Godzilla Goes

It took about 6 months for Novell to realize that, no, it looked like difficult-to-demonstrate technical superiority wasn't going to be enough to answer Microsoft's NT challenge. Something more was needed. Novell pondered the situation and then decided the answer was . . . UNIX. In December 1993, the company announced it was acquiring UNIX System Laboratories from AT&T, along with the UNIX trademark. Its strategic reason for the purchase: SuperNOS, a grand merger of NetWare with UNIX that was supposed to result in an NT killer. Due date: 1995.

The decision made no sense. As with MicroPro's WordStar and WordStar 2000, NetWare and UNIX on the server did basically the same things for the same people with the same hardware. Yes, AT&T's version of UNIX could also be used on the desktop, but Novell had neither the time nor the inclination to try to develop desktop UNIX for PCs. It couldn't sell the Windows applications it already had. "Combining" the best of the two OSs often meant no more than adding multiple ways of doing the same thing for an audience that had already decided on how things should be done.

And, as with MicroPro, Novell promptly broke into internal warring camps. Key members of the NetWare development group looked down on the UNIX side of the company and made no secret of their desire to see the end of UNIX. The UNIX side of the business resented being treated like second-class citizens and liked to rub UNIX's technical superiority in areas such as preemptive scheduling and virtual memory in the faces of the NetWare folks. To which the NetWare folks liked to retort with a ripping "Oh, yeah?" (a popular comeback among Mormons because they like to avoid swearing). Compounding it all, Novell released an interim version of UNIX it called "UnixWare," which wasn't SuperNOS and wasn't NetWare but sure sounded like it was some sort of mix of the two.

After about 2 years of this, Novell had enough. In 1995, it sold UnixWare and the rights to the UNIX operating system to SCO, and that was the end of that. Along the way, Novell made yet another attempt to provide developers with more useful development tools via an object-oriented programming effort called Serius, but that venture went down the same black hole as AppWare.

Then Novell completely lost its head and in 1994 purchased WordPerfect for $850 million.

To industry observers, the purchase by Novell of one-time word-processing leader WordPerfect Corporation never made any sense, and it was difficult at the time to find anyone even in Novell who would privately provide a convincing rationale for the deal. Publicly, the company stated it was buying WordPerfect to prevent it from "losing the desktop," but because Novell had never had a significant role to play in selling desktop and retail software, it was an unconvincing story. The most logical answer anyone could come up with was that because the two companies were located in Utah just a few miles from one another, it was a case of one Mormon-dominated company coming to the rescue of another.

WordPerfect had entered the 1990s in seemingly fine shape, but from 1991 to 1993 it had deteriorated rapidly. Since its inception as Satellite Software in 1979, the company had possessed one of the industry's oddest managerial systems. Ostensible CEO Pete Peterson5 was actually one member of a governing triumvirate that included founders Bruce Bastian and Alan Ashton. Peterson acted in the role of tiebreaker in the event of a disagreement within the troika and played the role of stern daddy, keeping expenses under control and attempting to build a durable management structure for the fast-growing company. Under Peterson's regime, WordPerfect kept costs low and developed a fairly effective sales and marketing organization. The company was aided in its growth by the fact that then-market leader MicroPro was bleeding to death internally over its self-inflicted WordStar versus WordStar 2000 wounds.

Despite his CEO title, Peterson didn't have responsibility for development at WordPerfect; that was under the purview of Alan Ashton. In

5 Peterson's brother Andre also worked for WordPerfect and was one of the company's best public speakers. He was legendary for his performances at SoftTeach, an industry-specific seminar series held by computer distributor Merisel. Andre's presentations began with a slide of his wife and multiple offspring and were enlivened by the wads of candy he threw into the audience.

1992, Bastian and Ashton, tired of Peterson's stern-daddy management style, decided they were ready to fly free on their own. Peterson was sent packing, and Ashton and Bastian promptly began to spend WordPerfect to death, raising employee head count from about 3,300 in 1992 to 5,500 by the end of 1993, a 40 percent increase. Simultaneously, WordPerfect's sales growth began to slow, though the company did see an increase in revenue from $570 million for 1991 to about $700 million for 1992. This increase wasn't enough to offset the tremendous rise in expenses engendered by WordPerfect's rapid expansion, and the company began to bleed cash. The problem became worse as sales growth continued to slow in 1993.

The main reason for the sales slowdown can be traced back to the first release of WordPerfect for Windows in late 1991. Despite the market's mad rush to Windows, WordPerfect had sent in the second team to develop its first Windows word processor. The company's best project managers and coders had preferred to stay with their tried-and-true DOS product, and Ashton, a "consensus" builder, had been unwilling to knock heads together in order to ensure the product's success. The result was that the first release of WordPerfect for Windows was slow, was buggy, lacked key competitive features, and received mediocre reviews. It was a critical mistake at a crucial juncture, and WordPerfect would never truly recover from it.

Compounding the problem was the release of Microsoft's Office suite. WordPerfect had lost its bragging rights to best-of-breed word processor, and the Office suite represented a tremendous value. WordPerfect had no Windows database or spreadsheet with which to build its own suite, and sales slowed even further. An attempt to cobble together a solution to Microsoft's challenge in concert with Borland, which did have a spreadsheet and database, received a poor reception from the market. The WordPerfect/Borland suite lacked Microsoft Office's integration, and its individual products weren't clearly perceived as market leaders in their respective categories.

Instead of a cash cow with promised sales of $880 million and an estimated $100 million in profits, WordPerfect proved to be a bum steer that showed up with rapidly declining sales and a tag on its ear that read "$100 million loss." Compounding its problems, Novell promptly fired most of the WordPerfect sales and marketing personnel. Novell, left with no expertise in the retail software business, was completely unprepared to fix the situation and ended up selling what was left of WordPerfect at the fire-sale price of $158 million to Corel in 1996 (the actual deal had very little cash up front attached to it).

In the meantime, Microsoft's deadly radioactive shrinking rays were steadily cutting Godzilla down to size.

Novell also missed an opportunity to exploit the positioning problem Microsoft had created for itself with the introduction of NT. At this point, Microsoft had created two 32-bit operating systems with the same name, similar pricing (at the desktop level), and almost identical interfaces. One was reliable and hard to use, and one was easy to use and hardly reliable at all. An astute marketing organization could have given Microsoft severe heartburn over this positioning conflict, but Novell didn't.

There were no moves to upgrade NetWare's look and feel with a modern GUI. No high-level seminars pointing out that Novell also had a lot of money in the bank, a huge installed base, and a better and more stable product. No pricing moves. No serious push to finally provide a competitive development framework for NetWare. Ultimately, Novell relied on the assumption that NetWare's superiority would speak for itself. And another assumption that people went out and bought a big expensive server with a pricey NOS installed and then thought about what to put on it—the exact opposite of real-life thinking.

Instead, for more than 3 years, Novell fought back by burning cash via pointless acquisitions while Microsoft kept demonstrating its up-to-date-looking product with its attractive price to decision makers. Several new CEOs were brought in to tidy things up, but Novell successfully resisted all change. Meanwhile, its sales shrank, and profitability went away. In 2001, Novell earned revenues of $1.04 billion, down from 2000's $1.16 billion, and lost $273 million.6 Finally, the company decided the only way to deal with the situation was to sell out to Cambridge Technology Partners and move its headquarters to just outside of Boston, a place where they drink lots of Sam Adams beer, smoke, and swear quite a bit. And quaff Jolt Cola.

6 Novell press release titled "Novell Reports Fourth Quarter and Full Year Fiscal 2001 Results," November 29, 2001.

Now, to be fair, Novell finally woke up. Today, its pricing is competitive. It is making money selling Linux products, though the company's revenues and profitability have remained static as NetWare slowly dies (by the end of 2005, NetWare's worldwide server share stood at 6 percent and was projected to drop to 3 percent by 2007). It's now easier to develop NOS- and server-based applications for NetWare (though this no longer matters, because the company has said it will be phasing out NetWare in favor of its Linux products). The product now has a GUI (which also no longer matters). And many people who moved to Windows NT later regretted it. Although the Superset members weren't good marketers, they were wonderful programmers, and NT (now XP) has yet to match NetWare's stability and robustness.

But you have to wonder. The remake of Godzilla flopped at the box office in 2000. The movie was terrible. (Though this is perhaps not a fair criticism. All the Godzilla movies were terrible.) It just may be that Ghidrah has returned from outer space and triumphed at last. Certainly Novell thought so. On April 14th, 2003, Novell Chairman and CEO Jack Messman announced the next version of NetWare would be built on NetWare and Linux. Then, remaining true to Novell's history of ham-handed marketing, he called Linux "an immature operating system" and infuriated the open source community. He later apologized for calling Linux immature and, to show he meant it, bought Linux distributor SUSE. Then, in June of 2006, Messman was fired by a Novell board unhappy with the financial performance of the one-time networking giant.

Somewhere, Ghidrah is laughing.

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