By Matt Rosoff [bio]
Posted: Nov. 20, 2006

• Sidebar: Novell Antitrust Lawsuit Continues

The following is the full text of an article published by Directions on Microsoft, an independent research firm focused exclusively on Microsoft strategy & technology. More samples of our content, as well as a list of upcoming articles and reports are also available.

Novell and Microsoft have signed a broad and complex business agreement that could ease interoperability between Windows and the SUSE Linux OS distributed by Novell, particularly in virtualization scenarios. The agreement offers better assurance of support for customers running both OSs and could help Microsoft convince customers to move legacy Unix applications to SUSE Linux running within a virtual environment on Windows Server. Novell and Microsoft have also pledged to improve interoperability in other areas, such as between Microsoft's Office and the open-source OpenOffice.org applications that Novell includes in SUSE Linux distributions for desktop PCs.

The agreement also attempts to resolve potential patent conflicts between commercial (Microsoft) and open-source (Linux) software business models. However, the agreement sparked considerable debate in the open-source community, with some proponents claiming that the agreement is unenforceable, and others accusing Microsoft of trying to raise doubts about deploying open-source software.

What the Agreement Says

The deal was announced Nov. 2, 2006, with further details emerging in a subsequent Novell filing with the U.S. Securities and Exchange Commission. The deal includes cooperation on selling and supporting virtualized scenarios involving Windows and SUSE Linux, promises of cooperation on other technologies, and agreements not to assert patents in some situations.

Novell's outstanding antitrust lawsuit against Microsoft is not settled in this deal. (For background on that suit, see the sidebar "Novell Antitrust Lawsuit Continues".)

SUSE-Windows Cooperation

In the most concrete part of the agreement, Microsoft has agreed to distribute and promote maintenance and support agreements for Novell's SUSE Linux to customers who want to run both Windows and Linux. Novell will continue to sell and distribute the actual SUSE Linux code.

Specifically, Microsoft has paid Novell US$240 million in exchange for 350,000 SUSE Linux Enterprise Server subscription coupons—70,000 per year for the next five years. These coupons are good for support, maintenance, and upgrades to Novell's SUSE Linux Enterprise Server. (Because the source code for Linux is already offered at no cost, Novell and other Linux vendors tend to redistribute the OS for a nominal fee, then sell related services such as maintenance and support.) Microsoft has the option to use, resell, or freely distribute these coupons. In all likelihood, it will sell or distribute them to customers seeking to run a copy of SUSE Linux in a virtual machine on Windows Server. This portion of the deal is exclusive for three years, during which time Microsoft will not distribute maintenance and support coupons from any other Linux distributor.

In addition, Microsoft has pledged to spend US$60 million over five years marketing solutions that incorporate both Windows and SUSE Linux, and US$34 million creating a sales force devoted primarily to selling these solutions. The companies offered no technical details on these solutions, but virtualization technology from XenSource is likely to play a role. Novell ships Xen's hypervisor (which enables multiple OSs to run simultaneously) with the latest version of SUSE Linux Enterprise Server, and Microsoft has previously pledged that its upcoming Windows Virtualization product (an add-on to Windows "Longhorn" Server expected in late 2007) will support Xen-enabled versions of Linux running as a guest OS.

Also, the two companies will establish a joint research and development lab to work on interoperability between Windows and SUSE Linux.

Other Technical Cooperation

In the vaguest part of the deal, Novell and Microsoft have agreed to improve interoperability between their offerings in the following areas as well:

Office and OpenOffice.org. The companies will work on improving interoperability between Microsoft's Office applications and OpenOffice.org, a suite of open-source productivity applications that Novell redistributes. Specifically, the companies will work on translators that can convert data between Microsoft's Open XML format (the default file format for Office 2007 applications) and the OpenDocument Format (ODF) used by OpenOffice.org. Some of the work has already begun—for example, an ODF translator for Word 2007 has already been posted on SourceForge, an open-source community development site.

Directories. The companies will also work to improve interoperability between Microsoft's Active Directory and Novell's eDirectory. One likely area of focus is federation, so that credentials issued by one type of directory can be used by the other. This would make it easier for employees of a company using one type of directory to access resources at a partner or subsidiary using the other type, and let users present only one set of credentials to use resources on either system (known as "single sign-on").

The companies revealed few technical details about this portion of their agreement, and it will take some time to judge whether these promises result in any concrete benefits to customers.

Patent Non-Assertion

The most complicated and controversial part of the agreement covers non-assertion of patent rights, as follows:

Customers protected. Microsoft and Novell will not assert patent claims against any end customer who has purchased any products from either company. This arrangement includes coverage for SUSE Linux, making Novell the only major Linux provider to be able to offer such an arrangement to customers.

Open-source developers. Microsoft will not assert patent claims against any individual developer for contributing code to openSUSE.org, the open-source project that forms the basis of SUSE Linux. In addition, Microsoft will not assert patent claims against any individual developer for writing and using open-source code.

As part of these non-assertion agreements, Microsoft and Novell exchanged money, with a net upfront payment of US$108 million from Microsoft to Novell. In addition, over the next five years, Novell will pay Microsoft a portion of its revenues from sales of its Open Platform Solutions and Open Enterprise Server (both of which include SUSE Linux Enterprise Server); the companies estimate the amount of this payment to be at least US$40 million, although the number will ultimately depend on the strength of Novell's sales in these areas. The payments were based on the number of patents held by each company and the volume of patented products they sell each year.

The agreement between the companies does not prevent them from suing one another over new features or products released in the future. Moreover, the agreement does not include patent cross-licensing but only a release from liability for past patent infringements.

Some members of the open-source community have questioned the validity of Microsoft's promise not to sue individual developers. One critique came from supporters of the Samba project—open-source software that provides Server Messenger Block (SMB) file-and-print capabilities on Linux, which allows interoperability with Windows clients and servers. These supporters have suggested that Microsoft's commitment not to sue developers is not enforceable because the open-source license covering Linux makes no distinction between individual and corporate developers, or noncommercial and commercial developers.

Who Benefits?

The Novell-Microsoft deal has potential benefits for customers in heterogeneous environments, it will help Novell in its competition against Red Hat, and it could help Microsoft improve its virtualization and systems management offerings and resolve some legal matters related to intellectual property.

Customers. The deal will help customers who want to use both Linux and Windows, as long as they choose SUSE Linux. In particular, customers running SUSE Linux in a virtual Windows environment, or vice-versa, have a better chance of getting useful support from both Novell and Microsoft. This will particularly benefit customers who want to standardize on one OS (such as Windows Server) but have a few applications that are easier to port to the other OS; these ported applications can run in a virtual machine on the company's preferred OS. It's too soon to judge whether other portions of the agreement, such as promises to ease interoperability among Office and OpenOffice.org and Active Directory and eDirectory, will result in any concrete benefits.

Novell. The deal could bolster sales of SUSE, which is the clear number-two commercial Linux distribution after Red Hat—according to IDC, for example, Red Hat had 61% of the total revenue from commercial sales of Linux in 2005, while Novell had 29%. The deal with Microsoft makes SUSE Linux significantly more attractive for customers with mixed Linux-Windows environments because customers gain some assurance of support, as well as assurance they won't be named in any patent infringement lawsuits that Microsoft files over Linux.

Microsoft. To strike this deal, Microsoft paid Novell an upfront sum of US$348 million, balanced partly by a future return from Novell of at least US$40 million; Microsoft also committed another US$94 million to marketing and selling combined SUSE-Windows solutions. Why would Microsoft invest up to US$400 million to resell and distribute Linux, the main competitor to Windows Server in the enterprise?

In part, Microsoft believes the deal will help it compete with EMC in markets for virtualization and systems management, which it estimates will be worth US$12 billion a year by 2010. According to Microsoft, customers are demanding better solutions for combined Linux-Windows installations. By investing several hundred million dollars in joint technical, support, and marketing efforts in these areas, Microsoft believes it can grow its share significantly.

Intellectual property was the other driving factor. For example, Microsoft might have been concerned that Novell had legitimate patent infringement claims and struck the deal in hopes of avoiding litigation. Conversely, Microsoft CEO Steve Ballmer recently suggested that Linux includes Microsoft patents, and that this deal will help the company recover some money from the use of its intellectual property.

Intellectual property has also been a major factor in Microsoft's antitrust dispute with the European Commission (EC). In that case, the EC ordered Microsoft to make available certain technical information about how Windows Servers work with Windows client PCs. However, some open-source advocates have claimed that they cannot license these technical protocols because Microsoft's licensing restrictions are incompatible with open-source licenses. By pointing to the Novell deal, Microsoft may be able to convince the EC that it's possible to work out a mutually acceptable intellectual property deal between commercial and open-source vendors, and possibly weaken the EC complainants' case.

Finally, by agreeing not to sue customers of SUSE Linux for patent infringement, Microsoft calls attention to the complicated and unresolved intellectual property picture for Linux in general, and may cause customers to avoid other Linux distributions for fear of patent entanglements (including, perhaps, lawsuits from Microsoft). So, the deal may hurt the leading Linux distributor while letting Microsoft reap some direct financial benefit from sales of the next-most-popular distribution of Linux.

Resources

The initial joint press release describing the terms of the deal, as well as a link to a Webcast in which executives from Novell and Microsoft described the deal, is online at www.microsoft.com/presspass/press/2006/nov06/11-02MSNovellPR.mspx.

Some financial terms of the deal were published in a subsequent Novell press release at www.novell.com/news/press/item.jsp?id=1199.

Novell addressed some concerns of the open-source community in a FAQ at www.novell.com/linux/microsoft/faq_opensource.html.

The Microsoft-XenSource partnership is described in "XenSource Partnership Deepens" on page 7 of the Sept. 2006 Update.

The Word-to-ODF translator is available at sourceforge.net/projects/odf-converter/.