Microsoft Invests in Linux Again; Pigs Fly

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Remember when Microsoft (Nasdaq: MSFT  ) signed a deal with Novell (Nasdaq: NOVL  ) to cross-promote and cross-license SUSE Linux with Windows? Mr. Softy paid the erstwhile Linux maven and onetime NetWare progenitor more than $350 million in that 2006 deal, and it was a beautiful day. A winged pig flew by my office window, ESPN was showing an awesome snowball battle between Hades United and Nifelheim Vikings, and Ozzy Osborne made sense -- in English! All of those events were about equally predictable.

Well, watch out for more porcine pegasus action this week as the Redmond giant wrote another $100 million check, postdated to Nov. 1, for another big helping of SUSE support certificates. The old $240 million allotment was running out, only 18 months into a five-year contract. Heavyweight customers like Wal-Mart (NYSE: WMT  ) , Southwest Airlines (NYSE: LUV  ) , and megabank HSBC (NYSE: HBC  ) helped the companies exhaust that first pool of Novell coupons.

Microsoft says that it is happy about this deal, and strives to help its customers make the most out of mixed Windows-and-Linux computing environments. Still, you have to assume that Novell is even happier. It's not every day you get the world's largest software house to help you sell direct rivals to its flagship Windows platform, and even more rare to get some cash out of the arrangement, too.

Linux leader Red Hat (NYSE: RHT  ) is looking askance at the cozy Novell-Microsoft alliance, but has said repeatedly that it wants no part of a similar deal for itself. In 2007, it felt like the open-source community might collapse under the weight of having some support from its No. 1 enemy. It was "brother against brother" as various open-source leaders took stands on both sides of the fence.

Today, this $100 million addition is a mere whisper in the willows. Novell is a small-cap company with a total market value just over $2 billion and only $236 million in sales last quarter, but the stock price has moved less than 2% this week. Investors aren't too impressed, and the blogosphere has not exploded in outrage this time. It's simply business as usual. And maybe that's the biggest kudos the Linux platform could get as a business these days.

I guess we'll see more flying pigs from now on. Linux is all grown up and ready for prime time.

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Fool contributor Anders Bylund couldn't do his job without a dash of Linux, but he holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure prefers Ubuntu.

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  • Report this Comment On August 22, 2008, at 7:06 PM, jimblandy wrote:

    A report of flying pigs should elicit a bit more skepticism: is Microsoft really trying to promote Linux use?

    The actual play is this: by subsidizing purchases of Novell Linux, Microsoft hopes to drive the price of a Linux subscription below that at which other Linux vendors like Red Hat can make a profit. Once the other vendors have gone under (are acquired, etc.), then Microsoft has only Novell to deal with, which should be pretty easy.

    The Novell deal should be seen as a tactic in a larger game. Microsoft's actions in other areas --- vague patent threats against the Open Source code base, gaming the ISO standardization process for OOXML --- suggest that its position regarding Open Source hasn't changed much.

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