There are few second acts for American technology companies. The short history of the industry hasn't been kind to comebacks. Look at stripped-down Borland International, which continues its long hunt for a profitable quarter. Or take Apple, which seems to lose market share as steadily as the company haemorrhages employees.
And though some companies do manage to transform themselves - Digital Equipment and Oracle come to mind - the lack of role models for companies looking to reinvent themselves can't be heartening to the latest member of the down-and-out brigade: Novell.
The fact that Novell is in serious trouble is not in dispute. The recent resignation of CEO Robert Frankenberg only highlighted what company officials have conceded for some time: Novell is at a crossroads; decisions made now by its executives are likely to determine whether it will provide relevant and innovative products for the next century.
For Novell's customers, this uncertain period can be a frustrating waiting game. As the com-pany formulates its strategic direction, corporate networking managers are faced with the prospect of sitting on their hands while Novell's decision makers, in Utah, figure out their company.
Waiting a few months, or even many months, isn't necessarily a problem for companies that aren't wrestling with significant networking issues, which range from migrating to Windows NT to building intranet platforms. And, fortunately for those companies that do need to make strategic decisions during the coming months, enough information is available so that at least preliminary decisions about the company can be reached - if not now, then in the very near future.
NT: Fait accompli?
The heart of Novell is NetWare, its network OS. But after having long dominated corporate LANs, NetWare is now under intense pressure from Microsoft's Windows NT Server. Novell's lacklustre state is such that Windows NT's eventual victory over NetWare is seen as a forgone conclusion by industry analysts.
"Green River - the next NetWare upgrade, which will include Novell's IntranetWare, a Web server and protocol bundle - is the market they could have owned. It's their natural franchise where they should have expanded, with both the application and Internet servers. But in neither place do they have any real credibility any more. Microsoft is coming on too strong," says Jim Duggan, a technology analyst.
Credibility is an issue that lately has been often mentioned in conjunction with Novell by the company's customers, partners, and employees. Although NetWare has an installed base of 55 million users, the company's recent announcements that it will open up the platform with components, such as network services and directories, have been met with a fair amount of scepticism, even among observers sympathetic to Novell's travails.
"Frankly, I think Novell is healthier than it has been in the last few years. A lot of work happened behind the scenes to clean up the company and refocus it, and Frankenberg deserves a lot of the credit for that," says Chris Shipley, editor of the US newsletter Demo Letter. "The problem has been that the company was so internally focused in order to rebuild and redirect it that externally the market became unsure of what Novell would or could deliver.
"I don't think Novell is looking to stymie NT so much as it is willing to build on it with network services. My understanding is that Novell will make its network services available on all prevailing platforms. But it all depends on Novell's resellers, partners, and customers: if those people are still loyal and excited, then Novell can make the turnaround. If they've given up, then things are probably pretty grim," Shipley continues.
At this point, however, even optimistic Novell watchers have a hard time conjuring a scenario in which Microsoft doesn't become a major NOS player in the next few years. NT's march to victory is usually credited to Microsoft's marketing acumen and dogged determination to continue to develop a product until it's successful. But in this case, analysts say, Novell's own decisions played a significant role in NT's ascent and NetWare's subsequent slide toward obsolescence. Specifically, Novell decided not to support NT as a complementary platform to NetWare and early on refused to port such profitable technologies as directory services to NT.
"Novell claims they will offer directory services on NT, but they continue to position NetWare as the preferred platform. As long as they continue in that vein, their leadership in the marketplace will be limited," says Craig Burton, a former employee at Novell and now a consultant in Utah.
Statistics and widespread sentiments from Novell's corporate customers affirm Burton's pessimistic attitude. Market researcher International Data Corp predicts that NT sales will eclipse sales of NetWare within five years. But many customers stand by NetWare because they say it is simply superior to its competition.
"This is really a case of technology. I think they [Novell] have the strongest NOS out there. I think they lost a lot with directory services; they just didn't make it easy enough to understand, but they're still a marketing machine, though maybe not as much as Microsoft," says Walter Mosley, a systems integrator.
Mosley sees intranets as one of the key components to his billion-dollar business. And in his mind, Novell is clearly still a vital player.
Nonetheless, once-loyal NetWare customers are beginning to consider a post-NetWare order.
"I think NetWare continues to serve its purpose for our needs, but increasingly Lotus Notes and NT Server are making inroads for document storage. I can see a time when NetWare becomes entirely less significant," says Mark Zeiss, a manager at a large US consulting company.
Not betting the company
Two years ago, when Internets and intranets began their skyrocketing ascent into the corporate consciousness, a few technology companies understood that the nascent technology was pivotal to their survival. Sun Microsystems responded by developing Java, a key Internet development technology, and Oracle took a leadership position in developing the Network Computer, an $US800 Internet client device. And even though many people criticised Microsoft for its relatively late charge to the Internet, Bill Gates has since announced and shown that he is betting the company on the Internet. But, analysts point out, little was heard from the biggest networking company in the country - Novell.
"We can't dwell on the past," says Novell's newly appointed president, Joe Marengi. "Were we slow on the upside? Definitely. But this simply will no longer be the case. We are staking this company on the Internet."
To wit, Novell has recently launched a slew of Internet- and intranet-related technologies. Chief among these is IntranetWare, which bundles the next release of NetWare, Version 4.11, with NetWare Web Server 2.5, FTP services, NetWare Multiprotocol Router, and an IPX/IP gateway. And the company has clear research and development advantages from its vantage point as a networking leader. Focusing on intranets, company insiders say, was the impetus behind the company's shedding of its non-networking assets. The most dramatic example was when Novell offloaded its WordPerfect application unit to Corel for a fraction of the $US1.2 billion the company paid to acquire it in 1991.
But Novell's new-found focus on intranets has been slowed by the company's reluctant adoption of the TCP/IP Internet protocol standard, a standard nearly all its competitors - most significantly Microsoft - were quick to embrace.
Novell said it will soon support TCP/IP natively, but many customers feel frustrated by what they perceive to be inexcusable tardiness. "They've got to kick it into gear to support TCP/IP natively; I think they're falling behind. It's got to be dynamic. In any case, we're going to have to wait until they iron out the bugs just like we did with directory services," Mosley says.
Some analysts even doubt that Novell will follow through on its announcement, highlighting the company's credibility gap. "I don't believe it will be in a month," Burton says.
Whether or not Novell produces native NetWare 4.1 support for IP protocols in a month, statements from Novell managers do suggest that the com-pany is intent on focusing on intranets and the Internet. The question for corporate IS managers, then, is not the company's stated technology strategies and vision but credibility in such crucial variables as execution and timing.
Is there a future?
Since Frankenberg's departure from Novell, there have been rampant rumours that Novell is likely to be acquired. Novell officials roundly deny that the company is for sale. But a depressed stock price, still-robust technology, and moneyed Internet start-up companies make for an atmosphere thick with gossip. One persistent rumour has Netscape Communications acquiring Novell. Many analysts, however, are bearish on the takeover rumours.
"With Netscape there's a cultural issue for them to consider. Novell started off much the way Netscape did, with dishevelled programmers who could run rings around everyone. But that was a long time ago, and it is certainly no longer the case at Novell," Duggan says.
In fact, some industry analysts argue that Novell's watershed period, when the company could have been taken to the next successful phase, now has passed. Perhaps more so than in other industries, to stay ahead of feisty competitors, technology companies require sparkle and excitement. Especially in this era when the best and brightest employees are in intense demand, getting that old excitement back may prove to be very tricky for Novell's executive brass.
"There are a lot of dynamic start-ups out there; it's so much more enjoyable to work for a company where people will return your calls. It's scary how fast that sort of legacy will deteriorate," Duggan points out.
Ultimately, however, the problems currently besetting Novell are based on its output, not its customer bandwidth or a lack of staff excitement.
"All this smoke and mirrors from these Novell executives on how they are going to get things right isn't credible. It's a product problem, not a marketing problem, and not a personnel problem," Burton says.
"Somewhere between 1987 and 1990, Novell made a transition into believing they were an operating systems company, and the way they thought they should keep that business afloat was to keep any other operating system from being successful, namely NT. It was just an amazing thing to watch them try to do NT in. In short order Novell switched from being the first company to proactively support a new platform from Microsoft to becoming the last," Burton recounts, adding that most companies that opt out of supporting Microsoft's system platforms have paid a price.
"They did not understand what business they're in and still are not moving toward understanding it. They're in such an awkward position, and their problems are so big I don't know if they can be solved," Burton says.
"Ray Noorda (Novell's founder and former CEO) is in the interesting position of being responsible for Novell's success and failure at the same time. When Frankenberg came to Novell, although he isn't clean from responsibility, he was handed a company with a bomb, and all he had to do was detonate it," Burton adds.
In a nutshell, this is Novell's bind. It knows that the future is in software that will enable companies to set up broadband intranets, networked multimedia applications, and videoconferencing systems over WANs and to conduct business on the Internet. It has the technological background to thrust itself into an immediate leadership position. And it still has the financial resources to market itself appropriately.
But even with 95 per cent of the formula, an elusive 5 per cent may doom the whole enterprise. The missing component is credibility. Having gone down the wrong road for so many years, it may take a long time to find the right on-ramp. That is a possibility IS shops will have to con- sider even before Novell attempts to deliver on its promises.
Marengi promises to open up company, speed developmentNew Novell president Joe Marengi fielded questions on the company's strategic product development plans and the future of his companyIDG: During the next couple of years, how should Novell be judged?
JOE MARENGI: Probably the most important metric is the mind share given to Novell products in the Internet space, [because] right now it's a mind share game.
IDG: Microsoft has released its beta version of Distributed File System for Windows NT and may release the final version by year's end. Will this prompt Novell to speed up the release of the Novell Advanced File System, due in 1997?
MARENGI: All I can tell you is we are on a path to speed up everything. I'll leave that as the answer, except to say we're going to execute everything, including development efforts, much faster.
IDG: Can you comment on merger rumours?
MARENGI: The bottom line is real simple: our position is that we're a stand-alone company. At this point that's all there is to say, and there have been no discussions with Netscape or anybody else.
IDG: What do you make of the criticism that Novell has significant problems in how it is perceived by its installed base?
MARENGI:: The biggest perception problems are coming from the fact that people don't understand what we're doing. We have to open up the company to business analysts, partners we deal with, everyone. For example, people still say we don't support open standards. It should be a no-brainer that we support open standards. The bottom line is - we need a much more aggressive PR campaign. I want to be more proactive. There are a lot of things being said about us that [show that we are] misunderstood. An example of that is this notion that we don't support IP. We support IP. We've been marketed into a corner by our competitors, and that's not acceptable any more.
IDG: Why is it said that Windows NT is beating NetWare?
MARENGI: NT is having good successes in the marketplace; our customers are using it, jointly deploying it with NetWare. Part of our job as a platform developer is to let people use NetWare with NT. That's a strategy we announced a while ago. But look, last year we sold 800,000 seats. That's an increase over the previous year. Our OS is much more niche- oriented, whereas NT is being sold in a broader stage. But by no means is NetWare troubled; we will sell over a million operating systems going forward. I'm not going to fixate on the problems of the past.
IDG: Do you have any aspirations to be CEO?
MARENGI: I'm here to get the company to execute. All I'm interested in being is president.