Two years on, Microsoft and Novell extend partnership

Microsoft said Wednesday it would purchase a further $100 million in coupons for Suse Linux support from Novell, furthering a controversial 2006 partnership aimed at customers who run both Windows and Linux in their server environments.

Further investments will also be made to enhance the tools, support and training that Novell offers customers to provide better interoperability between Windows Server and Suse Linux Enterprise Server, the companies said.

The companies called it an “incremental investment” that builds on the five-year interoperability pact they announced in November 2006. As part of the original deal, Microsoft purchased $240 million in Novell coupons to sell to its customers. Within 18 months of the deal about $157 million of the coupons had been redeemed, the companies said.

The alliance between Novell and Microsoft was an unusual and unexpected one that brought together a fierce opponent of open source with one of its leading advocates. The companies said at the time they were making the pact for the good of their customers, but observers also saw other motives.

For Microsoft, the deal was a recognition of the significant role that Linux plays in enterprises, but also provided a way to show the European Commission, which was hounding it at the time about anticompetitive practices, that it was open to working with the open-source community.

For Novell, the deal gave it an advantage over open-source leader Red Hat at a time when Novell was struggling financially. It allowed it to offer customers the advantage of better interoperability with Windows. Customers that have taken advantage of the deal include Wal-Mart, HSBC, Renault, Southwest Airlines and BMW.

Microsoft and Novell have a joint laboratory in Cambridge, Massachusetts, which is dedicated to researching interoperability issues associated with virtualization, identity federation and systems management, among others.

Part of Novell’s deal with Microsoft also provided customers using Suse Linux indemnity against intellectual property claims by Microsoft. That assurance raised the possibility that Microsoft would launch lawsuits against Linux vendors who refused to make similar agreements, as well as against their customers. The fears were fueled by Microsoft CEO Steve Ballmer’s claims shortly after the deal was announced that Linux “uses our intellectual property.”

Those comments and the agreement with Microsoft angered some of the open-source programmers who helped to develop Novell’s software. The deal was seen as a tacit agreement from Novell that Microsoft holds patents on Linux, although Novell strongly refuted those claims.

The decision to invest further in the deal shows that customers have been taking advantage of the program and that some of the gloomy predictions made after the partnership was announced have not come true, said Laurent Lachal, a senior analyst who heads open-source research at Ovum.

Combined with its own restructuring efforts, the deal with Microsoft appears to have strengthened Novell against its main rival, Red Hat, in the enterprise Linux market.

“Novell has also done its own homework,” Lachal said. “Part of its success is due to Microsoft helping it, but part of it is also due to Novell’s own efforts.”

Subscriptions for Novell’s Suse Linux Enterprise server grew 38.6 percent between 2006 and 2007, compared to 20.9 percent for Red Hat, according to an IDC report from April.

Red Hat’s market share during that period declined to 62.1 percent from 64.2 percent, in part due to Novell’s success, the report said. Novell’s server market share was 29 percent in 2007, up from 26.1 in 2006.

As even more businesses adopt Linux alongside Windows, Microsoft is now less likely to “launch a frontal attack against Linux” in court, Lachal said.

(James Niccolai in London contributed to this report.)

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