Microsoft Embraces Open Source, Backs Novell's Linux Platform

The agreement announced Thursday between the world's largest seller of patent-protected software and a leader in the open-source software movement has potentially important business, technical and legal implications.

The news could be another blow for Raleigh-based Red Hat.

Last week, Oracle Corp. provided the Linux system with another major lift by offering deep discounts on product support of the Linux platform provided by Red Hat.

Microsoft's backing of Novell's Linux platform may raise even more worries for Red Hat, whose stock price has dropped by 17 percent since Oracle's move.

Red Hat shares dropped 2 percent, or 33 cents, to $16.10 after news of the Microsoft-Novell deal broke Thursday afternoon. Red Hat (NASDAQ: RHAT) shares fell an additional 44 cents, or 2.7 percent, in after-hours trading.

Matthew Szulik, chairman and chief executive officer of Red Hat, said he saw a positive effect in the deal, however.

According to The New York Times, Suzlik said that Microsoft recognizes Linux as a “core component of information technology infrastructure.” He also called Novell, a “weakened and vulnerable” company that was attempting to gain market share in the Linux market.

On its Web site, Red Hat branded the Microsoft-Novell deal with one word: “UNTHINKABLE.”

“It was inevitable,” Red Hat said. “The best technology has been acknowledged.” According to Red Hat, the announcement is good news for the open-source software community. “The relentless march of open source is shaking up the industry by freeing customers from proprietary lock-in and lack of choice,” Red Hat said. “It means Linux has won. The world's largest software companies are saying what customers have known for years: Open source innovation delivers better software and better value,” Red Hat added.

Given that the Microsoft-Novell deal was announced after the markets closed, the impact of the deal was unlikely to be clear until market trading reopened Friday.

"This builds a very important intellectual-property bridge between the open source and proprietary sides of software," Brad Smith, Microsoft's general counsel, said shortly before the companies formally announced their alliance in San Francisco.

Financial terms of the arrangement weren't disclosed.

The alliance is primarily aimed at the growing number of major companies and government agencies that rely on elements of Redmond, Wash.-based Microsoft's Windows and Linux to run their computers.

"It all comes down to recognizing there is a mixed environment out there," Microsoft Chief Executive Officer Steve Ballmer said during a Thursday press conference.

The partnership's impact on consumers appears to be inconsequential except for a commitment to improve the interaction between Microsoft's top-selling suite of Office software and a free alternative known as OpenOffice.

Microsoft's stamp of approval, extracted after six months of negotiations, represents a coup for Waltham, Mass.-based Novell as it touts the advantage of its version of Linux over other varieties made by competitors such as Red Hat Inc.

After news of the deal leaked, Novell's shares shot up 92 cents, or 15.7 percent, to close Thursday at $6.79 on the Nasdaq Stock Market, where Microsoft's shares dipped 4 cents to finish at $28.77.

Under the partnership, Microsoft's sales team will offer corporate customers a chance to license its Windows operating system as part of a package offering maintenance and support for Novell's Suse Linux platform.

Novell primarily relies on the fees for customer support to make money off the Linux software, which is developed by a global community of programmers who aren't tied to any single company and freely share improvements to the code.

Ballmer stressed that Microsoft will first try to convince corporate customers to use Windows exclusively before falling back to the notion of a hybrid system using Suse Linux.

To encourage more companies to embrace Novell's open-source platform, Microsoft has pledged not to assert its patent rights over any of its technology that may be blended with Suse Linux.

The concession is meant to address the concerns of many corporate users who have been reluctant to use Linux because they feared Microsoft might retaliate with patent-infringement claims.

"This is a big day for Microsoft customers," said Stuart Cohen, chief executive officer of the Open Source Development Labs, a Beaverton, Ore., group trying to expand corporate America's reliance on Linux. "They are being told by Microsoft that they can use Linux and not worry about it. That's a big statement."

Microsoft's patent waiver only applies to users of the Suse Linux platform.

The new partners have a stormy history.

In 2004, Novell reached a $536 million settlement with Microsoft over antitrust complaints in Europe and then sued its rival again in the United States. The U.S. suit alleged that Microsoft withheld technical information about Windows that Novell needed for its word-processing program. Novell has since sold WordPerfect, but its antitrust claim remains alive.

Microsoft's decision to work with Novell reflects the increasingly important role of Linux's open-source software in corporate computing systems. About 20 percent of corporate America relies on some form of Linux, Cohen estimated.

Because it's available for free, Linux software long has been has been a source of consternation for Microsoft, which makes most of its money selling its proprietary software.

"I have had a lot of conversations with (Ballmer), and I can assure you he wasn't usually smiling when we were talking about Linux," said Shane Robison, chief strategy and technology officer for Hewlett-Packard Co.

Microsoft has been under increasing pressure to loosen up, however, and not just from customers who want to be able to run Linux with Windows.

Online search leader Google Inc. also is giving away more Web-based software, including word processing and spreadsheet programs, and last year promised to work with Sun Microsystems Inc. to help distribute OpenOffice.