Interview: Eric Schmidt, November, 1999
Interviews : Stephen Ibaraki, I.S.P.
Profile: Dr. Eric Schmidt Chairman of the Board and Chief Executive Officer Novell, Inc.
Dr. Eric Schmidt joined Novell in April 1997 as chairman of the board of directors and chief executive officer. At Novell, Schmidt is actively involved in all significant operating and strategic decisions for the company and plays a central role in the technical development and management of the company.
Dr. Schmidt came to Novell from Sun Microsystems, Inc., where he was chief technology officer and corporate executive officer. In his 14 years at Sun, Dr. Schmidt held a range of progressively more responsible executive positions, where he earned international recognition as an Internet pioneer. He was also instrumental in the widespread acceptance of Java, Sun's platform-independent programming language.
Prior to joining Sun, Dr. Schmidt was a member of the research staff at the Computer Science Lab at Xerox Palo Alto Research Center (PARC). He also held positions at Bell Laboratories and Zilog.
Dr. Schmidt has a bachelor's degree in electrical engineering from Princeton University, a master's degree in electrical engineering, and a Ph.D. in computer science from the University of California at Berkeley.
Q: Can you describe your channel partnership programs? You have a good relationship with your various channel partners. What precise changes will be made to foster and encourage this relationship?
A: Our channel is one of Novell's great strengths, because it provides a point of integration and service for our products. Our channel partners are working with us not just to ship solutions, but also to offer a range of value-added services. We're helping them do this with new tools and Web-based services, and by intensifying the education and training we make available to channel partners. Another way is by tailoring our programs to channel organizations with different needs, from large integrators serving major corporations to small solutions providers. For all these partners, we have directory-based solutions and services that can differentiate their businesses and improve their bottom line.
Q: What are you doing for the vendor channels?
A: Novell has entered a new era of growth based on two elements: the rapid acceptance of NetWare 5 and customer deployments of NDS and the expanding portfolio of directory-based applications. This success has fueled a worldwide demand surge for channel involvement with Novell. A case in point is the channel demand for Novell product training, which is growing at a faster rate than ever before. Novell in 199 has strengthened and refined our channel commitment. Across the board, we are focusing these intensified efforts in three areas: knowledge, margin and revenue. For example, we launched the Novell Academy to broaden the knowledge base of our channel. We not only aggressively expanded our technical training on NDS and NetWare 5, but for the first time we are pursuing worldwide training of the professional sales reps who use Novell technology to solve customer problems. We will continue to sell a significant share of our products through the channel. But we also recognize that customers today are optimizing their sources of supply for both professional services and product fulfillment. Moreover, services now represent a high percentage of the channel profits. Our response is to tailor our channel programs to optimize the services opportunities for our partners. As a result, delivering professional services is a high-margin value proposition for Novell channel partners.
Novell's turnaround has been defined by the renewed integrity of the Novell brand and a robust product portfolio based on the IP and directory-based solutions that make sense for today's customers. These factors are making an impact in every segment of our channel and the greater marketplace. In turn, Novell is constantly evolving our programs to suit the needs of our partners and customers within each segment. We are focusing on the same message in the channel that is driving the renewed growth of our business: Now that the Internet is part of business for everyone, networks matter more than ever before. Novell today has the directory-based solutions and programs that enable you to make a smooth transition into Internet markets, improve your margins and grow your revenue. In every segment of the channel, the NetWare platform and NDS are central to integrating diverse systems and managing user access and identity.
It's clear that the channel has always been one of Novell's great strengths. Throughout Novell's turnaround, and into today's growth era, we've focused on aligning our business with the needs of our partners and customers in the marketplace. An important part of that process has been providing our channel partners with the knowledge, tools, and product they need to compete and win. Partners are getting the message that Novell is becoming a growth company again. They want to know how they can participate in the business ecosystem that's springing up around NetWare 5 and NDS. We respond that Novell is a networking partner whose vision has room enough for many different kinds of products, solutions and services. Then we start talking about the ways we can work together to bring more value to our customers.
Q: In a recent exchange with Dan Kusnetzky, program director operating environments and serverware research services, International Data Corporation (IDC), Dan made these comments:
"IDC's operating environments and serverware research services have watched the market for server operating environment software change over time. Seven to eight years ago, the person specifying the operating environment was typically a technical person having a technical title who made the decision based upon technical merit. Starting about six years ago, this changed. At that time, it became more likely that the person making the decision was a businessperson having a business title who made the decision on a business rationale. Technology, or at least as much technology as was known and understood by the decision-maker, was one of the elements considered during the evaluation. It was no longer the primary reason for any given decision. Microsoft and one or two of the suppliers of Unix discovered this early on. These operating environment suppliers spent most of their marketing dollars creating and disseminating a grand vision of how their technology would help the businessperson. In Microsoft's case, the technical person, with the exception of the developer, was ignored. The Unix suppliers continued to focus on both. Until very recently, Novell has focused entirely on the technical person. The businessperson may have used a Novell product all day but didn't know Novell existed. Novell was just like the telephone system. No one knew what brand was being used. They only focused on it when it stopped working. Novell didn't present a grand vision - just how wonderful their technology was. When considering what markets to target with Windows NT, Microsoft chose to attack the market for application server software held by IBM's OS/2 and the Unix suppliers and file/print server software held by Novell. Microsoft has just about destroyed OS/2 and the suppliers of low-end Unix have only been saved by Windows NT's issues with scalability, manageability, robustness, and interoperability. Novell has continued to grow even though that growth was slower than before Microsoft started its Windows NT onslaught in 1992.
IDC expects the server operating environments market to look like this in 2003.
Share of Shipments:
Microsoft Windows NT Server 44.6%
Linux, Multi-user 18.2%
Novell Netware 17.8%
Unix Multi-user 16.2%
Total Server Operating Environments License Shipments 8.8 Million"
There’s an apparent loss in market share. There is also evidence to support IDC that Novell is too technically focused, which has accelerated their loss in market share. Can you provide any comments?
A: We have refocused our marketing over the past 18 months to address the business benefits of our products to CIOs and business owners, as well as to our traditional community of network managers, administrators, and software developers. We believe that this helped reverse the flattening of NetWare sales that took place in the mid-1990s and set Novell on a new growth trajectory. The IDC numbers are not especially relevant when compared to the growth trajectory of Novell's directory-based business. In our
recent fiscal quarter, sales of our directory-enabled NetWare platforms were up nearly 30 percent year over year. Directory-enabled applications are up 34 percent year-over-year. Services, training and consulting are up 43% year-over-year to $49 million.
We believe that NetWare's excellence as a Web application server will become more apparent soon, especially after we make IBM Websphere available on NetWare 5, and that this will boost our platform market share. However, we are most focused on building market share among directory services users, which is not measured in this report by IDC. The recent Network Magazine survey showed NDS in use by more than 80 percent of companies using a directory service with only 2 percent stating definite plans to move to Active Directory. As the Internet Directory Leader, Novell plans to sell directory services and related applications for NetWare, NT, UNIX, and Linux: all those platforms measured by IDC.
Q: I was very surprised by IDC’s comments since I thought Novell held a stronger position however their assessment is sound and backed up by several focus group sessions I've held with decision makers. Also, one question has come up repeatedly from my focus group sessions: "When Windows 2000 reaches its next iteration (Windows 2000-x) in 2003, why maintain two directory services - Active Directory X and Netware 6.x? Office 2000-x will leverage Windows 2000-x to work correctly as does SQL Server 8.x, Exchange 6.x and other BackOffice products. Most businesses will change Windows 2000-x to support Office 2000-x and associated products. So then the question arises, why maintain two directory services when one comes supplied with Windows 2000-x? Novell may have a technical advantage however Windows 2000-x will meet the needs of business people, and its use will become prevalent to leverage the desktop applications available. How will Novell address these trends in the long term?"
A: Sometime in the next century, after a long period of debugging, it's conceivable that many customers will use Active Directory to manage desktop applications within Windows 2000 LANs. Just as we do today, Novell will provide the best directory and associated tools for managing Microsoft desktop and BackOffice applications. Moreover, customers will still need a full-service directory like NDS to manage Web services, e-commerce, and enterprise applications and data distributed across NetWare, UNIX, NT and Linux. Within our full-service directory, Novell will provide for interoperability with Active Directory to meet the needs of customers who want to use it in local environments.
Q: Your Company is re-energized and re-focused for the challenges of the new millennium. This change is credited to your leadership and reputation. How have you reshaped the company and what changes do you plan in the short term and long term?
A: Novell had always been a company with excellent technology and talented people. We needed to focus on our networking and directory strengths. We also needed to transform our organization and culture to get more products to market in an accelerated time frame. Our success in all these areas is reflected in strong customer acceptance for our new products and solid financial results. We have completed a turnaround and entered a new period of growth as the Internet Directory Leader.
Q: There is so much "noise" in the marketplace. How do you uniquely define/differentiate your company, its products, and its current market position?
A: Novell is the Internet Directory Leader and the largest independent software company focused exclusively on networking. Our company and our directory-based platform and applications have a special role to play in integrating and managing resources from many different vendors.
Q: Being as explicit as possible, what are Novell's long-term technical strategies and goals?
A: We see a huge opportunity in the market for directory-based platforms and applications. Our strategy is to lead that market, which we view as potentially as large as the entire SQL database market. We are focused on Novell Directory Services (NDS), our directory-based NetWare platform, and applications that utilize the directory to manage and access information across the enterprise and the Web. Some of our key product development areas include single signon for enterprise applications, metadirectory integration of enterprise data, policy management of routers and switches, digital identity management for both businesses and individual users, Web caching, and secure business-to-business extranets.
Q: Describe your transition from file and print services to directory services to ...?
A: We made the transition to directory-based networks in late 1994, so we have had five years to develop a mature and reliable directory service and then expand it to run across major platforms and support the applications and tools our customers rely on. As the Internet Directory Leader, Novell has evolved from the pioneer in local-area networks to a strategic networking partner that helps our customers connect the entire enterprise and bridge the gap between the enterprise and the Internet.
Q: Networking increasingly is synonymous with the Internet. How will networks evolve over time? What role will Novell play in this evolution?
A: The Internet provides a large-scale version of the same challenges that NDS and Netware address in the enterprise. How do you find and securely access the resources you need? How do you manage user identity to support trusted relationships and secure transactions? Businesses need a way to assess the identity of the people with whom they
make contact over interconnected networks. Individual users, meanwhile, need more control over the personal identity information that defines where they can go, what information they share, and with whom they share it. Novell is extending our core competency in network services to the Internet to address the needs of both businesses and individual users. The result is a more manageable, secure and personal Internet experience for our customers.
Q: What are your views on Windows 2000 and Active Directory?
A: Novell's specialized NetWare platform enables customers to integrate and manage all of the major platforms and applications within their businesses, including general-purpose application servers such as UNIX variants and NT. It's not clear when Windows 2000 will ship, but when it does we will support it equally well. Customers today need networks that are manageable, secure, and open to platforms and applications from multiple vendors. For these customers, it's "NetWare and NT," not "NetWare versus NT." Active Directory is planned as a Windows-centric solution designed to improve the cumbersome domain structure used for network management within NT. As such, it covers only a small slice of the heterogeneous networks and Internet services that customers manage and control with NDS. Novell intends to make NDS fully interoperable with Active Directory, enabling customers to integrate Active Directory and Windows 2000 into more robust networks managed by Novell's full-service directory.
Q: Who are your technological partners and why?
A: We are working closely with major vendors like AOL, Cisco, IBM, Lucent, Nortel, and Oracle to create applications and tools that utilize and add value to NDS and NetWare. We're especially excited by our recent alliance with AOL to integrate NDS with the popular AOL Instant Messenger application. This will provide businesses with greater management and control of instant messaging within their organizations.
Q: Some time ago, you announced$50 million Internet Development Fund making first and second stage investments in leading edge companies that are developing Java-related software for network servers. Describe the results of this initiative.
A: Our Internet Equity Fund, now called the Novell Ventures, has invested to date in fifteen companies. We're investing in companies helping build the market for directory solutions and primed to benefit from the effects of networks. The results so far have been extremely positive, with many new directory-based applications and tools coming to market. We continue to seek out growing companies that can expand their market penetration, as well as ours, through partnerships and investments with Novell. Toward that end, our Board has increased funds authorized for venture capital investments to U.S. $170 million.
Q: What are your views on Linux?
A: Novell views open-source activity around the Linux platform as a positive development for our industry and customers. Linux gives customers more options in choosing best-of-breed application servers and other network components. This fits nicely with the role of Novell and NDS in managing and integrating diverse platforms and applications. Accordingly, Novell has invested in Red Hat software to accelerate the development of NDS and other Novell services for Linux.
Q: Based upon your extensive background, where do you see Java evolving today and in years to come?
A: Java may not have been the cure for the common cold, but it has transformed the way network applications are developed and deployed. Already Java is pervasive within the developer community and in Web applications. Now its time is coming in server-based business applications that can be distributed across platforms in the enterprise and on the Web. It's the ability of Java to solve software development and business problems that will ensure its success, not some dispute over different vendor implementations.
Q: Significant parts of our readership are computing students and we often get questions as to which areas they should concentrate on. What career advice would you give to computing students? What areas should they target? Where are the areas for career growth?
A: I think the most important advice for computing students is similar to what I would tell the many information systems professionals who read your publication. That is, develop a network of people with whom you share professional skills and interests. Make contacts at every opportunity, whether it’s through the class room internships, seminars, or industry events, and cultivate these relationships. Most employers these days can't guarantee a lifetime of loyalty. It's your personal network, over a long career that will take you to new and interesting places.
Q: Can you describe the evolution of your programs for Developers now and into the future? Why would a developer want to develop products for a Novell platform?
A: Directory services provide a security and management infrastructure that enables applications to be managed and controlled from a single location, distributed across platforms, and securely accessed from anywhere on the Internet. Developers can take advantage of this infrastructure to add powerful new functionality to their applications and expand their target markets. At Novell, we're providing tools and APIs that make it easy for developers to write to the directory, no matter what platforms they want to target or what tools they ordinarily use. This emphasis on the directory as platform has led to intensified development activity around NDS and NetWare. Participation in our DeveloperNet program has nearly tripled over the past 18 months, with over 65,000 developers now working with Novell.
Q: Drew Major, Chief Scientist and premiere inventor of NetWare, has been the principle architect for your company. His key role will change and be passed onto others. How are you planning this succession over time?
A: Drew's accomplishments may well be legendary, but he is a young man and I expect that his greatest achievements are still ahead. His contributions to Novell's Internet caching products have been extraordinary and have made Novell both the performance and market leader in this fast-growing segment of the Internet infrastructure marketplace. According to Internet Research Group, Novell now has over 85 % of the proxy caching market if measured by product revenue. In addition, OEMs like Compaq and Dell are licensing Novell's Internet Caching System for use in specialized caching appliances that plug right into NetWare, UNIX and NT networks.
Q: What is the role of NetWare 5 in Novell's strategy and what are your plans for the future of the NetWare platform?
A: NetWare has defined the benchmark for fundamental network services such as file, print, routing, communications, etc. With NetWare 5, Novell has extended these services to the Internet, providing what may be the only operating system capable of scaling efficiently to the web. Couple this with the only directory capable of scaling to the Internet--we have tested NDS 8 with one billion objects with subsecond response time--and you have the infrastructure in place for a new generation of Internet applications and e-commerce activities. By the end of the year, we will further strengthen the platform by porting IBM's Web Sphere application environment to NetWare 5. As reflected in the product's fast growth, NetWare 5 is a platform for both now and the future.
I want to thank you, Eric, for your contributions to our society--past, present, and future. Your work before at ZILOG, Bell Labs, PARC, and Sun Microsystems are an integral part of the fabric of time and history and well known to many in the computing industry. As Chairman and CEO, Novell Inc., we look with anticipation to your shaping of this formidable company to meet the demands of data communications in the future. Novell defined the networking operating system marketplace, with 16 years of experience serving over 80 million users worldwide. We watch with interest, how the corporation will continue to grow into the future.