Microsoft Ponies Up Another $100 Million for Novell Linux

Published: August 20, 2008

by Timothy Prickett Morgan

Microsoft's Windows Server customers have not yet burned through all of the $240 million in certificates that allow them to get Novell's SUSE Linux Enterprise Server operating system and a year's worth of tech support from Microsoft instead of buying it through Novell. These Windows-Linux shops apparently want to acquire extended service contracts for SLES, and that is why Microsoft has coughed up another $100 million check for Novell.

Microsoft and Novell, you will recall, inked a landmark collaboration and licensing deal back in November 2006, which also included a patent covenant for SUSE Linux shops asserting that if Microsoft found SLES violated any of its patents it would not sue either customers or Novell for patent infringement. The two vendors also said that they would establish a joint software compatibility lab, allowing for the interoperability of Windows and Linux on the companies' respective hypervisors, cooperation on developing common document formats, and establishment of Web services standards for Windows and Linux. Under this agreement, Microsoft agreed to pay Novell $240 over five years for SLES licenses. Through Novell's second fiscal quarter ended in April of this year, $157 million, or 65 percent, of that commitment had been booked as revenue by Novell. (In that quarter, only $16 million in licenses were activated, so the pace of activations has slowed considerably in the past year.)

Two years earlier, Microsoft paid Novell $536 million to settle a patent lawsuit relating to NetWare and at the same time Novell launched another lawsuit relating to alleged antitrust infringements by Microsoft's software stack on Novell's WordPerfect software. The U.S. Supreme Court was petitioned by Microsoft to quash the case back in January, and in March of this year the court refused to hear an appeal of the case. That means the antitrust case Novell has put together--which concerns grievances back in the 1990s when Novell briefly owned WordPerfect and tried to take on the Office stack before bailing out and selling the software off to Corel--is still proceeding. It is amazing that this latest round of Linux money from Microsoft did not include a settlement of the WordPerfect suit. Then again, if you do the math on the damages, Novell is probably trying to wrestle a few billion dollars out of Microsoft for what its aggressive tactics did to the WordPerfect empire in word processing.

According to Microsoft, the extra $100 million is not for incremental, basic SUSE Linux licenses, like the original deal was for, but instead covers certificates that Microsoft gives to Windows shops that can be redeemed for "expanded support" for Novell products, including SUSE Linux and presumably meaning also not limited to Linux products and presumably meaning extended three-year support contracts for SLES in particular.

One of the things that has not been clarified by Microsoft in the past 18 months is what--if anything--it is in turn charging Windows shops for these original SUSE Linux certificates or what it will charge for these certificates for extended support. Microsoft has left the impression--perhaps erroneously--that these SUSE Linux certificates are given to customers for free, and in all of the press I have read about it--including at IT Jungle--no one seems to have asked this obvious question. I have a call into Microsoft to find out what happens precisely when customers want to activate these certificates. If they are not free, I will tell you. If they are, as we all assume, there won't be much to say.

Anyway, the new $100 million investment kicks in on November 1, and between now and then Microsoft and Novell are soliciting input from mixed platform shops to figure out what tools, support, training, and resources would be most useful for them, and then the dough will cover some of the costs of these products.

Assuming that the activation rate for Linux certificates for Novell's third fiscal quarter ended July 31 were more or less the same as in the second quarter, that would mean Novell would have activated $173 million of the original certificates, leaving another $67 million left in the till. (A report in the Wall Street Journal cites a Microsoftie named Susan Hauser who told the paper that over 100 customers have participated in the certificate program to date; I would have expected the customer count to be a lot higher.) Anyway, add another $100 million to that $67 million or so, and then you still have a tidy bit of revenue that Novell can work off even if it can't quite count it like money in the bank. As far as Novell is concerned, it is better to have some money in the pipeline than no Microsoft deal at all. Microsoft has helped boost Novell's sales in the past year and a half, and to some extent in a way that Novell itself could have never accomplished on its own. Red Hat, being the commercial Linux volume leader, has been able to grow on its own without having to do a Microsoft deal, and does not seem to be inclined to do one any time soon.

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