Steve Ballmer: Microsoft and Novell Collaboration Announcement

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 Cowen, 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.

Then thirdly, we have agreed to collaborate on certain open source related projects together, in the areas of management, and documents. I can tell you I was sharing this with some of the Novell engineers, and you’d probably like to hear this Steve, they said, gee, we get the opportunity to collaborate with Microsoft engineers, that’s really exciting, they’ve got great engineers in Microsoft. So we’re really looking forward to that piece of it, and Novell is just very proud to be part of this important day for open source.

On the technology collaboration there are three primary areas of technology collaboration. First and foremost is virtualization. Ron already talked about the fact that we’re working together on a joint solution, the joint solution essentially means if you want to run your Linux workloads virtualized on top of Windows, we’re going to create a joint solution which accomplishes that. SLES on Windows is going to be part of a joint solution, and comparably, if it’s a Linux shop, but you have Windows applications that you’d like to run virtualized under Linux, we’re going to work on that, as well.

We’re going to work on that technologically, we’re going to be optimizing that. We’re using some really new advanced technologies called para-virtualization. It’s going to be a great technical solution, and that’s really the heart of what the marketing and sales is going to be all about, so virtualization, an important technology for collaboration.

A second important technology for collaboration is Web services management. You have the heterogeneous world, you have Linux, you have Windows, which by the way describes almost every IT shop that I’ve seen, how do you manage that? We’re going to collaborate on Web services management technologies, we’re going to get great solutions for our customers. This is all customer-focused. As part of that people for a long time have wanted better interoperability between Novell’s E-Directory and Microsoft’s Active Directory. That will be another topic that we collaborate around.

Finally, the third area is documents. Open document framework, we’re going to be building translators between Microsoft Office and Open Office, to ensure that we have interoperability, compatibility at that level, as well. So that’s the third piece of the technology collaboration. So you take it all together. Both companies, we’re investing in open source, that’s a really, really important statement for you to understand. We’re working together on technology, joint marketing, a joint solution, an important patent piece, which you’ll hear about in a moment. In Novell we’ve been talking about mixed source for quite some time, I think this is really what made this collaboration so comfortable, and we’re really happy to see the partnership again, and the validation.

With that, I think it is important to understand some of the other pieces, in terms of the patents and the legal considerations. It’s my pleasure to introduce Brad Smith from Microsoft to take us through that piece. (Applause.)

BRAD SMITH: Thank you. I’m obviously the lawyer on this stage. And let me first echo what you heard from Steve, and Ron and Jeff about the incredible partnership and working relationship we had between people at both companies over the last number of months. Indeed, I might go as far as to say that there was no area where we had to work harder or more creatively than in addressing the patent issues that were involved, really because we had to do two distinct things. We had to do something that was quite challenging, albeit, something that a number of companies in our industry have done before, and we had to do something that no one has ever done before.

The first was to address all of the issues relating to proprietary software, proprietary source code, and the second was to figure out how to built a bridge between the open source and proprietary source sides of our industry. All of this, of course, took place against a backdrop of two companies that each have some important patent portfolios. Novell has an important patent portfolio, reflecting in part all of the work that it has done in our industry to pioneer many advances, for example, in the network and server area. Of course, as many of you know, as the largest investor in research and development in the software industry, Microsoft has the largest, or certainly one of the largest, software patent portfolios in the world.

So we had to take account of all of these rights that we each had created over the years. We had to take account of those rights first on the proprietary side, work out all of the arrangements that are always challenging when you get teams of patent lawyers together. And we were able to do that. Then we really had to think hard, and work hard, and be as creative as we could to figure out how we could build a bridge, an intellectual property or patent bridge, between open source and proprietary source software.

It was something that I have to admit there were time, especially when we started, we wondered how will we do this. Yet, through an awful lot of great work from some very bright people who figured out how to work together, we built that bridge, and that’s one of the I think really historic things for our industry that we’re able to talk about today.

We recognized that we would need to build a bridge that would really respect the needs of both models, both business models, that would respect the intellectual property rights and needs of people and companies in both of these parts of the industry. And we would need to do it in a way that ensured that both of our companies remained in compliance with all of our other licensing and legal obligations, given the varied range of license agreements we were already using, and to some degree subject to in our industry.

To do that one of the things we fashioned was an approach that will ensure, for example, that every customer who purchases a subscription, for example, for SUSE Enterprise Linux, will get not only service and support from Novell, but will get as part of that, in effect, a patent covenant from Microsoft. We knew that this was something we had to figure out a way to accomplish, because that was the number one thing that customers were telling us. Customers told us that they wanted us to find a way to address the patent issues directly among ourselves in the industry, so they wouldn’t have to figure out how to deal with these things instead.

Bu fashioning this covenant we’ve been able to do that. Today Novell is the only company in our industry that is able to provide a customer not only with the code to run Linux, not only the service and support for it, but the patent, a patent covenant that runs for Microsoft Corporation, and that we think is very important, again, as you heard from Ron, for all of the customers in the industry.

There is, of course, a little bit of economics involved, as they always are, and you’ll see in the press release some references to this, although you’ll also see that we’re not announcing any numbers today. But, as you’ll see in the press release it makes clear that on the patent side, we dealt with both of these sides of the equation. We dealt with the need for an up-front balancing payment, a balancing payment that runs from Microsoft to Novell, reflecting among other things the large relevant volume of the products that we have shipped. And you’ll see, as well, an economic commitment from Novell to Microsoft that involves a running royalty, a percentage of revenue on open source software shipped under the agreement.

So we’ve been able to sort out the economics and in some ways perhaps one of the most important things is, because we’ve been able to sort out the economics, Novell’s customers don’t have to. And it was that confidence in addressing the intellectual property rights that, among other things, gave us the confidence that we could step up and put marketing and sales efforts behind those subscriptions that Ron mentioned. You won’t see Microsoft actually shipping Linux code. We don’t need to, Novell can do that. And while we are very enthused, we’re not getting into the Linux code distribution business. But, we will be, through these coupons, helping to ensure that those customers get the service and support and the protection that is accorded with the patent covenant.

The other thing you heard Jeff mention is also very important, we knew we also had to address the needs of developers. So Microsoft today is making two, I think, important commitments, or promises to different groups of developers in the open source community. The first is a promise that we won’t assert our patents against individual, non-commercial, open source developers. Who are these? These are individuals who are creating code, contributing code, they’re not being paid for that code, they’re often working in the evenings or at home. They’re not creating it as part of their job, but they’re acting in an individual non-commercial way. The promise doesn’t run to anybody who employs them, because after all, they’re not acting in the course of their employment. But, it gives those folks a new commitment from Microsoft.

The second thing we did in this area was add a promise that goes to developers, even developers who are getting paid to create code to OpenSUSE.org, code that Novell then takes and incorporates into its distribution, and that is then covered under the patent cooperation agreement between us, because after all Novell is ensuring that our patent rights are respected in an appropriate way, and that gives us the ability to address the needs and interests of those individuals.

So I think you can see, it was fairly complex. If you think this was complex, I’d be happy to introduce you to the people who have been working around the clock for some time to write the agreement, yet it’s also very important. It does enable us to build this new intellectual property bridge in a way that not only addresses our two company’s needs, but the needs of our customers, software developers, and our industry as a whole.

Let me turn it back now to John who is going to introduce a couple of other speakers.

Thank you. (Applause.)

JOHN DRAGOON: Thank you, Brad.

So you’ve heard the perspective of four executives. Clearly, we’d be in favor of it, but we felt it equally important to get the perspective of partners, mutual partners with whom we do business, and to share that perspective in the first person is Shane Robison from Hewlett Packard.

Shane.

SHANE ROBISON: Thank you.

Thanks to both the Microsoft team and Steve, and the Novell team and Ron for having us here. We’re very excited about being part of this announcement. HP has had a long relationship with both companies, and a very strong partnership with both companies. Now, over the years I’ve had a number of conversations with the Microsoft team and with Steve about Linux. And I can assure you he usually wasn’t smiling when we had those conversations. So it’s good to see a smile on his face today.

I know we’re not talking about a lot of numbers, but one number, Ron, that you gave out that got my attention was coupons for 70,000 servers. So we’ll help you with that if you’d like.

RON HOVSEPIAN: We appreciate it, Shane.

SHANE ROBISON: We’ve really had a great partnership between the companies, and as a result HP ships more Windows NT than any other company in the world. And there’s more Linux products out there running on HP platforms than any other platform in the world. And most of our enterprise customers, and that’s sort of almost everybody in the world, runs both environments. We’ve long been a proponent of a heterogeneous, multi-OS environment, because that’s the world we live in, and this is truly a breakthrough. This will allow us to take interoperability to the next level, to have heterogeneous environments that truly work together, and HP has a very powerful vision for what we think the next generation data center architecture is going to look like. That vision depends on interoperability, which will facilitate virtualization and automation.

So as we go through these next generation deployments, we have to have virtualization, and we have to have automation to really meet the needs of the next generation data center architectures. So without this interoperability it’s very hard to fully exploit virtualization and automation. So this is not just an announcement, this is a true move in taking a leadership position in the industry to allow functionality that we could do, but it was much harder without the interoperability, some of the engineering, and some of the business agreements that are part of this announcement.

So on behalf of HP, I’d like to congratulate both companies, and again thank you for having us today. (Applause.)

JOHN DRAGOON: So we’ll end where we begin, with a customer. I can collectively hear a sigh of relief from them, probably it’s about time. That’s a fair reaction, frankly, to this great announcement today. So let me turn the podium over for our last set of prepared remarks to Randy Cowen, who has flown all the way here from New Jersey from Goldman Sachs, [where he] is the Chief Technology Officer.

Randy. (Applause.)

RANDY COWEN: It’s great to see industry leaders combining forces to solve key infrastructure compatibility issues which are very important to us as enterprise customers. At Goldman Sachs I oversee a very large, complex technology organization, where our environment spans Linux, UNIX and Windows, and we need to continue to deliver value, and effectively run our business across that complex set of environments and technologies.

Until now the burden of ensuring all that operates seamlessly and interoperates cleanly and well for us was really borne by us, at the enterprise customer side, and it was a significant effort that we had to put into that. The commitment on the part of these two technology companies to collaborate and provide enhanced interoperability for our strategic platforms will allow us to not only save money, but will also allow us to focus and concentrate on delivering business value to our businesses, and not spend our time in the technology interoperability and integration business, where we’d prefer not to be. We applaud this very important step forward on the part of Microsoft and Novell.

Thank you. (Applause.)

JOHN DRAGOON: Thank you very much.

So we’d like to get some questions direct from you. We know there’s been a lot of information shared over the last 30 minutes, give you an opportunity to ask some questions of the folks who spoke, and two who have not. So let me reintroduce Mark Tolliver, again, who is the Chief Executive Officer of Palamida Software here in San Francisco, and Bill Schrier who is the Chief Technology Officer of the City of Seattle who will be joining our question and answer, as well. I would ask that if you’d like to ask a question you – there are mikes interest eh audience, simply you raise your hand and introduce yourself and your company, and we’ll go from there.

Right here in the front, please, sir.

QUESTION: Hi, a question for Steve.

Is Microsoft also interested in a similar deal with Red Hat, and could you describe how in practice this might work out for a customer in a mixed environment?

STEVE BALLMER: Let me comment on both, and Ron may want to add on the second.

Certainly, we have had two things very vividly in our mind, and I’ll personalize it, because we’ve had these discussions a lot with Goldman specifically. Goldman says, look, you may want us to own all Windows, we don’t, which I know and I understand and I accept. We said, look, we’ve got some issues here. Randy says, work hard on interoperability, and I say, but we have some issues, and the issues are technical, and they’re also business, because we have valuable intellectual property, which our shareholders have paid for us to go deliver, and if these were commercial companies we were competing with we would simply do a patent cross-license, and move on. That doesn’t work. And without some kind of a patent co-existence framework, it’s hard to go do the technology work that you want us to do, let alone the fact that, hey, I’m not sure where we start, but maybe we ought to start with you, Goldman Sachs, and say, hey, our patents, our patents.

So this has been a conundrum for I could say a few years. Randy provided a few years worth of coaching. So we put all that together and we say, okay, we need – and they said, look, go to the distributors, talk to the distributors and see if somebody will work with you to give us a version of Linux that interoperates, which is important, and which gives the patent piece, patent coverage, sort of a patent settlement, if you will, not a settlement, but a patent resolution.

And we have this discussion, and we’ve been thinking about it, and working on it, and not managing to get very far in our thinking, and we talked to a number of players in the industry, and then Ron called and had some ideas about some things he wanted to do with Novell and the way he was thinking about a mixed source environment, and we said okay. What you’re thinking about really does dovetail in many ways with what we’re thinking about, let’s see if we can go make something happen. That would have been, what did you tell me, April, I guess. Ron’s got a long relationship with our Chief Operating Officer, Kevin Turner, and we started this dialogue. In some senses pressure testing all along the way with folks like Randy, and other customers, exactly where this goes.

So the goal is then to deliver, which the agreements now facilitate, this version of Linux that provides both the business peace of mind, and the technology peace of mind to satisfy the customers who do have these mixed environments. Obviously, I’m still trying to tell Randy every one of those applications he’s got should move. Ron will do the opposite. So I don’t want to make that unclear, but we also said, look, we care enough about this issue and we care enough about the fact that our patents have value, and we need to build this IT bridge, we’ll actually go help you sell some of these subscriptions, because we’re going to make clear to the market that interoperability is a good thing, and we’re going to make clear that IP, the patent bridge, the IP bridge is an important thing.

We had discussions with lots of folks in the industry. You can probably guess a list of names, as you hypothesized one. But, it was really when Ron called and initiated a contact, since he’s thinking about where he wanted to take Novell, that we were able to put together something that addressed the business issues, the patent issues, and the technology issues all at once.

I hope that sort of talks to both sides of the question you had, and if Ron wants to add to that.

RON HOVSEPIAN: I think it captured the essence of it. I think what was unique was the lineage of both companies and touching the technical part, the business collab, and then the patent piece of it. That’s what makes this relationship very unique compared to some of the other players interest eh market as to what they can bring, because as Brad had highlighted we do have our own portfolio of our intellectual property, and that was very important in the relationship, we well. When you combine all those things together, and both of our  listening to Randy as he made sure we listened to him as our customer, those are the kind of things that you need to focus in on, and that’s what made this a unique intersection of the companies.

JOHN DRAGOON: Thank you.

Right here in the second row, please. If I can remind you to introduce yourself and your company, that would be great.

QUESTION: How long have these talks been going on about this agreement, and who initiated it, essentially? Did Novell go to Microsoft, or Microsoft go to Novell, or did you just sort of get together spontaneously? How did that work?

RON HOVSEPIAN: How it happened was I reached out to Kevin Turner in the April timeframe, the COO of Microsoft, and I suggested to Kevin that there was a relationship to be had here, and I’m smiling a little bit, because I said to Kevin, I know you’re at Microsoft, but I want you to go back to when you were a customer, and we had some laughs about that.

What I really said was, look it, as a customer, you would have taken me, when I was working at my old company and said, I want you to get this, and get together with the other vendor, and make this stuff work. Don’t put that responsibility on me. And Kevin, being a former CIO at Wal-Mart, he resonated, that was right on the money. He went and grabbed Steve and Brad, and said, you know what, this probably is the right thing. Steve had been hearing it, and Brad had been hearing it from customers, and then that really drove them into a meeting that we had in the May timeframe where we got the teams together and really began those discussions. I would tell you, it always takes two in a relationship. Both sides were listening very intently to each other, but that’s how the story unfolded. Thank you to Kevin.

JOHN DRAGOON: Sir, right here in the back.

QUESTION: I’m just wondering, between the Oracle announcement last week focused on the Linux operating system, essentially, and this announcement this week, to what degree do you think these combined events represent some momentum for the private companies to make this sort of incursion or move into what was formerly seen as the open source zone, that would be the first thing? And then, how is it from going from competitors to more tightly combined allies?

STEVE BALLMER: We’re still competitors. I mean, we’ll sit here, and we’ll be friendly, and we’ll be friendly whenever we’re together. But I mean it in absolutely a good way. When it comes down to calling Goldman Sachs, the first thing I’m going to tell them is, let’s get those Linux machines out of there and get some Windows in here. And then the second thing I’m going to say is, if you want to use Linux, let’s make sure that you get a version of Linux that respects our intellectual property, and I will even help you with that because of the commitment we made. But that’s my second, and Ron’s going to start by saying, how about Linux, let’s get those Windows systems out of here.

I don’t think there’s some big general phenomenon going on. I think that as we sit here today, you know, in a sense I think of Novell as a proxy for the customers. Novell works with the open source community, and so we needed to have a way to work with Novell that was respectful of the community, but nobody represents the community. On the other hand, our customers were clearly saying, we want somebody to represent us in the use that we will make of Linux. And the customers weren’t picky, they said, find somebody who is in this game who really wants to get after it. And so, as I said, we got after that with Ron.

So, in terms of your first question, I think it more reflects the fact that we just have a lot of big customers. It’s not just Goldman and the City of Seattle, and many others, there are a lot of customers who have both of these things, and they want both the compliance peace of mind, if you will, as well as the technology peace of mind. And it’s neither of our jobs to tell the customers to change that. We’ve got to figure out how to accommodate that, and you’d have to ask Oracle what they were thinking, I can’t tell you. They’re also a competitor, as you may know, but we went and worked this thing out in, I think, a very satisfactory way.

RON HOVSEPIAN: The only thing I’d add to that, that I think is important, would be two things. One, I actually see it accelerating growth in both markets, candidly, because what it’s going to allow the customer to do is move through their development cycles faster, and their deployment cycles faster, because they’re going to be able to take some of the complexity out of the game for themselves, as Shane was highlighting. I think that will accelerate both of our markets collectively.

The second thing I’m going to do is ask him to ask Randy to turn my badge back on over at Goldman so I can come back into the building. That was his idea of not letting me in there, so I can get there.

JOHN DRAGOON: Very good. Any other questions? Sir, right here in the back?

QUESTION: I was wondering, does this agreement today have any affect on Novell’s lawsuit against Microsoft over WordPerfect?

STEVE BALLMER: The patent resolution is as to operating systems. We were able to clean up almost everything, but not that.

RON HOVSEPIAN: That’s correct.

JOHN DRAGOON: I’m sorry, thank you. Over here to the left, I’ll get back to you in the center, I promise.

QUESTION: I just need somebody to kind of really breakdown in real layman’s terms, as I have to capsulize this in about 45 seconds, what the heck have you guys been talking about the last half-hour?

STEVE BALLMER: Two things. I’ll make it real simple. Number one, we’re going to work together technically to help the Windows world and the Linux world interoperate. Number two, we’ve struck a deal under which we can provide patent agreements to Linux customers in which Microsoft’s intellectual property is respected, and we are appropriately compensated for the use of our intellectual property. And we’ve done both of those things in a way that we think still allows the open source development community to actively pursue what it has been doing on behalf of everybody for the last several years. So, two things that support both our business model, which is the development of propriety intellectual property and the open source development community, bringing it together for end customers. And in our case, it means you don’t license – let me be clear about one thing, 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. The cleverness was, how do we get protection and respect for our intellectual property in a world in which that license agreement works? So the two top level points, as Ron whispered to me, technical interoperability and patent peace of mind, and we’re trying to provide both of those things to our customers in a way that works for the business interest of the open source development community, and the Microsoft development community.

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.

RON HOVSEPIAN: For the ultimate consumer, I mean, Randy could answer this also as our final arbiter on all of these things, it’s really what he said, interoperability and peace of mind around the rights with Microsoft. I think that’s the takeaway. From a consumption perspective, it’s the ability to virtualize and make the handshakes between those worlds happen, which means I can run a guest on Linux, can sit on top of Windows, and run the applications on top of that Linux platform as a guest under Windows. And then, on the flipside, you can do that with the Windows environment sitting as a guest underneath the Linux environment.

STEVE BALLMER: But the average KGO consumer listener should be more interested, in my opinion, in the launch of our Zune product coming out next week. But this is a little bit more for the development and IT community I would say.

JOHN DRAGOON: I think you asked a fair question on the consumer, so let me ask Bill Schrier, who is here from the City of Seattle, his perspective as one of those such consumers, and maybe Randy can come in as well.

BILL SCHRIER: OK, first of all, let me say that Seattle is just a suburb of Redmond, Washington, from a technology point of view. But the City of Seattle has the No. 1 Web site in the United States, according to the Center for Digital Government 2006, and in 2000 also. That Web site is built on Windows Server, it was built on .NET technology from Microsoft. But it’s not – the applications there, when you go pay a utility bill, or you get a business license, or you pay your B&O tax, those applications, city employees don’t write those, we buy those from various companies. Since only our Web site runs in the Windows environment, we could only buy applications from companies that write for that environment. With this agreement, we’ll be able to get the other half of those Web applications, the ones that run on Linux, because Linux will also now run on our Web site. So we’ll have twice as many applications and services available for the citizens and constituents of Seattle.

JOHN DRAGOON: Thank you.

RANDY COWEN: I guess I would have made the general comment to what you would consider a consumer customer, this is really not a significant announcement. This is significant to enterprises and governmental agencies who have reasonably complex technology environments, as well as the people in the technology sector who now can more safely figure out, I can develop things, and I’m going to have more interoperability between Windows and between Linux. And for folks like us who have tens of thousands of servers, highly complex environments that are global running thousands of applications, it’s going to allow us to save money and be able to have vendors take care of more of interoperability, and have us do less of it. And I think those are the two constituencies for whom it’s a more meaningful announcement, large scale enterprise customers, private and public, and the technology community and development community.

JOHN DRAGOON: Mark, perhaps to round out this conversation, you’re a software company, maybe you could give your quick perspective.

MARK TOLLIVER: Yes, I’m glad to. Our company here, Palamida, spends all day helping people deal with the questions that come up in this mixed source world. In other words, I run commercial code, and I run open source code, what are the issues that I have in terms of IP license compliance, software asset management, and so forth? And I can tell you that it’s a serious question for most businesses to say, am I acting responsibly here as I try to merge the open source world and the commercial world. And I think what’s happened here is, in the area that these companies have addressed, that they are taking a major element of uncertainty out of the equation for customers like we just heard here, and I think that will be a terrific model for the rest of the open source world and the commercial world to study, understand and hopefully broaden as time goes forward. And I think it will result in more choices, more options, more flexibility for IT firms and companies all over the world.

JOHN DRAGOON: Great. I believe we have time for one or two more questions. I did promise, I apologize, I would go back here if it’s a short answer, we’ll come right back to you.

QUESTION: Does this piece on the patent front between Microsoft and Novell reflect technology to be developed jointly, as you’ve referred to, or does it also refer to technology already in Linux that you will not challenge?

BRAD SMITH: The covenant that will run, for example, from Microsoft to customers applies to the code and the patent issues in Linux as it exists today, in SUSE Linux as it exists today and as it’s distributed and purchased by Novell customers, and we are putting in place something that’s forward-looking as well. So we are addressing things that we’ll do together, as well as things that Novell may incorporate in certain areas in the future, and then the ongoing arrangement that we have with Novell and that will run from Microsoft to Novell customers will address this for SUSE Linux.

STEVE BALLMER: Novell is actually just a proxy for its customers, and it’s only for its customers. This does not apply to any forms of Linux other than Novell’s SUSE Linux. And if people want to have patent peace and interoperability, they’ll look at Novell’s SUSE Linux. If they make other choices, they have all of the compliance and intellectual property issues that are associated with that.

JOHN DRAGOON: Final question here, please.

QUESTION: For all the Christmas shoppers, we wanted to find out when is [Windows] Vista coming out?

STEVE BALLMER: Business availability will be before the end of the year, and consumer availability will be in time for the second Christmas, which will be the very early part of next year. And when we have more specific details, we’ll certainly give them to you.

JOHN DRAGOON: So with that I apologize, we don’t have any more time for questions. However, we are posting frequently asked questions, the press release, and a number of other documents, not only today but in the future as they become available, I would refer you to Novell.com or Microsoft.com/interop, both sites. I want to thank you very much for coming today, and this will close the press conference. Thank you. (Applause.)