Novell, Inc.

122 East 1700 South
Provo, Utah 84606
U.S.A.
(801) 861-7000
Fax: (801) 228-7077
Web site: http://www.novell.com

Public Company
Incorporated: 1980 as Novell Data Systems
Employees: 5,818
Sales: $1.37 billion (1996)
Stock Exchanges: NASDAQ
SICs: 7372 Prepackaged Software

Novell, Inc., is one of the largest computer networking firms in the world, offering operating software, network management software, hardware, and services. Founded in 1980 as Novell Data Systems, a personal computer manufacturer, the firm spent its venture capital on designing hardware, leaving little money for marketing. By 1982 it was on the verge of collapse, unable to even afford a booth at the computer industry’s Comdex trade show in Las Vegas. Raymond J. Noorda, a 58-year-old electronics engineer, saw the company’s products in a Las Vegas hotel room and was impressed. Noorda was a 20-year veteran of General Electric Co. who had already turned around other fledgling computer-industry startups, including System Industries, Inc., and Boschert Inc.

The Noorda Years: 1983-87

In 1983 Noorda resolved to salvage Novell and became the firm’s ninth president. He invested $125,000 of his own money and borrowed $1.3 million from investors, receiving a 33 percent stake in the company. Though Novell was primarily a hardware maker at the time, Noorda felt that its most viable product was an operating system that enabled personal computers to share peripherals such as printers and disk drives on a local area network (LAN). The firm subsequently terminated its hardware division and concentrated on networking.

That decision proved to be a timely one. The PC industry was booming, and as desktop computers permeated the business world, firms became increasingly interested in ways to connect them. Novell’s solution was to do this with software, using one PC on each network as a file server that would manage both the network and access to network resources. Novell’s main rival, 3Com Corporation, was building its approach to networking around hardware, chiefly adapter cards for Ethernet, the networking system invented at Xerox Corp. Initially the firms coexisted, with Novell reselling 3Com’s adapter cards rather than making its own.

Having established its priorities, the firm, now named Novell, Inc., forged rapidly ahead. In 1983 it released Btrieve—the first multiuser database application for LANs—and a software package for computers implementing UNIX, an operating system mainly used for math-intensive applications. In 1984 Novell introduced its first software designed to analyze Ethernet networks. The following year it became the first independent network company to support Microsoft Corporation’s new DOS 3.1 operating system and released a product that made it possible for Apple computers to be used on Ethernet networks. Novell also acquired Microsource, a distributor, and thus began the process of assembling a first-class distribution network.

Though Novell was a small company during the early and mid-1980s, its market was growing rapidly. According to International Data Corp., nearly 50,000 computer networks were installed worldwide in 1984, a number that increased to 200,000 by the end of 1987. Due to the strength of NetWare, Novell gradually emerged as the leading firm for PC networks. By 1985 the rapidly growing network market had attracted the attention of such large computer companies as Digital Equipment Corp., Apple, and Hewlett-Packard. At the time Novell was primarily linking IBM-compatible computers, so when IBM and Microsoft Corp. introduced their own file-server strategy, it was a more direct threat. Since Novell had been in the networking market longer, however, its networking customer base was larger and growing more quickly. In fact, Novell was confident enough to go public in 1985, raising the funds for continued expansion.

Unlike 3Com, Novell decided to fight the bigger companies directly by convincing businesses that it would cost less to use networks of PCs than the larger minicomputers favored by companies like Digital Equipment. The firm also opted to offer complete network systems, rather than just software. To meet this goal Novell acquired Santa Clara Systems Inc., a manufacturer of data storage systems and LAN products, in the fall of 1986 for $4.1 million, as well as another distributor, Cache Data Products.

As pressure from large firms increased, the competition between 3Com and Novell became an intense rivalry by 1986. 3Com introduced an operating system for networks and bought advertising that rejected Novell’s assertion of its network performance leadership. When 3Com decided it would no longer allow Novell to sell its Ethernet adapters, Novell began producing its own and marketing them for $495 apiece, compared to 3Com’s price of $595. Novell also released the first network operating system for computers based on the recently developed Intel 286 microprocessor used in a new generation of IBM computers. Novell’s software was now used in more than two million computers and terminals worldwide, including the networks of the British Broadcasting Corporation (BBC), Hilton Hotels, and British Rail. Sales for 1987 reached $221.8 million.

The Novell Network: 1988-90

By 1988 Novell had a 50 percent share of the PC networking market and was working to link PCs, minicomputers, and mainframes. It bought CXI, a maker of connections to IBM mainframes, for $34.9 million in March and began a $5.3 million joint venture with Softcraft, a firm concentrating on database and programming tools. Competition in the computer hardware market was still growing, making PCs more of a commodity and increasing the number of businesses seeking to link them into networks. Novell’s 1988 sales reached $347 million, 50 percent of which was generated by software.

Novell’s greatest leap forward came with the release of NetWare 386 in September 1989. Earlier versions of NetWare worked only with IBM-compatible hardware, but NetWare 386 could serve IBM, Unix, and Apple’s Macintosh computers simultaneously. A great deal of software was required to connect these different computing environments. Still, corporations found linkages increasingly desirable since different computer systems could be created for various purposes. For a short time Novell had the only software capable of managing this task, giving the firm a tremendous competitive edge.

Novell took advantage of its position in the computer networking industry by creating a massive distribution network without the huge overhead costs usually involved in using 13,000 independent distributors. Value-added resellers ranging from mass-market discounters to high-level systems integrators installed the networks, taught customers how to use them, and offered maintenance, all through their own sales forces, which Novell trained. This arrangement cost Novell almost nothing, and the firm soon began franchising its Novell Authorized Education Centers for a fee. Novell also left deliberate gaps in the NetWare product line that were filled by other companies, which then had a vested interest in NetWare’s success. Sales grew to $421.9 million in 1989 and reached $497.5 million in 1990.

The combination of excellent software and distribution, as well as the support of many other companies, proved so strong that when IBM and Microsoft introduced LAN Manager shortly after the release of NetWare 386, they could not crack Novell’s hold on the market. Some analysts even considered LAN Manager a better product, but it did not have NetWare’s broad base of support and was designed for IBM’s new operating system, OS/2, which was then unpopular. Within a couple years, Microsoft was making products designed to be used with NetWare, while IBM was selling the software.

Novell moved aggressively into the Japanese market in 1990, founding Novell Japan with Canon, Fujitsu, NEC, Sony, and Toshiba as smaller partners; Novell maintained a 54 percent stake in the Japanese subsidiary. Having the five most important Japanese computer companies on board gave Novell instant credibility as it sought to expand into a market where less than two percent of computers were networked. Novell released a version of NetWare using Japanese characters, employed Japanese citizens, and generally presented itself as a Japanese company in order to succeed in the difficult Japanese computer industry.

Novell already had a growing presence in Europe, Asia, and South America, where it sold its products through authorized distributors. By late 1991, sales outside the United States accounted for half the firm’s revenue.

Company Perspectives:

From a customer perspective Novell is expanding the value of its products from enabling file and print sharing on local area networks, to providing the servers and network services necessary for highly distributed Internet/intranet solutions. Novell software products include server operating systems, network applications, and distributed network services. These products enable businesses of all sizes to maintain distributed information resources across computer networks that integrate many different computers, operating systems, applications, and devices. Businesses deploy Novell networks to make more efficient use of information technology, improve customer service, and enhance communication and collaboration both internally and with customers, partners, and suppliers.

Diversification or “Diworsification”?: 1990-92

In March 1990 Novell worked out a merger agreement with the Lotus Development Corp., one of the largest PC software firms and the archrival of Microsoft. The deal would have given Novell $1.5 billion worth of Lotus stock. Novell wanted to tap into the huge customer base of Lotus’s top-selling spreadsheet, 1-2-3, which then stood at about five million, while Lotus wanted access to the networking market. The merger would have created the largest PC software company in the world, giving both firms advantages in taking on their chief rival, Bill Gates’s Microsoft. Lotus and Novell planned to combine their customer service departments with that of WordPerfect, Inc., a privately held firm specializing in word processing software.

The deal fell apart at the last minute, though, when large Novell stockholders balked. Lotus would have held one more seat than Novell on the board of the new company, and the stockholders were reportedly afraid of becoming Lotus’s junior partner in the merged company. Despite the aborted merger, the two firms continued to cooperate in a number of areas.

Novell soon joined with Lotus and other companies, including Apple and Microsoft, to devise a system to prevent tampering with e-mail messages. The goal was to make e-mail reliable enough to use for contracts and permanent records, dramatically expanding the uses of computer networks.

Beginning in 1991 Ray Noorda, Novell’s president, chairman of the board, and chief executive officer, reorganized the company, dividing it into three divisions: the core NetWare division, general operations, and an entrepreneurial arm leading a move into huge, corporate-wide networks, which were expected to be the next major development in networking. Many analysts felt the restructuring was initiated to prepare the company for the eventual exit of the 67-year-old Noorda. Novell’s share of the LAN market stood at an all-time high of 63 percent, comprising 11,000 companies and 10 million people. Microsoft, however, was spending nearly $50 million a year on networking to catch up with Novell.

One of the important areas of contention between Novell and Microsoft was expected to be the corporate-wide networks. NetWare had primarily been used to help small groups of people share laser printers and data. But the wide-area networks (WANs) needed by large corporations would entail linking hundreds of large and small computer systems, many of them not in the same building, or even the same country. Some corporate executives doubted NetWare’s suitability for this task, and Microsoft sensed an opening. IBM, however, had been moving to limit Microsoft’s power to set standards, and in February 1991 IBM decided to market NetWare, boosting Novell’s position. Later that year Hewlett-Packard agreed to distribute Novell products and to work with Novell on developing and marketing computer network technologies for Hewlett-Packard computers. Compaq also agreed to work with Novell on better integration of networks.

To increase its strength in the growing workstation market, Novell bought a five percent stake in Unix Systems Laboratories, a subsidiary of American Telephone and Telegraph (AT&T), in April 1991. Novell and Unix formed a joint venture called Univel to focus on creating products based on the Unix operating system. The firms planned to develop an easy-to-use graphical interface.

Novell then bought Digital Research Inc. for approximately $135.8 million in stock. Digital’s DR-DOS operating system, a clone of Microsoft’s widely used MS-DOS operating system, was seen as giving Novell some muscle in providing software for file servers. The acquisition prepared Novell for an expected showdown with Microsoft in the networking market. Digital Research became Novell’s Desktop Systems Group, which focused on operating systems software that increased the cooperation between workstations and a network. Novell was also working on a joint venture with Sequent Computer Systems to produce a computer able to simultaneously serve as many as 1,000 database users.

In April 1992 Novell continued expanding its multi-company networking abilities through the $5.2 million purchase of International Business Software Ltd., a developer of networking software for Macintosh computers. Novell also signed a marketing and product development agreement with Lotus, allowing the latter firm’s widely praised Notes networking software to be more closely connected with NetWare.

The Windows NT Threat: 1992-96

Novell boasted 65 percent of the market for network operating systems in 1992, when networking was the fastest growing segment of the computer industry. The release of Microsoft’s Windows NT, however, posed perhaps the largest threat Novell had yet faced. Windows NT was a version of the best-selling Windows graphic interface that was designed for use on networks. Since many corporate PCs were already using Windows and other Microsoft software, some industry analysts felt that Windows NT had a chance of winning a significant percentage of the networking market away from Novell despite the latter’s huge advantage in installed systems.

Noorda seemed to take the Windows NT threat personally, and in 1994 made two costly acquisitions to refashion Novell into a diversified Microsoft-style software giant. His $855 million purchase of the number-two word processing program WordPerfect and $145 acquisition of the Quattro Pro spreadsheet brand immediately transformed Novell into the second-largest PC software applications company in the world. Novell’s stock price began falling, however, when Wall Street became increasingly dubious about Noorda’s decision to compete directly with some of the very software companies Novell relied on to sustain the popularity of its core NetWare product. Noorda retired in early 1994 and was replaced by Hewlett-Packard veteran Robert Frankenberg, who promptly began divesting Novell of Noorda’s acquisitions.

Although Novell’s revenues peaked at $1.63 billion in 1995, Frankenberg’s efforts to streamline the company back to its core competencies distracted him from the Internet revolution that was transforming the software industry. By the time Frankenberg finally unloaded WordPerfect in early 1996 (for $750 million less than Noorda had paid for it), even the initially skeptical Bill Gates had decided that leadership in the software industry depended on integrating World Wide Web connectivity into every Microsoft product. Microsoft began giving away software that made Windows NT into an Internet-capable web server, and by early 1997 Novell’s share of the network software market had eroded to 57 percent, down from 70 percent in 1993. Moreover, when NetWare’s upgrade revenues were excluded, Windows NT could claim a 42 percent to 33 percent market share lead over Novell’s once dominant product.

The Internet, Java, and Eric Schmidt: 1997

In late 1996, Frankenberg had resigned as CEO, and Novell began searching for a replacement equal to the Microsoft threat. In March 1997 it hired Sun Microsystems’ chief technology officer, Eric Schmidt, the mastermind behind Sun’s Java programming language. By promising to enable business applications to be written independently of any single operating system, Java seemed to threaten Windows’ near monopoly on the operating system market. Moreover, the rapid growth of the Internet meant that corporate computers could not only be networked internally but connected to the computers of subsidiaries, vendors, and customers alike—and Windows’ lock on the operating system market suddenly seemed increasingly beside the point.

Schmidt believed that, together, Java and the Internet marked the emergence of a new open environment or computing medium that even Microsoft could not hope to control. If NetWare could be retooled and repositioned as the platform through which corporate computer networks could connect their processes to the Internet (via their internal “intranets”), Novell could claim a major niche in the next generation of network software. “We have an opportunity,” Schmidt told Red Herring magazine, “to become the primary Internet server platform in corporations as they move to computing platforms fully integrated between themselves and their customers and suppliers.” Specifically, Schmidt hoped to position NetWare’s Directory Services feature—which gave corporate networks an all-in-one tool for tracking network users, passwords, e-mail addresses, applications, and the like—as the indispensable organizing tool to enable corporations to manage the increasingly complex components of Internet-based business computing.

Within weeks of his arrival in 1997, Schmidt cut Novell’s workforce by 18 percent, wrote off unsellable NetWare inventory, and set in motion Novell’s reincarnation as an Internet-capable networking services provider. NetWare was re-christened IntranetWare, and by the fall of 1997 the first Novell products were released that didn’t require customers to own NetWare.

The core of Schmidt’s plan for Novell’s future, however, was a new product code-named “Moab” that would integrate Internet features and the Java programming language in a single package. When Moab hit the market in 1998, Novell could stand to become the only supplier of a network software solution that replaced the thicket of products corporations had once had to buy separately to manage such tasks as messaging, connecting to the Internet, maintaining intranet security, filtering Web content, and publishing to the Web.

For that day to arrive, however, Novell had to overcome a number of obstacles. Wall Street analysts were taking a wait-and-see attitude toward Schmidt’s turnaround strategy, Novell’s stock continued to languish, and Novell had a history of missing its deadlines for delivering new products. Moreover, arch rival Microsoft was readying its own version of Novell’s Directory Services (named Active Directory) to be integrated in future versions of Windows NT, and sales of Windows NT were on a pace to surpass NetWare’s for the first time by 1998. Like many computer firms before it, Novell’s rebirth seemed to rest on an unattractive proposition: betting against Microsoft.

Principal Subsidiaries

Fluent, Inc.; Novell de Argentina S.A.; Novell Austria; Novell Belgium B.V.B.A.; Novell do Brasil Software Ltda.; Novell Canada, Ltd.; Novell Columbia; Novell Czech Republic; Novell Denmark A/S; Novell Europe, Inc.; Novell European Support Center GmbH (Germany); Novell Finland OY; Novell GmbH (Germany); Novell Hong Kong; Novell Hungary KFT; Novell International, Ltd. (Barbados); Novell Ireland Software Limited Ireland; Novell Israel; Novell Italia S.R.L.; Novell Korea Co., Ltd.; Novell Latino America Norte, CA (Venezuela); Novell de Mexico, S.A.DE C.V.; Novell Netherland B.V.; Novell Norway; Novell Polska Sp.Zo.o. (Poland); Novell Portugal Informática LDA; Novell Pty, Ltd. (Australia); Novell S.A.R.L.(France); Novell Services Asia Pacific Pty Ltd. (Australia); Novell Singapore; Novell Software Development Pvt., Ltd. (India); Novell South Africa Proprietary Ltd.; Novell Spain S.A.; Novell Svenska A.B. (Sweden); Novell Schweiz A.G. (Switzerland); Novell U.K., Ltd.; Novell Japan, Ltd.; Onward Novell Software Pvt., Ltd. (India).

Further Reading

Atchison, Sandra D., and Evan I. Schwartz, “Can LAN Lord Novell Extend Its Territory?,” Business Week, September 2, 1991.

Chithelen, Ignatius, “Computers Talking to Computers,” Forbes, September 15, 1988.

Cortese, Amy, “Microsoft May Sound The Death Knell’ for Novell,” Business Week, March 25, 1996.

Fisher, Lawrence M., “Preaching Love Thy Competitor,” New York Times, March 29, 1992.

Hatlestad, Luc, “Time Is Running Out,” Red Herring, October 1997.

Heskett, Ben, “Novell’s New Strategy,” NEWS.COM, October 28, 1997.

Pitta, Julie, “How to Lose a Lead,” Forbes, August 7, 1989.

Reinhardt, Andy, “There’s No Looking Back for Eric Schmidt,” Business Week, September 1, 1997.

Reiss, Spencer, “The Network Is the Network,” Wired, August 1997.

Wilson, John W., “Suddenly the Heavyweights Smell Money in Computer Networks,” Business Week, April 27, 1987.

—Scott M. Lewis
—updated by Paul S. Bodine

Novell, Inc.

122 East 1700 South
Provo, Utah 84606
U.S.A.
(801) 429-7000
Fax: (801) 429-5291

Public Company
Incorporated: 1980 as Novell Data Systems
Employees: 2,843
Sales: $640 million
Stock Exchanges: OTC

Novell, Inc., is the largest computer networking firm in the world, offering operating software, network management software, hardware, and services. Founded in 1980 as Novell Data Systems, a personal computer manufacturer, the firm spent its venture capital on designing hardware, leaving little money for marketing. By 1982 it was on the verge of collapse, unable to even afford a booth at the computer industry’s Comdex trade show in Las Vegas, Nevada. Raymond J. Noorda, a 58-year-old electronics engineer, saw the company’s products in a Las Vegas hotel room and was impressed. Noorda was a 20-year veteran of General Electric Co. who had already turned around other fledgling computer-industry startups, including System Industries, Inc., and Boschert Inc.

In 1983 Noorda decided to try and salvage Novell and became the firm’s ninth president. He invested $125,000 of his own money and borrowed $1.3 million from investors, receiving a 33 percent stake in the company. Though Novell was primarily a hardware maker at the time, Noorda felt that its most viable product was an operating system that enabled personal computers (PCs) to share peripherals such as printers and disk drives on a local area network (LAN). The firm subsequently terminated its hardware division and concentrated on networking.

That decision proved to be a timely one. The PC industry was booming, and as desktop computers permeated the business world, firms became increasingly interested in ways to connect them. Novell’s solution was to do this with software, using one PC on each network as a file server that would manage both the network and access to network resources. Novell’s main rival, 3Com Corporation, was building its approach to networking around hardware, chiefly adapter cards for Ethernet, the networking system invented at Xerox Corp. Initially the firms coexisted; Novell resold 3Com’s adapter cards rather than making its own.

Having established its priorities, the firm, now named Novell, Inc., forged rapidly ahead. In 1983 it released Btrieve—the first multiuser database application for LANs—and a software package for computers implementing UNIX, an operating system mainly used for math-intensive applications. In 1984 Novell introduced its first software designed to analyze Ethernet networks. The following year it became the first independent network company to support Microsoft Corporation’s new DOS 3.1 operating system and released a product that made it possible for Apple computers to be used on Ethernet networks. Novell also acquired Microsource, a distributor, and thus began the process of assembling a first-class distribution network.

Though Novell was a small company during the early and mid-1980s, its market was growing rapidly. According to International Data Corp., nearly 50,000 computer networks were installed worldwide in 1984, a number that increased to 200,000 by the end of 1987. Due to the strength of NetWare, Novell gradually emerged as the leading firm for PC networks. By 1985 the rapidly growing network market had attracted the attention of such large computer companies as Digital Equipment Corp., Apple, and Hewlett-Packard. At the time Novell was primarily linking IBM-compatible computers, so when IBM and Microsoft Corp. introduced their own file-server strategy, it was a more direct threat. Since Novell had been in the networking market longer, however, its networking customer base was larger and growing more quickly. In fact, Novell was confident enough to go public in 1985, raising the funds for continued expansion.

Unlike 3Com, Novell decided to fight the bigger companies directly, by trying to convince businesses that it would cost less to use networks of PCs for their information processing, rather than the larger minicomputers favored by companies like Digital Equipment. The firm also opted to offer complete network systems, rather than just software. To meet this goal Novell acquired Santa Clara Systems Inc., a manufacturer of data storage systems and LAN products, in the fall of 1986 for $4.1 million, as well as another distributor, Cache Data Products.

As pressure from large firms increased, the competition between 3Com and Novell became an intense rivalry by 1986. 3Com introduced an operating system for networks and bought advertising that rejected Novell’s assertion of its network performance leadership. When 3Com decided it would no longer allow Novell to sell its Ethernet adapters, Novell began producing its own and marketing them for $495 apiece, compared with 3Com’s $595. Novell also released the first network operating system for computers based on the recently developed Intel 286 microprocessor used in a new generation of IBM computers. Novell’s software was now used in more than two million computers and terminals worldwide, including the networks of the British Broadcasting Corporation (BBC), Hilton Hotels, and British Rail. Sales for 1987 reached $221.8 million.

By 1988 Novell had a 50 percent share of the PC networking market and was working to link PCs, minicomputers, and mainframes. It bought CXI, a maker of connections to IBM mainframes, for $34.9 million in March and began a $5.3 million joint venture with Softcraft, a firm concentrating on database and programming tools. Competition in the computer hardware market was still growing, making PCs more of a commodity and increasing the number of businesses seeking to link them into networks. Novell’s 1988 sales reached $347 million, 50 percent of which was software related.

Novell’s greatest leap forward came with the release of NetWare 386 in September of 1989. Earlier versions of NetWare worked only with IBM-compatible hardware, but NetWare 386 could serve IBM, Unix, and Apple’s Macintosh computers simultaneously. A great deal of software was required to connect these different computing environments. Still, corporations found linkages increasingly desirable since different computer systems could be created for various purposes. For a short time Novell had the only software capable of managing this task, giving the firm a tremendous competitive edge.

Novell took advantage of its position in the computer networking industry by creating a massive distribution network without the huge overhead costs usually involved in using 13,000 independent distributors. Value-added resellers ranging from mass-market discounters to high-level systems integrators installed the networks, taught customers how to use them, and offered maintenance, all through their own sales forces, which Novell trained. This arrangement cost Novell almost nothing, and the firm soon began franchising its Novell Authorized Education Centers for a fee. Novell also left deliberate gaps in the NetWare product line that were filled by other companies, which then had a vested interest in NetWare’s success. Sales grew to $421.9 million in 1989 and reached $497.5 million in 1990.

The combination of excellent software and distribution, as well as the support of many other companies, proved so strong that when IBM and Microsoft introduced LAN Manager shortly after the release of NetWare 386, they could not crack Novell’s hold on the market. Some analysts even thought LAN Manager was in some ways a better product, but it did not have NetWare’s broad base of support and was designed for IBM’s new operating system, 05/2, which was then unpopular. Within a couple years, Microsoft was making products designed to be used with NetWare, while IBM was selling the software.

Novell moved aggressively into the Japanese market in 1990, founding Novell Japan with Canon, Fujitsu, NEC, Sony, and Toshiba as smaller partners; Novell maintained a 54 percent stake in the Japanese subsidiary. Having the five most important Japanese computer companies on board gave Novell instant credibility as it sought to expand into a market where less than two percent of computers were networked. Novell released a version of NetWare using Japanese characters, employed Japanese citizens, and generally presented itself as a Japanese company in order to succeed in the difficult Japanese computer industry.

Novell already had a growing presence in Europe, Asia, and South America, where it sold its products through authorized distributors. By late 1991, sales outside of the United States accounted for half the firm’s revenue.

In March of 1990 Novell worked out a merger agreement with the Lotus Development Corp., one of the largest PC software firms and the archrival of Microsoft. The deal would have given Novell $1.5 billion worth of Lotus stock. Novell wanted to tap into the huge customer base of Lotus’s top-selling spreadsheet, 1-2-3, which then stood at about 5 million, while Lotus wanted access to the networking market. The merger would have created the largest PC software company in the world, giving both firms advantages in taking on their chief rival, Microsoft. Lotus and Novell planned to combine their customer service departments with that of WordPerfect, Inc., a privately held firm specializing in word processing software.

The deal fell apart at the last minute, though, when large Novell stockholders balked. Lotus would have held one more seat than Novell on the board of the new company, and the stockholders were reportedly afraid of becoming Lotus’s junior partner in the merged company. Despite the aborted merger, the two firms continued to cooperate in a number of areas.

Novell soon joined with Lotus and other companies, including Apple and Microsoft, in order to devise a system to prevent tampering with electronic messages. The goal was to make computerized messages reliable enough to use as contracts and permanent records, dramatically expanding the uses of computer networks.

Beginning in 1991 Ray Noorda, Novell’s president, chairman of the board, and chief executive officer, reorganized the company, dividing it into three divisions: the core Net-Ware division, general operations, and an entrepreneurial arm leading a move into huge, corporate-wide networks, which were expected to be the next major development in networking. Many analysts felt the restructuring was initiated to prepare the company for the eventual exit of the 67-year-old Noorda. Novell’s share of the LAN market stood at an all-time high of 63 percent, comprising 11,000 companies and 10 million people. Microsoft, however, was spending nearly $50 million a year on networking to catch up with Novell.

One of the important areas of contention between Novell and Microsoft was expected to be the corporate-wide networks. NetWare had primarily been used to help small groups of people share laser printers and data. But the wide-area networks needed by large corporations would entail linking hundreds of large and small computer systems, many of them not in the same building, or even the same country. Some corporate executives doubted NetWare’s suitability for this task, and Microsoft sensed an opening. IBM, however, had been moving to limit Microsoft’s power to set standards, and in February of 1991 IBM decided to market NetWare, boosting Novell’s position. Later that year Hewlett-Packard agreed to distribute Novell products and to work with Novell on developing and marketing computer network technologies for Hewlett-Packard computers. Compaq also agreed to work with Novell on better integration of networks.

To increase its strength in the growing workstation market, Novell bought a five percent stake in Unix Systems Laboratories, a subsidiary of American Telephone and Telegraph (AT&T), in April of 1991. Novell and Unix formed a joint venture called Univel to focus on creating products based on the Unix operating system. The firms planned to develop an easy-to-use graphical interface.

Novell then bought Digital Research Inc. for approximately $135.8 million in stock. Digital’s DR-DOS operating system, a clone of Microsoft’s widely used MS-DOS operating system, was seen as giving Novell some muscle in providing software for file servers. The acquisition prepared Novell for an expected showdown with Microsoft in the networking market. Digital Research became Novell’s Desktop Systems Group, which focused on operating systems software that increased the cooperation between workstations and a network. Novell was also working on a joint venture with Sequent Computer Systems to produce a computer able to simultaneously serve as many as 1,000 database users.

In April of 1992 Novell continued expanding its multi-company networking abilities through the $5.2 million purchase of International Business Software Ltd., a developer of networking software for Macintosh computers. Novell also signed a marketing and product development agreement with Lotus, allowing the latter firm’s widely praised Notes networking software to be more closely connected with NetWare.

Novell boasted 65 percent of the market for network operating systems in 1992, when networking was the fastest growing segment of the computer industry. A potential storm on Novell’s horizon was Microsoft’s Windows NT. Expected to be released in 1993, Windows NT was a version of the best-selling Windows graphic interface designed for use in networks. Since many corporate PCs were already using Windows and other Microsoft software, some industry analysts felt Windows NT had a chance of winning a significant percentage of the networking market away from Novell. Though Microsoft had hired a number of executives with network experience from other firms and poured millions of dollars into the development of NT, it had many powerful adversaries in the computer industry, including IBM and Apple. Novell, on the other hand, had worked hard to form alliances and not create enemies.

Novell’s strategy has always been to increase the size of the networking industry, believing its sales will inevitably grow as a result. Since the computer industry in the early 1990s featured a growing number of alliances and since Novell already had a huge lead in the size of its customer base, some analysts felt Novell had the advantage over Microsoft.

Principal Subsidiaries

Digital Research Inc.; Novell (Australia) PTY. Ltd.; Novell Belgium, BVBA; Novell Canada, Ltd.; Novell Europe, Inc.; Novell (France), SARL; Novell (Germany), GmbH.; Novell International, Ltd.; Novell Italia, SRL; Novell Japan, Ltd. (54%); Novell Scandinavia, A/S; Novell Spain SA; Novell Switzerland, A.G.; Novell UK, Ltd.

Further Reading

Wilson, John W., “Suddenly the Heavyweights Smell Money in Computer Networks,” Business Week, April 27, 1987; Chithelen, Ignatius, “Computers Talking to Computers,” Forbes, September 15, 1988; Pitta, Julie, “How to Lose a Lead,” Forbes, August 7, 1989; Atchison, Sandra D., and Evan I. Schwartz, “Can LAN Lord Novell Extend Its Territory?,” Business Week, September 2, 1991; Novell, Inc., annual report, 1991; Fisher, Lawrence M., “Preaching Love Thy Competitor,” New York Times, March 29, 1992.

—Scott M. Lewis

Novell, Inc.

founded: 1980

Contact Information:

headquarters: 122 east 1700 south
provo, ut 84606 phone: (801)861-7000 fax: (801)228-7077 url: http://www.novell.com

OVERVIEW

Novell, Inc. is the world's leader in computer networking—the use of software to connect a variety of computers, applications, and individuals within a single business, sometimes in multiple locations divided by thousands of miles. In the late 1990s, with the widespread use of the Internet, networking was increasingly seen as creating an "intranet" to link parts of a single whole. In 1997, Novell had approximately 4 million networks in operation, connecting 60 million people worldwide. Approximately two-thirds of all computer networks are run with Novell's software.

COMPANY FINANCES

In 1997 Novell reported a net income of negative $78 million on revenue of $1.00 billion, which was down from 1996's net income of $126 million on revenue of $1.37 billion. These figures were also down from 1995's net income of $338 million on revenue of $2.04 billion. In 1994 and 1993 total revenue was $1.99 and $1.12 billion, respectively.

ANALYSTS' OPINIONS

Computer industry observers had plenty to say about Novell and its products in the mid- to late 1990s. The Wall Street Journal reported that Novell's first-quarter earnings in 1997 dropped 20 percent, which suggested that the company was slow in turning around its decline. In the September 16, 1996 issue of PC Week, several articles pointed to the need for a new guiding vision at Novell, and in "Novell Takes Its Eyes Off the Basics," Linda Bridges suggested that much of this direction would come from employees.

InfoWorld gave Novell's IntranetWare a favorable review, recommending it over network operating systems by rivals Microsoft, IBM, and Sun Microsystems. Further, a September 1996 survey revealed that a majority of the 2,500 computer users sampled relied on Novell's network operating systems over all others.

In early 1997, Eric Schmidt quit as chief technology officer at Sun Microsystems Inc. and took over as chief executive officer of Novell, attempting to stabilize a company that many observers predicted would not survive head-on competition with Microsoft, or even some serious problems within its own walls. According to Dan Gillmor, technology columnist for the San Jose Mercury News, Schmidt did a remarkable job turning the company around. After laying off 1,000 employees, including half of its executives, in 1997, the company slowly began to expand. "Now come the really hard parts: moving the business fully into the Internet age, and restoring the kind of growth that gets the attention of such fickle audiences as customers, the media and Wall Street," said Gillmor.

HISTORY

Novell Inc. began in 1980 as Novell Data Systems, a producer of hardware for PCs. Having devoted most of its venture capital to product development, it could afford very little marketing and was on the verge of collapse in 1983. In that year, former General Electric executive Ray Noorda resurrected the company with an infusion of capital and became its CEO. Under Noorda's leadership, Novell turned its focus from hardware to the growing market of computer networking.

The company's fortunes soon changed, and it went public in 1985. Over the next few years, it grew rapidly, with annual receipts increasing from $183 million in 1987 to $422 million in 1989, $640 million in 1991, and $1.12 billion in 1993. From 1987 to 1990, the company purchased a number of other companies and product lines, including Santa Clara Systems, CXI, SoftCraft, Indisy Software, and Excelan. In 1988, Novell got out of the hardware business entirely, but by then it had established its focus on networking software such as NetWare, the first product of its kind when it was introduced in 1983. The acquisitions continued, including Digital Research and a joint venture with Unix in 1991.

In 1994, Noorda left the company and was replaced as CEO by Robert Frankenberg. The same year, Novell purchased the WordPerfect and Quattro Pro product lines from Borland Technologies. These did not prove to be profitable, however, and Novell sold WordPerfect to the Corel Corporation in 1996, taking a $731 million loss in the process. By 1997, Novell began redefining itself, which resulted in changes in its leadership.

On March 18, 1997, Dr. Eric Schmidt of Sun Microsystems took Robert Frankenberg's place as CEO. Over the next year, he pared down the size of the company and "built a new strategy to take the company into the next century," according to the San Jose Mercury News.

STRATEGY

Though Novell started out in the hardware business, under the pivotal leadership of Ray Noorda in the mid-1980s it entered the world of networking. As the world's largest networking software company, it built its success by attaching its activities to the latest in networking technology. In the 1980s, the market in local-area networks (LANs) represented the cutting edge. This developed into wide-area networks (WANs), and in the 1990s, the Internet—a network of networks—became a buzzword within both the computer industry and the culture as a whole. Surprisingly, perhaps because its focus was on networks within businesses, Novell was not quick to recognize the value of the Internet. By the mid-1990s, however, it had launched its "Rock the Net" marketing campaign to stress the value of its software in bringing organization and structure to the mayhem of the Internet. Furthermore, it linked its activities to the burgeoning world of intranets, which combined networks and the Internet to give businesses an integrated networking system.

In 1998, Novell's new leadership tried to combine the old and the new in developing a strategy for the next century. They decided to concentrate on maintaining old customers, while attracting new ones with advanced products and services. Giving up the notion that they could beat Microsoft at their own game, they decided to learn to co-exist with the software giant and support MS Windows NT with some of their own new products.

INFLUENCES

When Ray Noorda took the helm in 1983, the company was near death. Novell Data Systems had started out with limited capital, already a difficult situation for a computer company, and within two years of its founding, it was so cash-poor that it could not even afford a booth at the computer industry's Comdex trade show in Las Vegas. Noorda still saw potential, and by investing $125,000 of his own money, plus $1.3 million borrowed from others, he gained a one-third stake in the company. It was Noorda who inaugurated what would become a winning strategy—focusing on networking software instead of hardware.

FAST FACTS: About Novell, Inc.

Ownership: Novell, Inc. is a publicly owned company traded on NASDAQ.

Ticker symbol: NOVL

Officers: Eric E. Schmidt, Chmn. & CEO, 42, $729,143; Dennis R. Raney, Sr. VP & CFO; Clenn Ricart, Sr. VP & Chief Technology Officer, 48, $439,878

Employees: 4,797 (1997)

Chief Competitors: Novell competes in the server operating system market and the network services software market. Primary competitors include: Apple Computer; Banyan Systems; Digi International; Computer Associates; IBM; Microsoft; Oracle; and Sun Microsystems.

CHRONOLOGY: Key Dates for Novell, Inc.

1980:

Novell Data Systems, a PC hardware manufacturer, is launched

1983:

Raymond Noorda purchases a 33 percent interest in Novell and refocuses the company onto networking

1985:

Goes public

1988:

Novell has a 50 percent share of the PC networking market; discontinues hardware manufacturing

1991:

Unix and Novell form a joint venture called Univel to create Unix-based products

1992:

Novell has a 65 percent share of the PC networking market

1996:

Novell sells Word Perfect to Corel Corporation

Novell prospered for a decade under Noorda's visionary leadership. During that time, however, it undermined itself by succumbing to a temptation faced by many growing companies, diversification. Starting with the acquisition of Santa Clara Systems in 1987, Novell bought up a number of other companies and products. It attempted to merge with fellow industry giant Lotus Development in 1990, which would have created the largest PC software company in the world, but Novell stockholders opposed the merger. Its most notable purchase, and the one farthest afield from the product line that had made Novell a success, came at the time of Noorda's departure in 1994, when Novell bought the word-processing software company WordPerfect. In 1996, Novell sold WordPerfect to the Corel Corporation for about one-seventh of what it had paid for the company two years earlier. It also sold its UnixWare product line. Several shakeups of Novell management followed as the company attempted to develop a guiding strategy to take it into the twenty-first century.

According to its 1997 annual report, the company plans to position itself to take advantage of several market growth factors it sees on the horizon, including the expanding use of Internet technologies in business networks and the need for networks to support delivery of information from multiple servers running different operating systems.

CURRENT TRENDS

In September 1996, InfoWorld, a computer industry trade journal, reported that Novell was at a crossroads, and that what was at stake was no less than the company's relevance in the next century. Novell had been slow to establish the connection between its software and the Internet. That changed in 1996 and 1997, when it launched "Rock the Net," a $20 million advertising campaign promoting its Internet capabilities. In line with this, it has took such steps as integrating its GroupWise client/server messaging system more closely with the Net.

Novell also entered into a number of partnerships with other companies on the leading edge of technology and communications. Those include, most notably, the formation of a marketing partnership with Netscape, called Novonyx. Other partnerships include AT&T, Cisco Systems, Compaq, Computer Associates/Cheyenne, IBM, Intel, Oracle, and Sun Microsystems.

PRODUCTS

Novell makes a variety of products for integrating information through networks. GroupWise is a "family" of e-mail and collaboration products that permit such activities as "group calendaring," or the coordination of schedules between a number of people. NetWare, Novell's principal product line, and IntranetWare are operating systems for the large servers that form the backbone of most intranets. The Novell Directory Service (NDS) provides users with a directory of their company's intranet, along with embedded support for more than 200 software applications that may be part of that intranet. ManageWise is a network management product. It continues to be one of the company's fastest-growing products, with a yearly increase of 34 percent.

In a move to gain a larger share in the area of messaging, in 1997 Novell introduced a new version of GroupWise called Jolt. It also introduced a World Wide Web publishing initiative linked to its Groupwise e-mail package, a product code-named "The Jefferson Project." The initial response was positive, according to a September 23, 1996 ComputerWorld report.

GLOBAL PRESENCE

Novell Inc. has offices in over 40 countries. In the Americas, it has facilities in Canada, Argentina, Brazil, Chile, Colombia, Mexico, and Venezuela. European Novell offices include those in Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, the Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden, Switzerland, and the United Kingdom. Novell has several locations in Africa, the Middle East, and central Asia: India, Israel, South Africa, and the United Arab Emirates. In east Asia and the Pacific Rim, there are Novell locations in Australia, China, Hong Kong, Japan, South Korea, Malaysia, New Zealand, Singapore, Taiwan, and Thailand. Of the company's $1 billion in worldwide sales during 1997, $300 million of its sales were outside the United States.

Novell has an impressive worldwide distribution infrastructure. In addition to its own facilities in countries across the globe, it has contact with more than 25,000 value-added resellers, a loose network of independent computer dealers who resell Novell products to businesses. It also has some 150 distributors, 100 enterprise consultants, and over 300 original equipment manufacturers worldwide. Globally, Novell has shown great aptitude for moving into new markets. For instance, when it entered the Japanese marketplace in 1990, it did so with a version of NetWare that used Japanese characters and presented itself as a Japanese-oriented, rather than an American, company.

EMPLOYMENT

According to the company, "Competition for qualified personnel in the computer industry is intense. To make a long-term relationship with the company rewarding, Novell endeavors to give its employees and in some cases its consultants, challenging work, educational opportunities, competitive wages, sales commission plans, bonuses, and through stock option and, stock purchase plans, opportunities to participate financially in the ownership of the Company."

Of the company's 4,797 employees in 1997, 1,426 were involved in sales and marketing; 1,643 in product development; 763 in general and administrative; and 965 in service, support, education, and operations. Most of the company's personnel are based in Utah and California; however, about 1,500 employees are located outside the United States.

SOURCES OF INFORMATION

Bibliography

clark, don. "novell's net fell 20% for quarter in sign that turnaround may not be speedy." the wall street journal, 27 february 1997.

cole, barb. "groupwise upgrade angers users." computer-world, 10 february 1997.

gillmor, dan. "novell ceo pushing company full speed into internet age." san jose mercury news, 5 june 1998. available at http://www.sjmercury.com/columnists/gillmor/docs/dg060798.htm.

greenberg, ilan. "whither novell?" infoworld, 30 september 1996.

johnson, bradley. "novell belatedly pushes its internet capabilities." advertising age, 3 february 1997.

novell, inc. 1996 annual report. provo, ut: novell, 1996.

novell, inc. everything's connected. provo, ut: novell, 1996.

"novell's the one." infoworld, 3 march 1997.

For an annual report:

on the internet at: http://www.novell.com/corp/ir/annrpts.html

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. novell's primary sics are:

3571 electronic computers;

3577 computer peripheral equipment, nec

7372 prepackaged software