Sitting pretty

Executive Q&A with Novell CEO Eric Schmidt

LAN Times

August 17, 1998

It's too soon to tell whether Novell really has turned itself around from the not-too-distant days of slipping sales and stinging critiques from Wall Street. But not much more than a year after CEO Eric Schmidt took office, one thing is for sure: Novell is not the company it was then.

As the company readies to ship NetWare 5.0, LANTimes Editor in Chief Jeremiah Caron and Associate Editor Susan L. Thomas talked with Schmidt about the progress of Novell technology, in the near and long term.

LAN Times: How do you view Java as a platform for business applications?

Eric Schmidt: I'm waiting for the apps. All the issues that exist in Java are being fixed and we're in this rather awkward or pregnant period where it's like we're waiting for the apps that have been promised by the people who promoted the technology.

LT: Do you support Java OS as a viable platform?

Schmidt: Yes, over time. The problem with the Java OS strategy, which I started, was that it's a pure model. It says that all your apps are Java-based and the problem is that the customers have a mixture of applications. So, you have to do both. The reason that you have a Java platform is because it creates more choices. More choices are good.

Enterprises are adopting Java for specialized apps. It's a classic thing where it was oversold in terms of time, but not in terms of impact. The impact is there, but it will take longer because of all the reasons having to do with the way people work.

LT: What's the time frame?

Schmidt: As far as I'm concerned, sooner would be better than later. But I think that you have to wait for the development. The customer for Java is a developer. You have to wait for the developers to do their thing. It takes a year or two to build killer apps on existing technology, let alone a new one. So, you're in this period of six months, nine months. I don't know. Not five years.

It would be important for us because we have the best Java platform--in terms of scalable performance--than anyone has right now. So, Java is not just a brand for us. Most of our revenue is tied to customers who are using us as a service platform, not as a Java platform.

LT: So how heavily is Novell banking on NetWare 5.0 for its overall success?

Schmidt: Well, from a strategic perspective, a lot. To me, NetWare 5.0 is incredibly important because it removes the dissatisfiers of the historical association with Novell. It's a starting point of a much broader strategy.

LT: What do you mean?

Schmidt: Its native architecture is a pure IP implementation. It will be the fastest TCP/IP engine. It has a whole bunch of TCP/IP services of which we're innovators, including a protocol called SLP, which is a way of finding things; it's an IETF protocol. It's a very, very fast scalable platform for TCP/IP-based services. That's a real new thing. We've never had that before. We've had Unix doing IP and then more recently [Microsoft Windows] NT doing IP. We've never had a pure scalable IP solution.

Novell was historically the fastest and the cheapest and the most powerful for file and print. Then, more recently, for a directory. We've never had that apply to the Internet. So, to me it's a starting point of a much broader strategy.

The other issue, to be blunt about it, is that we have promised the box for a long time. Can you deliver? It's one of those types of things where at some point you have to deliver. It goes back to the network computer discussion. We have to show it to customers who don't believe it.

LT: How are you going to measure whether NetWare 5.0 is successful?

Schmidt: It's easy to tell. In the first place, our customer bases historically move very slowly because they're happy, not because they are unhappy. They're very happy. Why break something that's working? We believe NetWare 5.0 will have faster uptake than NetWare 4.0. NetWare 4.0's uptake rate is many years, but we'll know by looking at our revenue stream as a percentage of NetWare 4.0 vs. NetWare 5.0 how quickly people are using NetWare 5.0.

We're not killing NetWare 4.0. We're not killing NetWare 3.0. It is important to say that this is not a forced upgrade. So, it will be customer choice, and we'll find out.

The real story is not NetWare 5.0. The real story is the directory story.

LT: The implication is that your revenue strategy is not tied to getting people to move from one platform.

Schmidt: Maybe I'm just not good at this. My revenue strategy is really easy to understand. You build products that customers cannot do without, and they buy them from you. All these other complex strategies strike me as being pretty boring. I want to build products which are so incredibly helpful to customers that they're just incredibly excited to buy them from us. NetWare 5.0 is a step in that direction. It's not an end point, it's a step.

LT: How much more open do you plan to make NDS [Novell Directory Services] to outside developers?

Schmidt: I'd rather not preannounce facts in that area. Let me take you where I can discuss. Everything needs to be manageable in a directory setting, which means your machine, the software in your machine, your users, and the digital devices that are mobile.

My position is that the directory is the interesting thing to have on your network. And its scalability and the number of objects needs to be in the hundreds of millions. You need to have a mobility architecture. It needs to be global. Directories need to stand enterprises in a value chain with appropriate security, of course. This is a very expansive vision and one in which we are the ones who are the leaders. It's ours to lose. Whatever metaphor you want.

LT: Do you consider NDS to be a successful product?

Schmidt: Of course. The alleged number is 33 million people using NDS. Every customer who I have talked with, and every customer who I know, is deploying or evaluating ZEN. ZEN is the remote management user profile. ZEN is easy to understand. Most people don't understand the directory, which is OK. The question is: What does the directory do for you? Well, ZEN is a good example.

LT: What are you going to do to drive more native NDS apps development?

Schmidt: So, the long-term answer is that for most applications, LDAP [Lightweight Directory Access Protocol] is sufficient, because it's peeked. It's essentially a "Peek, Poke Protocol," if you know what that is. You peek in and then you poke it and then something comes back, and that architecture works just fine with LDAP. For the sophisticated applications that involve authentication, VPNs, and so forth, you have to use the native interfaces.

We're doing a number of things, obviously, marketing that. We also have a $50 million fund for investing in companies at the minority level to help them along. So, we really are trying to get a serious business going in that area. It's very, very interesting to us.

LT: And how do you get NDS more widely deployed?

Schmidt: You don't think that our market share is sufficient? We have the majority market share.

LT: So you will stop now?

Schmidt: Of course not. Again, I'm trying to point out that we are the leader. So, if the good news is that we're the leader, and obviously we want to continue to increase that lead, the first and most obvious thing is getting NDS on NT stuff out. The second version of NDS for NT, which includes a back-end store and all of that, that's the next step.

But the real answer is not getting people to talk about NDS. The real answer is talking about the applications that use NDS. So, a combination of third parties plus our own activities is really how to do it. The way the directory battles will be won is because we and our partners show the value of the ubiquitous, scalable, authenticated directory.

The average customer says, "This is really interesting technology. Why should I bother, in and of itself, having one?" Then they come up with, "Well, you know I'll use it for my applications; well, I'll just use LDAP, no big deal." In other words, it's not compelling until you show a broader picture, and that's what our sales pitch is all about. It works very well.

Our issues all have to do with coverage and marketing and all those kinds of things. When we are in the sales situation and we do the demos, we win those deals because we have the answers. It's our position of strength, is what I'm trying to say.

LT: So what doesn't integrate with the directory?

Schmidt: I'm running a national research council study on Internet infrastructure and it's fascinating. The question is, what are the public policy and architecture questions around the innovation? How do we keep the Internet growing? The answer to almost everything is competition. There is, however, one issue that is fundamental to all thinking and has to do with identity. As long as we know who you are, we can come up with a market mechanism to service you. But if we can't authenticate you, if we cannot fundamentally know who you are, we get very confused. We can't do business with you because we can't authenticate the transaction and we can't give you your money. We can't charge you. We can't measure you. We can't vend things to you. We can't serve you. We can't find you without your identity. So the kernel idea here is that identity is at the basis of network blast-off. If you define directory as the place where identity is stored and managed, the answer is there are no examples of things we don't integrate with the directory. If we execute well, there's a tremendous opportunity.

Now, how tight the integration is is a separate question. People may just need to know who you are and they're fine. They do their own thing. That's why this is so interesting from a technological perspective.

LT: What comes after NetWare 5.0? Will customers see Novell go in a different direction?

Schmidt: Well, I am not a fan of large, mission-to-the-moon software projects. They seem endemic to the platform business. So, what you're going to see is an awful lot of stuff that layers on top of NetWare 5.0. The kind of stuff I'm talking about is ultimately delivered by engineering teams who take the new technology architecture that NetWare 5.0 provides and then take advantage of it.

It's pretty easy for a customer to think about. The drill I always do is, "What are you doing next?" I say, "Well, what problem do you have that is solvable by a directory?" They say, "Well, I have a problem with understanding my software licensing." We're doing that. "I have a problem with security certificates on my network and managing them because I have all these people coming in." I say, "Well, we're doing that."

In other words there's a pretty obvious list, but I'm trying not to go into the details of these announcements. The things which, once you have a directory, are just obvious. The obvious things you would put into your directory, and that's what we're doing.

There's this brilliant security architecture in NetWare 5.0, absolutely brilliant, some of the best technology that I've ever seen. So now what I need is a whole bunch of interesting directory-based apps to take advantage of it. Again, I'll refer you to the technical literature to explain it, because it's really tough to understand.

It's very, very interesting technology. I think going forward you're going to see an awful lot of exploiting of NetWare 5.0 platform. We have the new version of NetWare 5.0 coming, tied to Merced, which I believe under the new official Intel schedule is early 2000. So basically it's a year and a half from now, and so that would be the next significant repositioning there. So, lots and lots of stuff that is layered on top [of NetWare 5.0.]. Customers want that. They don't want lots of .0 releases. They want a single .0 release that's really stable. Obviously, there's service packs if there's bugs and stuff, and then they want the layering on top.

LT: To date, it seems you are leaving E-commerce to others.

Schmidt: We believe we are the logical supplier of authentication and directory services for that entire industry. The E-commerce category is so broad and so vertical that we're not going to go into the vertical segments of it. We would like to be a platform and infrastructure technology to all of it.

LT: We're trying to get a grasp of what businesses you will be in, and which ones you'll be a platform supplier to. For instance, you're in groupware.

Schmidt: Integrated with the directory. Let me give you the algorithm. Today we're in the management category and in the groupware category.

In the management and groupware category, our distinguishing characteristic is that we're completely integrated with the directory. We have a major initiative in caching and Internet infrastructure in that area, and again we're using the directory as our differentiator. We have a number of others, which are under way, that I would prefer not to preannounce. But, those are the categories that we are in.

The E-commerce business category is a yes or no depending on how you define it. If what you define is that we are going to be a part or a leader in the Internet supply chain--how you get information from your company into the Internet, how people view that--we are absolutely in that space. If you're referring to the Visa card billing mechanism, the answer is absolutely not. It's a vertical product.

LT: Microsoft has made file and print service out to be a commodity. Is it?

Schmidt: It's in their interest to portray it that way. The reason people don't talk about it is that it's not sexy anymore. We make most of our money today in that base. I have no intention of giving that up. Sure, Microsoft would portray it as a commodity. But Microsoft would also portray routing as a commodity.

We estimate that 20 percent of the work data is stored in network servers and file and print servers. You don't think that's important? Given that our file and print capabilities are specialized, what do you think it costs to replace all of those by non-NetWare solutions? Probably a great deal. Many billions of dollars, I suspect. A complete waste of time, I might add.

The reason that we have such a large franchise there is because, get this, there was competition 10 years ago. Ours is better. It was better because it was specialized. All these servers that are out there, and there are literally millions, they stay up. They don't break. They'll get through the year 2000 in some cases with patches and in some cases, we don't need them. It's a great franchise.

We're busy doing things. We have a new file system in NetWare 5.0, and again, I don't understand why nobody knows this stuff. You can have a terabyte disk go down on a server, and it can come back up in about five seconds. Nobody else can do that. So, if you have real data that really matters, it has to always be up. Novell is your best choice for printing. And NDPS [NetWare Distributed Print Services] is the most flexible, the most powerful, scalable departmental enterprise printing architecture in our industry today. People are deploying it.

LT: Even Novell can be accused of sweeping the importance of file and print services to a business organization under the rug.

Schmidt: I have been very, very clear on what we do. We are a specialized platform where you get up to a 10 times cost of ownership advantage by having Novell's products that run NetWare mixed with other [platforms]. If you have a printing architecture, it will cost you 10 times less to have a NetWare server doing it than somebody else. It's true. We have the numbers to prove it. You can't deny it. It's like saying a truck has more capacity than a car. A car is maybe sexier, but trucks are better for hauling stuff.

LT: What is your opinion on how the Department of Justice is handling the Microsoft case?

Schmidt: I would rather not comment on anything involving Microsoft. I would rather this interview be about Novell and not about antitrust with Microsoft.

LT: Do you think that Microsoft is in a position to stifle innovation at companies such as Novell?

Schmidt: I'd rather not comment on that. One of the things I've noticed in the press is that all they can talk about is Microsoft, and I like to talk about Novell. So, let's talk about Novell. I'll be happy to talk about Microsoft as its products compare to Novell's products, as we've discussed. But I don't want to talk about the Justice Department, or Microsoft business practices. Microsoft gets plenty of press. Somebody else can talk about them.

LT: Does Novell feel stifled in the market?

Schmidt: Again, I don't want to discuss it. I don't think it's appropriate. You guys are talking to our customers, to our partners, to our competitors. Let's talk about that stuff.

I'll be happy to talk about how our products, how our business strategies are working, how we compete with Microsoft. I'm not going to talk about Microsoft in general terms. It's a mistake. I have no reason to discuss those issues. Microsoft is part of the atmosphere. It's a reality, and we deal with it. Our message is very straightforward. I'm giving you a very consistent answer, and it's something that I've done, since this is the right thing for Novell. Microsoft's customers and Novell's customers deserve better than a food fight. They deserve great technologies to solve as many problems as they really have. We're building those solutions. We're working with Microsoft and others to achieve those objectives. Next question.

LT: What about the encryption issue? You have said it's killing American industry.

Schmidt: We're being prevented from doing stuff in America. It's a jobs-export program. It's a very, very serious issue. Here's one of the most important issues in terms of building networks that we are being prevented from working on in the United States. There's a further issue which is, as you know, that the FBI has a very significant and serious concern about the use of encryption to bypass wiretapping. I and others have spent a lot of time with those people and they understand our views, and again we're at a stalemate there.

LT: Is there room for consensus on this issue?

Schmidt: In due time. They clearly need to replace me, because I so far have failed. I keep trying. We keep pointing out that this is not a lack of communication. We have talked to all the key decision-makers from the President on down, and you get these answers that are of the form "Yes, I hear you." Which is fine, but we need action. We're being prevented from doing stuff in America.

I was in Europe two weeks ago and on the front page of the European Wall Street Journal was an article about this company in some country which thanked America for its laws because it wouldn't exist if it weren't for such a stupid law. It's a jobs-export program. The data is there. Again, I'm a pragmatist on these things. I'm assuming that we will continue not to solve this problem, and that we are in fact running this consciously, and therefore businesses like Novell are working with people outside the United States legally to solve our non-U.S. customers' problems.

I don't want to take on too broad a role here. All of my peers and all of my competitors agree with me. This is the stupidest thing they've ever seen in America. It is a true gaping hole in what is an otherwise outstandingly good political climate for what we do as business people.

LT: So, what further can the industry, as a whole, do about the encryption issue?

Schmidt: We just keep juggling. We--and when I say "we," I mean the leaders of high-tech industry--have told the government that if what they are trying to do is to run the clock back to a point where people did not have access to strong encryption, we don't know how to turn the clock back. PGP [Pretty Good Privacy] and other technologies like that have been exported. They're available broadly. The analogy one CEO uses is that it's 1066 and the long bow has just been replaced by guns and the problem is that you're English, and you didn't invent the guns. The war has just changed. You need to get on to the new regime.

We proposed numerous collaborations with the government to try to assist them in understanding the implications of this new regime. But, until we see some action on the government side, we're locked.

LT: Are you satisfied with where Novell is at right now, a little more than a year since you started?

Schmidt: Sure. My feeling when I came to this company was that this was a multiyear process.

LT: A multiyear process to do what?

Schmidt: To take Novell from where it was to where it needs to be.

LT: Where is that?

Schmidt: As the innovator in the networking space. So, the first year was to stabilize the business. The second step is to post NetWare 5.0, where you get all of these interesting new services that are just now enabled by this new architecture. We're now in our infant growth phase.

LT: Has the turnaround been completed?

Schmidt: Oh, absolutely. In hindsight, when we looked at it, it was fairly clear by January of this year, but it wasn't certain by BrainShare [Novell's developer's conference]. We had a very successful BrainShare. Then it was clear. What's interesting now is that we're in a period of relatively positive press, relatively positive reception, rising revenue, happy customers in the sort of existing milieu of what the company is. The next criticism is going to be, "What new thing have you done?"

So then, you know, the bar keeps being raised higher, and I think that's good. I look at that, and I think what you'll see is, if anything, an accelerated rate of change in the company, because we now have the structures in place. We have the mechanisms. We're talking to the right customers in the right way. We've clearly hit a sweet spot with respect to this next generation of service stuff. So, that should just snowball for a while.

So you know, I'll do this for a while. I like this. It's pretty comfortable.

Copyright 1998