Steve Ballmer: Microsoft and Novell Collaboration Announcement

Transcript of News Conference with Steve Ballmer, CEO, Microsoft Corporation; Ronald W. Hovsepian, President and CEO, Novell, Inc.; Dr. Jeff Jaffe, Executive Vice President and Chief Technology Officer, Novell Inc., and Brad Smith, Senior Vice President and General Counsel, Microsoft Corporation
Microsoft and Novell Collaboration Announcement
San Francisco, California
November 2, 2006

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JOHN DRAGOON: Well, good afternoon, everyone. I apologize for the slight delay. My name is John Dragoon. I'm Novell's Senior Vice President and Chief Marketing Officer, and I would like to welcome you to this event. I know most of you received an invitation from Microsoft. By now you've discovered that, in fact, it's a Microsoft-Novell announcement, and we are extremely proud and excited to share it with you. And to do that, we have the top executives of both of our teams. In fact, why don't I introduce them now. From Novell, Novell's President and Chief Executive Officer Ron Hovsepian, and from Microsoft, Microsoft Chief Executive Officer Steve Ballmer. Please welcome them. (Applause.)

Joining these two gentlemen from our respective companies will be Dr. Jeff Jaffe, Novell's Executive Vice President and Chief Technology Officer, and Brad Smith, Senior Vice President and General Counsel of Microsoft. Please welcome them as well. (Applause.)

Now, as fascinated as I know you all are to hear their perspective, we think it's equally important to share the partner and customer perspective as well, and we're privileged to have partners and customers with us today. In fact, from Hewlett-Packard we have Shane Robison, who is the Executive Vice President and Chief Strategy and Technology Officer. Welcome, Shane. (Applause.)

And joining us all the way from New Jersey, and we greatly appreciate it, from the customer perspective is Mr. Randy Cohen, who is the Chief Technology Officer of Goldman Sachs. (Applause.)

And participating in our question and answer piece that we'll have after our prepared remarks are two additional customers, Mr. Mark Tolliver, who is the Chief Executive Officer of Palamida Software right here in San Francisco–(applause)–and Mr. Bill Schrier, who is the Chief Technology Officer for the City of Seattle, who has been gracious enough to fly south for us today on this announcement as well. (Applause.)

So as I said, we'll have about 30 minutes of prepared remarks, and then after that we'll move into a question and answer session where we'll open the floor up for questions for our panel today. So, without any further ado, I will turn the floor over to Steve.

STEVE BALLMER: First, let me thank everybody for taking the time, and coming and spending it with us here today, particularly on such short notice. We had a lot of work we had to get done before we could invite you, and it took us even a few extra minutes this afternoon. So, I apologize for that.

I do particularly want to thank the partners and customers who came today from all around the country. We've been engaged in a lot of dialogue with some of these folks over a long period of time, and we appreciate the input and feedback that has really driven us and Novell, really, to be here today. We're here to announce a set of agreements that will really help bridge the divide between open source and proprietary source software. This is a set of agreements that really I think will greatly enhance interoperability between Linux and Windows, and give customers greater flexibility in ways that they have certainly been asking.

The impetus from this event really comes from our customers. We have been working on a set of thinking for a number of years, and yet we've been continuously shaped by the folks who are here, and many others around the world. As CEO of Microsoft, I certainly recognize that Linux plays an important role in the IT infrastructure of many of our customers, and will continue to play an important role. We have customers who use a mix of technologies to manage their businesses, and they demand strong interoperability amongst all their systems. This announcement has a few pieces, and I think it's important that we go through at least three aspects that are very important.

First, Microsoft and Novell are coming together to collaborate on a series of solutions, technical solutions, that will enable customers to work better, faster, more productive. We've entered into a technical collaboration agreement to work together on key areas like virtualization, management, and document format compatibility. We see huge potential upsides in these markets, and we believe the investment that we're making together in new solutions and interop will make our respective products more attractive to customers.

The second aspect is equally important, and perhaps even more innovative. This new collaboration relationship was really only possible through some breakthrough work that creates an intellectual property bridge between the open source and proprietary source business models. Obviously, the open source model, and the propriety source, if you will, patent and IP model are very different, and people have struggled for a number of years to find a way to kind of bridge those differences. A number of people said it couldn't be done, but we think we've found a solution that respects both business models, but still allows for a workable IP approach going forward. And Brad Smith, our general counsel, will have more to say about that later.

Finally, we announcing a business cooperation agreement. Microsoft and Novell will work together on the sales and marketing front to really help promote the adoption of our collaborative solutions. For anybody who runs a mixed Windows and particularly SUSE Linux environment, this is all good news. The technical aspects of these agreements will result in higher levels of interop between Microsoft Windows and Novell's SUSE Linux environment. We're going to raise the bar in terms of interoperability. We're going to make it easier for customers to manage these mixed environments. Systems management is a particular challenge for customers, and we're particularly interested in helping work on the interoperability with Novell in that area.

The technical cooperation we think has good business upside for both companies. IDC has this amazing forecast, $1.8 billion just for virtualization software by the year 2010, $10.2 for distributed systems management, and the investments that we and Novell will make in those areas will be, I think, very attractive to our joint customers. Jeff Jaffe from Novell will go into detail on that technical collaboration, and what it facilitates.

In terms of business cooperation from Microsoft's perspective, we definitely want those customers who are combining Windows and Linux to choose the Novell SUSE product line. And we're going to put our marketing behind that. With Novell, those customers will benefit from the interoperability, the virtualization scenarios, the management scenarios, that our two companies will work on, and because of the creative resolution of IP issues, Microsoft and Novell will really be able to add value and collaborate in a way that I think is very meaningful to our customers. All of these agreements, I think, are another sign that our software industry just continues to evolve.

IT is an industry where there are many, many ways of developing and licensing software. And certainly we're proud of the cooperation that we're initiating here with Novell. AS we cooperate, though, both companies are also going to continue to do what we do best, in some senses, which is to compete in the market. If anybody is confused by the end of the press conference, I'll say it now, you've got a new application that you want to instance, I'm going to tell you the right answer is Windows, Windows, Windows. And Ron is going to tell you something different, as you'll ask him, I won't even go there. And that's fine. But we both recognize the need for this interoperability. And so while we'll compete, we're also going to cooperate in the right way.

I do want to make sure to thank both Ron Hovsepian, and Jeff Jaffe, and the entire team at Novell. There's been a lot of hard work and good faith brought to this process over now about a six-month period of time that we've been working on some very complicated issues that needed significant innovation on both the business and IP front, as well as the technology front. And if we sum it all up, it all comes down to, really recognizing that there is a mixed environment out there. We want to facilitate our customers. We hope facilitation helps us. Novell will help that facilitation help them. But as of today, Novell is really the only Linux vendor who is stepping up and tackling the interoperability, the patent, and the other issues that are very important to our customers. So I'm very pleased to be here on stage with Ron, with Jeff, with our customers, and partners, and you'll have a chance to hear a little bit more of the detail of each of these agreements from Ron, from Jeff Jaffe, and from Brad Smith.

So with that, let me turn the podium over to Ron Hovsepian from Novell. Thank you. (Applause.)

RON HOVSEPIAN: Thank you, Steve. And thank you to the entire team that he had highlighted. Everybody worked very hard to bring this agreement to bear, and I really thank Steve for his leadership for Microsoft and doing this with Novell.

First and foremost, Steve spent time talking to you about what this agreement is. I think it's equally as important that we talk about why we're doing this, why it's important to everyone, and why it's important to our companies. So first start with the customer, as we've talked and we've focused on what we needed to do, this really all came down to the customer, and what we needed to do for the customer. When you look at the customers' environments, that mixed source environment that they're dealing with brings a whole host of benefits in each one of the individual platforms while creating other complexities for our customers.

Now we all know that Linux would continue to grow as a market segment with or without this deal. What this does is, this allows our customers to really focus on accelerating their growth and accelerating the opportunities associated with virtualization, with the interoperability issues associated with many different aspects of what we've talked about, and we'll continue to explain to you today. That's really the driver behind what we're trying to get done. That's really the motivation, it is that simple.

When I reached out to Steve and Microsoft, it was a conversation about how we work together with our customers. And that's what's most important to both organizations. Now, I will tell you, in finishing that discussion, we really focused in on the trends in the market, the consolidation of the servers, what's going on there, and virtualization, and how we could take advantage of that for our customers, knowing that we are going to compete, knowing that we need to cooperate as well. That was the first point that we really focused in on was our customers, and that was the driver of this entire discussion and relationship that's emerged in the past six months.

The second area that we focused on was commitment. Commitment to that customer base, and commitment to what we wanted to get done in helping that customer take advantage of those environments. And what I was most impressed with was how Microsoft approached it. Now, I haven't had a lot of opportunities to work that closely with Steve or the team, and they may get painted with a certain brush at times, but I will tell you at a personal level I've been very impressed with the integrity and the approach they took to creating this working relationship on behalf of the customers, and the deep commitment that they've shown to us at Novell, and making this relationship come to reality.

So technology we're going to talk a lot about, and there will be more people to speak about that, and I've seen the deep commitment. The first level of commitment that I'd share with you was what Microsoft did around the joint solutions of interoperability. The amount of money that they were willing to commit to that level of work was very impressive in the agreement, and what the desire was it would help our customers.

The second area was, we talked and we said, we've got to get together and get our engineering teams aligned, we've got to get our marketing, our sales teams aligned, to really make sure that this message gets delivered properly, because as Steve had indicated, we're balancing the competition that we're going to have with each other with the desire to make sure we help our customers and cooperate on the interoperability.

There are a couple of proof points that really leaped out to me that I wanted to share with you. First and foremost, around the solutions the money that they put behind that is impressive. Secondly, they dedicated Microsoft sales people to help us drive this strategy into the marketplace, quite a commitment. The third thing they did was they committed to redistribute SUSE Linux Enterprise Server, approximately 70,000 server unit coupons that they're going to distribute into the market to help their customers who want to run Linux on top of their server environment.

Now, as Steve indicated earlier, he's going to tell you that it belongs on top of the Windows world. And I'm going to tell you I think all those applications absolutely belong on top of the Linux world. The good news is, we came together to focus on giving you, our customers, a choice. That's a very deep level of commitment, and I was very, very impressed with that type of a commitment on an annual basis. It really showed the desire to do the right thing.

The third motivation behind this was the companies. These two companies represent a long-standing competition in the marketplace, but also a long-standing respect in the market. And what we did together around the patents was very innovative, and we had to spend a lot of time focusing on that, because for all of us this is about focusing in on the customer. And to have Microsoft choose us as that key partner to help them in the Linux world is impressive, and we're really pleased. That's a great thing for the Novell Corporation, and we're most grateful for that.

What's important is when you put the pieces together what do you have? What you have at the end of it is a deep commitment to the customer, it's most important, backed up by two very solid companies that care about driving success of their customers into the marketplace. Very simply said, this announcement gives our customers interoperability and peace of mind all in one.

So with that I'd like to now turn it over to Dr. Jeff Jaffe who will discuss some of the technical elements of our agreement. Thank you. (Applause.)

JEFF JAFFE: Thanks, Ron.

Before getting into the technology I just wanted to start by echoing Ron's remarks about the partnership. From day one there has been a tremendous amount of good teaming on every aspect of the deal. Thanks to Steve, to Brad, to all the people of the extended teams. It really feels good. This is a partnership which is going to be durable and long-lasting.

OK. Now, looking at the stage, we've got a couple of CEOs. We've got an attorney. So I guess I'm going to be the one that talks about technology. So I'd like to focus really on two things, first of all, the technology collaboration aspects, and second of all, and really most important to us in Novell, is the way that this agreement is going to strengthen the open source community. Obviously open source is extremely important to us, and the community is extremely important to us.

I'd like to point out three ways in which it's going to strengthen the open source community. First and foremost, when we have Steve standing here saying that Microsoft is going to work on interoperability between Windows and Linux, that in and of itself is a huge endorsement. We're very thankful. Microsoft for quite some time, through the good work of Bill Hilf and others, has been contributing to various aspects of open source, but today really takes it to a new level, talking about Linux, which is the heart of the open source community, talking about interoperability, Novell a significant open source Linux vendor. This really takes it to a new level.

Secondly is a couple of assertions that–a couple of statements that really Brad is going to talk about in more detail, but just the highlights, Microsoft is announcing that they are not going to assert patents, patent infringement claims against individual open source developers. So that's really, really important for open source. Open source is, in many ways, the innovation engine of the entire IT industry, and now this statement just makes that so much stronger, and so much more important.