Markets & Finance

Novell, Microsoft Link Up on Linux


The software outfits' partnership will help customers run both the free operating system and Windows

The major software players are choosing up sides in the battle to capture Linux customers. On Nov. 2, Microsoft (MSFT) and Novell (NOVL) entered into a partnership under which Microsoft will offer sales support of SUSE Linux, a version of the operating system sold by Novell. The two companies have also agreed to develop technologies to make it easier for users to run both Suse Linux and Microsoft's Windows on their computers.

"Both Novell and Microsoft realize that the data center of the future will have both Linux and Windows as significant platforms," according a Novell document released Nov. 2. "This agreement is all about making those two platforms work together."

What do the two companies get out of the deal? Novell is looking to boost demand for SUSE Linux Enterprise, although the company did not provide any formal estimates. The improved interoperability and patent protection offered under the agreement should assuage customers wary of Microsoft's role in the partnership.

After the deal was initially reported by The Wall Street Journal Nov. 2, Novell's stock surged more than 17% to $6.89 per share on the Nasdaq. Microsoft fell 0.2% to $28.74 per share.

In the Nov. 2 document, the companies said that they had signed three agreements. The two parties reached a technical cooperation pact covering virtualization, web services management, and document format compatibility, as well as a patent cooperation agreement, where Microsoft and Novell will provide patent coverage for each other's customers. Microsoft won't assert rights over patents on software technology that may be incorporated into SUSE Linux.

Finally, the two companies inked a business cooperation agreement under which they will combine marketing and sales resources to provide joint offerings for customers' Linux needs.

This isn't the first move that big software names have recently taken in response to Linux, a free operating system that millions of developers update via the Internet. The Raleigh (N.C.)-based Red Hat (RHAT) is the biggest name in support services for Linux, which has been growing in dominance and begun to threaten software giants like the San Francisco Bay Area based Oracle (ORCL). Larry Ellison, Oracle's CEO, on Oct. 25 unveiled a new program for Linux, Oracle Unbreakable Linux, which he says provides support for less money than Red Hat charges (see BusinessWeek.com, 10/26/06, "Oracle's Gambit Crushes Red Hat Shares").

After that news, investors sold Red Hat's stock more than 26% on Oct. 26. With more competition on the horizon, Red Hat shares sank 1.6% on Nov. 2 to $16.16 per share on the Nasdaq.

The companies denied that the move was in response to Oracle's initiative. Negotiations on the agreement had been going on for many months, according to the document, and the agreement "reflects a joint assessment by Novell and Microsoft that customers will be best served by ensuring Linux and Windows can interoperate effectively."

Intellectual property legal experts have confirmed that Oracle and others can legally replicate Red Hat Enterprise Linux, Goldman Sachs analyst Geoffrey Koide said in a research note in May. "Open source is hot, but by definition leaves the door open to competition," Koide pointed out.


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