisco routers and switches for policy management. So, the Cisco [agreement] is a big win for many of our users, us and for NDS, although it is only about interoperability of our respective products and does not involve licensing.
InternetWeek: How does it benefit Novell?
Schmidt: For us, this is a very strategic deal because of the size of the opportunity. For NDS, this is a big boost in the arm. With Cisco, Lucent and Nortel supporting NDS, we are encouraged because the three of them together control the vast majority of network devices that are on networks in our customer base. It allows our directory to be used for a much broader set of services than just enterprise management.
InternetWeek: Is there a gain for router and switch vendors as well?
Schmidt: Yes. Now, most of our customers are using the directory for user authentication and remote management with our product called Zen.
This [Cisco arrangement] essentially opens a much larger manageability answer for the directory functionality and enables us to build more sophisticated products that will integrate with the platforms of Cisco, Nortel and Lucent. From their perspective, it is a win and makes sense because it gives their customers a better way to manage [multivendor] networks.
InternetWeek: Obviously, Novell is in a better position now. Is it due to the focus on NDS?
Schmidt: Yes. We are in a better position because NDS is the architectural underpinning of everything that we do. We have made the bet that the directory is the next great networking solution that people will be adopting over the next few years. Our directory-enabled application, Zen, is probably our hottest product right now. There is a misconception we sell only the directory, but in reality we sell applications and platforms that use the directory.
InternetWeek: What are your customers asking you?
Schmidt: They want to buy a PC, they want to put it on a desktop and they never want to physically touch it again. If it breaks, they want to be able to remotely fix it. If it needs new software, they want to be able to remotely install it. If the user moves from office to office, they want to be able to move that user's personal files from one machine to another without ever having to touch the machine.
InternetWeek: What is the strategy for these applications?
Schmidt: Over time, we are going to build more directory-based applications in the areas of manageability and security while focusing on reducing the cost of running networks by many factors.
InternetWeek: So, what is the scope of NDS in terms of features and market penetration?
Schmidt: We have the vast majority of the market share today; so market penetration is presumably ours to lose. As far as the scope, it's clear to me that the directory will be used to identify and find people, places and things. By people, places and things, I mean computers, your personal preferences, your identity, software programs and services through our networks. What that implies is that we will have directories that the large Internet service providers, large carrier networks and large [enterprise] companies with millions and millions of directory entries want. We intend to be the leader in doing that.
InternetWeek: What is the mandate for NDS deliverables?
Schmidt: I have told my management team that I want 10 products just like Zen as soon as they can deliver them.
InternetWeek: Is Novell building these NDS applications, or are third parties?
Schmidt: Both. Our development program registrations have gone up by a factor of four in the past year. We also have something called the Internet Engineering Fund, where we have invested more than $10 million so far in little companies, which are developing NDS applications of one kind or another. Besides that, we are building a bunch of them based on Zen.
InternetWeek: Will Zen be the basis for your internal products?
Schmidt: Yes, many of them. For example, we just shipped last week a Year 2000 auditing product. It wanders through your network and tells you whether your network is Y2K compliant. Then you can press another button and you can update those machines.
InternetWeek: What is your strategy on Java and the Internet?
Schmidt: We are a server company, and we benefit from emerging Java-based server applications. However, they are coming more slowly than a lot of people want. But, we will support Sun's Java Development Kit 1.2, due in December. Its Enterprise JavaBeans component architecture will help us run all-Java applications software on top of our NDS platform.
InternetWeek: When will you deliver Java-based products?
Schmidt: I can't give specific dates, but, in general, we have more products coming out of the company in the next two quarters than Novell has ever delivered.
InternetWeek: How is NetWare 5 doing in the market, and is the NDS adoption a factor in the NetWare 5 sales?
Schmidt: Early adopters are happy, but we don't know how quickly it will become the majority of our sales. It took around three years for NetWare 4 to replace NetWare 3. NDS was part of NetWare 4 as well, but the version in NetWare 5 is more scalable with the ability to handle hundreds of thousands of users, and that will be a factor, we think.
Also, we want NDS to be on NT and Unix platforms, making it operating system independent. The bottom line is every endorsement of NDS and every application of NDS increases the likelihood of a customer using NetWare 4 or 5.
In the next six months, you are going to see more announcements from us about very highly scalable directories atop NetWare 5. We are trying to get to the tens of millions. We are trying to make NDS be a hundred to a thousand times more scalable.
InternetWeek: Is NDS a product for just the enterprise or is it also a product for the service provider market?
Schmidt: Today, it has primarily been for the enterprise. We have a team that is doing deals with the Internet service provider market. I am looking forward to some wins there soon.
InternetWeek: Is Novell's turnaround well on its way?
Schmidt: We're making progress, but we're not done yet. The issue is how do we take advantage of this opportunity.
InternetWeek: What is your game plan to return to the kind of market share you once enjoyed in the network operating system market?
Schmidt: It is unrealistic to expect to get back to 85 percent of the network operating system market, or whatever it was, especially competing against the likes of Microsoft. Now, we are focusing on getting market share in the directory-enabled space.
The key to our [positioning] in the future is that we are different in a specialized way and, in particular, in the [network directory marketplace].
InternetWeek: How worried are you about Microsoft overtaking you in the directory space, just as it has forged ahead in the browser space?
Schmidt: Of course, we worry about competitive responses. But customers are smart, and they understand what works and what doesn't right now.
InternetWeek: What is the impact of the Department of Justice's actions regarding Microsoft?
Schmidt: I try not to discuss that. We are trying to work more closely with Microsoft as we become more of an ally using their technologies.
InternetWeek: What percentage of your revenue will come from NetWare and NDS?
Schmidt: Two-thirds of our revenue is based on the network operating system market. Over a three-to-five year period, that will change, and you are going to see a tremendous directory-based applications push from us.
InternetWeek: What about acquisitions? Some say Novell needs to get into the e-commerce software space.
Schmidt: So far, I have achieved my objectives by not doing any acquisitions. I won't comment beyond that.
AT A GLANCE
NOVELL
CEO and chairman: Eric Schmidt
Headquarters: Provo, Utah
Number of employees: 4,500
1998 revenue: $1.08 billion
1998 net income: $102 million
Primary lines of business: Directory services, network operating system, e-mail, network management
Source: Novell
Copyright ® 1998 CMP Media Inc.
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