Date: 4.3.00
IT'S NOON, AND NOVELL INC.'S ERIC SCHMIDT, 44, HAS JUST awakened to order a breakfast of eggs and toast. "Time zone is the problem," says the sleepy Schmidt, who had arrived for this interview in Switzerland only a short time earlier from Novell's headquarters in Orem, Utah.
Time zone changes are one problem for Schmidt. Timing is a larger one. Novell, the $1.3 billion networking software company, has launched its biggest marketing drive ever to promote its Internet directory and related services. But why now, just as Microsoft begins shipping its Windows 2000, which houses a directory service and other goodies?
Microsoft's Windows 2000 had been delayed for years, representing a great window of opportunity for Schmidt. The truth is, Novell wasn't ready to roll. In the last six critical months it had two key resignations, including that of John Slitz, head of marketing. Sixty others were let go, many in the marketing department. Steve Adams, hired from software company Citrix to lead the worldwide corporate marketing charge, is five months into the job. It's also the second time Novell has torn up its marketing department in the last couple of years.
Despite the organizational chaos, Schmidt is serene. "I am a low-stress person," he says, sipping his high-octane coffee. Schmidt formerly reported directly to Scott McNealy at Sun Microsystems. As Sun's chief technical officer, he helped develop the Java programming language. "I am a technologist who happens to be a chief executive," Schmidt says, with no small amount of pride. "The company has had a marketing campaign not coherently and globally delivered. Marketing is now our number one issue."
When Schmidt took over Novell, the Ph.D. in computer science was the doctor for this sick patient. Schmidt refocused the product line, got shipments out, made cutbacks and basically did much of the right stuff for a successful turnaround. Except marketing--at least not right away. "When you don't have the right people for the job, bad things happen," he says.
Now he thinks he has fixed marketing. Upon arriving in October, Adams, the new marketing chief, went around collecting information in a binder he titled, "Why Novell Marketing Sucks." Besides the mixed customer messages, Novell had aimed its campaign primarily at technology people. "That's aiming the message at Dilbert when it's Dilbert's boss who makes the decision," says Dan Kusnetzky, program director at International Data Corp.
Novell's new campaign uses the slogan "Power to Change," with Schmidt as the marketing icon. Initial print ads show an open e-mail from Schmidt (interestingly, on a Palm handheld device, which does not run Novell software) promoting Novell as an Internet company. The ads, exclusively print, are aimed at senior decision-makers, and Novell will spend double last year's budget. Novell declined to quot a figure, but the consensus is that it's minuscule compared to the estimated $200 million Microsoft will spend on its Windows 2000.
The single message "Power to Change" is designed to convey the new direction Schmidt has given the company since he took over. That is, moving Novell from providing corporate networking systems (NetWare) to providing software for business-to-business e-commerce. First, it wants to sell its eDirectory, a cross-platform yellow pages that allows corporations to construct global networks. Then based on those sales, it hopes to sell applications like its caching software, used to speed up Internet access, its Internet security products and ZENworks, which helps companies manage their network infrastructure. Here again, Microsoft rears its head.
A bit of history first. Back in 1994-95, according to Schmidt, Microsoft, in its role as the alpha male, started spreading the message that Novell was a legacy company--polite talk for a couple of exits behind. That Novell's products were in many regards technically superior to Microsoft's didn't matter. The message got across. Why didn't Novell fight back? Schmidt shrugs, "When the world perceives you as a loser, no one picks up your sound bites."
Ultimately, companies will need directories to do more e-business. The most useful directory will probably be one, like Novell's, that can work with a variety of operating platforms--NetWare, Windows, Sun's Solaris, and one, like Novell's, that has the capacity to scale up. So here's Novell with what seems, once again, an indisputably superior product. Is it a winner?
Well, Windows 2000 has its own directory. It doesn't scale as far as Novell's does and will only work on Windows 2000 platforms. But it's there. The directory is a part of its bundled services so it's perceived to be free. And remember "Power to Change"--Novell's new slogan? Change is a pain. Will people stick with the Windows directory because it's fine, even if technically not the best?
Besides the Redmond gorilla, Cisco is a strong competitor in one level of the directory arena, as are Sun and AOL/Netscape with their I-Planet software. The ring is crowded.
Summoning nerve, we say to Schmidt: "People tell me Novell is toast."
A Novell public relations man starts coughing. Both exchange looks.
Now he's fully awake and agitated: "How much does it take?" asks Schmidt, raising his voice. "Is it ten quarters of positive results? l would think that three years is enough. But to follow that line of reasoning, Apple is toast. Meanwhile its stock is at an alltime high. Windows is going to kill Sun Microsystems; meanwhile Sun's stock is at an alltime high. The back office for Microsoft is going to take out Oracle. Meanwhile Oracle's stock is at an alltime high. You know, all of these companies are toast! See what I'm saying? The argument is false."
Despite the Zen-like voice, the passion is there. But passion doesn't alter the fact that a difficult road lies ahead. While Novell's stock is up sevenfold since Schmidt joined the company in 1997, it's still only where it was eight years ago. Value Line expects an 18% gain in revenues for the Oct. 31, 2000 fiscal year and a 17% net profit margin.
However, half of Novell sales are still in network operating systems, and Novell's market share (by shipments) has been declining for five years straight, according to International Data Corp. Linux is going the other way.
Novell's shipment numbers have also been hurt by consolidation. Instead of buying ten servers, companies can buy one big one, and save money on the administrators--and the software needed to keep it running.
The outlook isn't a lot better in the business of selling directories, profitable as they are now. In the last several months Oracle cut pricing of its directory services products and IBM started giving its directory away at no charge. Even Novell has priced its eDirectory to sell: $2 a user.
If Novell is going to be a real player in business-to-business infrastructure, it must reach a horde of new customers. And Microsoft already services most of them. "Novell should have been more aggressively seeding the market. And could have given away its directory," suggests Neil MacDonald, an analyst with GartnerGroup, adding that "as an Internet player, Novell is a latecomer."
Schmidt's response is philosophical. "There is an attraction to simplicity by people who prefer to have one phone system known as Ma Bell. But that's called monopoly. Monopolies don't serve customers well. When you visit the store, call airlines, buy houses, go to the bank, there is a desire for some people to have one company do it all. But that's not how people get the best value."
Schmidt has accomplished much, but the jet lag isn't going to go away. His competitors don't sleep.
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