Curiouser and curiouser!
- MSFT will pay NOVL $240M up front in subscription fees.
- MSFT will make an additional $108M in upfront payments for use of NOVL patents.
- MSFT will spend $12M/yr marketing Windows/SUSE, SUSE/Windows virtualization scenarios.
- MSFT will spend $34M over the life of the agreement (2012) to beef up the sales force behind this joint effort.
- MSFT grants NOVL and exclusive in this area versus other Linux distro providers for 3 years.
I still don't understand why MSFT is buying coupons for SUSE support and for a staggering $240M no less. This apparently gives MSFT the ability to "use, resell or otherwise distribute over the term of the agreement, allowing the certificate holder to redeem single or multi-year subscriptions for SLES support from Novell (entitling the certificate holder to upgrades, updates and technical support)". I'm pretty sure MSFT isn't going to be taking advantage of the "use" clause (unless hell just froze over w/o me knowing), so that leaves "resell" or "distribute". Let's hope it's the former, to recoup some of that $240M, versus say, standing outside RHAT events and giving them out as party favors. The $108M for patent use is equally unclear to me. What patents does NOVL have that would be worth $108M to MSFT just to use? Or, worse, are these patents MSFT thinks it might have already infringed? The remaining ~$94M in assorted upfront and ongoing sales and marketing costs are vague, likely easily incorporated into MSFT's normal marketing efforts behind virtualization, and therefore less concerning.
So, what are NOVL's obligations? After all, recall that they initiated the dialogue with MSFT. Well, they're going to pay MSFT at least $40M over 5 years for the use of MSFT's patents. WTF? They approach MSFT, and walk away with over $440M+ in upfront and ongoing payments in return for a commitment to [just] pay MSFT at least $40M over 5 years? To put that $440M+ in perspective, that's more than an entire quarter's revenue for NOVL and more than they made in net income last year. And keep in mind that NOVL is still a bit player in enterprise Linux vs RHAT, for example, who enjoys some 70% share (so if the goal was better Windows/Linux interop for customers, a MSFT/RHAT deal would seemingly have had more impact). Clearly, either this deal was put together by the same financial geniuses who brought us the Xbox business plan, or MSFT thinks their whopping $440M+ investment has secured them a hell of a lot more than simply $40M over 5 years from NOVL. I'm going with the latter, although whether it's a potential lawsuit with Novell avoided (i.e. damage mitigation), or future mileage to be gained versus OSS (i.e. strategic), is still unclear.
Update: Other takes:
- Is Microsoft Going to Start a Linux War?
- Patent Protections At Heart Of Microsoft-Novell Deal
- Perens: 'Novell is the new SCO'
Update #2: More grist for the mill. Incredulously, Ballmer is open to cutting other similar deals. Umm....Steve, you were a math major, right? If you strike similar deals with others, and those also require MSFT to pay an order of magnitude more than it gets in return, the payback for MSFT investors is what exactly?