In late 2003, Novell acquired the German enterprise Linux outfit SUSE for $210 million. Backed by Novell's large corporate resources, the venture was seen as heralding the first major competitor to Red Hat.

To compete, Novell's SUSE Linux, now in version 10, was positioned to compete on value against Red Hat. For example, SUSE was first out of the gate with support for Xen virtualization, technology that allows multiple operating systems to run simultaneously side-by-side. In fact, Novell announced official support for users running RHEL inside Xen on the SUSE Linux platform. In contrast, Red Hat has yet to release a Xen-based virtualization solutions but plans to do so with its upcoming version 5 release.

Both Novell and Red Hat build their enterprise Linux platforms with a mixture of open source and proprietary components. But each follows a different recipe. Red Hat's OS is built entirely on an open source foundation, which is then supplemented at the enterprise level with proprietary and subscription services. Novell, on the other hand, blends the two kinds of software more liberally throughout its architecture--potentially offering functionality unavailable with open source components, but at the cost of locking down more components of the OS.

Novell has found competing with well-established Red Hat to be an uphill battle. In the first quarter of 2005, Novell racked up just $15 million in SUSE Enterprise Linux sales, less than 25 percent of RHEL dollars.

In an apparent attempt to boost its standing, Novell took the Linux world by surprise last November when it announced a partnership with none other than Microsoft. The arrangement provided up-front cash to Novell and, in the long run, potential royalty payments to Microsoft. By supporting the Linux development, Microsoft is, in effect, acknowledging the viability of the platform. The agreement provides legal cover for Novell to incorporate Microsoft-owned technologies into Linux solutions, increasing their interoperability with widely deployed Microsoft systems. At the same time, Novell's exclusive access to proprietary Microsoft technologies could boost SUSE, particularly in organizations with existing Microsoft infrastructures. For Microsoft, in addition royalties, the deal provides an opportunity to influence development of an established Linux brand.

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