iTechNote

Update: In an interview with the IDG News Service, Bill Hilf, general manager for platform strategy at Microsoft, spoke about both Sun and Novell deals and about how the company regards open-source software.

Microsoft CEO, Steve Ballmer signified the collaboration agreements between Microsoft and Novell as a clever deal to bridge Microsoft community and open source community. He said “we don’t license our intellectual property to Linux because of the way the Linux licensing, GPL framework works, that’s not really a possibility”.

As in the case of national politics, there is always going to be about 20% hard supporter for Microsoft and Linux respectively. There are 5% or so not buying in any of them and the rest or 55% a bit “opportunistic” because they believe the cost is the same no matter which one they choose - the difference is only in the cost component.

These 55% demand interoperability between Microsoft products and the open source products. However, Microsoft wants to be paid so badly for its intellectual property (IP) which takes years and millions of dollars to build that it avoids the issue for years.

The solution is to simply get a middleman, in this case Novell to “pay” Microsoft so that Microsoft’s intellectual property is respected, and it is appropriately compensated for the use of it. Novell needs to pay at least $40 million over the course of the deal to ensure Microsoft will not sue SUSE customers for patent infringement. The Novell payments are based on how much revenue Novell garners from sales of its Linux and Open Enterprise Server products.

“Consumers can, if they want to, now go buy what I’ll call the best possible form of Linux, the form of Linux that gives you peace of mind, and interoperability, and that’s SUSE Linux Enterprise, or SUSE Linux in all of its forms.”

How much does Microsoft pay Novell in return? It is huge sum of money, a whopping 308 million in total. Microsoft will pay Novell $240 million for 350,000 coupons entitling customers to support and maintenance for Novell’s SUSE Linux Enterprise. Microsoft will also spend $96 million over the five-year deal on its own sales and marketing work for SUSE products.

Lastly, Microsoft will pay Novell a net amount of $108 million in an agreement under which both companies release each other from patent claims from past actions.

If you look at the numbers, it is not so much about Linux and whether it talks to Windows, it is more about Microsoft trying to gain technology out of partnership, be it virtualization, web services or document format compatibility. In fact, Microsoft General Counsel Brad Smith openly said, “the principal purpose of this is to enable us to take our virtualization solution to market”.

Microsoft has used the same trick over the years to accelerate the development of new product line. There are two channels - acquisition of smaller companies and collaborating with peers. Novell may continue to defend it is not violating GPL and avoid burning itself; Microsoft is the clear winner out of the deal.