Novell caching spinoff no cash cow

As battered Novell Inc. preps to report quarterly earnings this week, there is mounting evidence that a key component of the company’s recovery blueprint – a caching spinoff called Volera – has been merely spinning its wheels.

Novell officials are said to be in a “panic” about the upcoming financial filing, and reports are swirling that a fresh round of layoffs may be announced as soon as this week, sources say.

Volera – launched three months ago and backed by more than US$80 million from Novell, Nortel Networks Corp. and Accenture Ltd. – is said to be earning less than $2 million per quarter from sales of its Excelerator caching products. Among the signs of trouble:

Compaq Computer Corp. recently switched from selling Volera’s caching products to peddling those made by Inktomi. Dell is expected to soon follow suit.

Two weeks ago, Volera fired Robert Page, vice president of global sales, and laid off 13 per cent of its 175 employees. More layoffs are said to be imminent.

Edgix, a content delivery company co-founded by Volera CTO Drew Major – Novell’s legendary technologist – is also restructuring and stopped using Volera’s products.

Excelerator 2.0, which supports streaming media, was announced in February but reports from testers indicate it suffers from serious bugs.

In light of the partner defections, Volera is attempting to sell Excelerator directly to enterprise companies and service providers, and is thus competing with its remaining OEM partners.

“It is dealing a death blow to its partners,” says one source, whom declined to be identified.

Volera president Simon Khalaf acknowledges that changes to the company’s sales model are under way.

“Our demand is shifting from the [competitive local exchange carriers] and [incumbent local exchange carriers] to backbone providers on one end and enterprise customers on the other,” he says. “We need to meet the needs of those customers directly.”

Khalaf says the caching industry is evolving away from the appliance model that Volera initially embraced.

“When users want to run a different application on the appliance, they have to buy a new appliance,” he says.

As a result, Volera is working on new agreements with Dell and Compaq to make “soft appliances” based on their PowerEdge and ProLiant servers, where a customer can add RAM or a disk to the server if it wants to, Khalaf says. In April, Volera announced a deal with Compaq to market Excelerator on Compaq’s ProLiant servers. It will announce an expanded agreement next month, he says.

One industry expert believes the company has no choice but to offer products directly to corporations.

“One of the failings of Novell’s strategy [for Volera] was to assume that even partners as big as Dell or Compaq could do the market development and selling for them,” says Peter Christy, an analyst with Jupiter Media Metrix. “It was a mistake Volera is rectifying.”

Volera’s problems began to come to a head when the company released the Excelerator 2.0 beta version to OEMs and dramatically increased the price of its license, which had caused some of those vendors to begin looking for other caching partners, sources say.

While Volera customers give its products generally high grades, they report rough patches, too.

“I have had mixed results with [Excelerator running on the Compaq TaskSmart caching appliance],” says Steve Scarbrough, an IT staff member with the Storm Lake, Iowa, school district. “[Excelerator] has not been entirely stable when used with filtering, nor has Compaq been entirely helpful in updating it during the Novell-to-Volera spinoff.”

Scarbrough has been using Excelerator Version 1.3c and says it took him six months to get the software working.

Observers say the Volera spinoff came too late in a market that was beginning to slide to offer much of a boost to Novell.

“If Novell had gotten Volera out there faster, the company could have taken over the market and capitalized on it,” says a former Novell employee who was involved in the spinoff planning.

Three other companies in the caching arena, CacheFlow, Inktomi and InfoLibria, sustained layoffs and reported lower than expected earnings this spring.

Volera’s resources are also apparently strained porting its caching software to the Linux platform and working to meet its agreement with Nortel. The latter company is working with Volera to jointly develop and tightly integrate Volera’s system and content management capabilities into its new Alteon Content Distribution Manager and its Personal Content Cache to give service providers increased control over their infrastructures and content delivery services.