PROVO, UTAH -- In a major strategic move expected as soon as this week, Novell will attempt to cash in on a red-hot market by spinning off its division that handles caching and hosted file services.
The new company, called Volera, will market and develop products from Novell's Net Content division, including the Internet Caching System (ICS), JustOn Hosted File Services and Content Exchange, Novell's content acceleration services for ISPs.
Volera will compete with CacheFlow, Inktomi, Network Appliance, Akamai and Digital Island for a piece of what the Internet Research Group says is a $5.5 billion content delivery/caching market.
Novell will fund 80% of Volera; the remaining 20% will come from unnamed Novell partners, sources say. Novell wants these minority partners to help formulate the direction of the company. A complex set of cross-licensing agreements with Novell for the NetWare- and directory services-based caching system may complicate the spinoff.
Novell declined to comment.
"Even though the company has very good products, they are hard to market under the Novell name," says Steve Shepich, an analyst with brokerage firm Olde Discount. "By cutting Net Content loose into the high-growth caching area, it could really add value for shareholders."
Phil Schaecter, an industry analyst with The Burton Group, agrees with that assessment.
"The caching company will be more successful without being burdened by the Novell name and stock price," he says. "The company can be valued using a different scale, so it will have a higher stock valuation and attract different equity partners."
Novell is not required by the government to specify company revenue by division until the first quarter of 2001. Thus it is not known whether Novell has realized profits from its Net Content division, although CEO Eric Schmidt reported that in the third quarter Novell had received $2 million in royalties for ICS.
Hosting market grows
Hosted services are booming because few companies can hire qualified IS talent or keep up with the task of an ever-expanding number of applications.
"We're bullish on the move toward hosted applications," says Michael Alic, an analyst with Robertson Stephens. "For a lot of companies it is very difficult to obtain the IT resources that can implement high-end software packages and complex networks."
Alic says companies that provide network infrastructure services are going to e-commerce success.
"As more and more applications migrate to the network, the ability and throughput of the hardware devices has to increase," he says. "Novell's alliance with Akamai is important."
Novell recently partnered with Akamai to integrate Akamaizer content-acceleration functionality into the Novell ICS and Content Exchange products.
Novell's JustOn Hosted File Services integrate Internet file services with caching and content acceleration. With hosted file services, users can store, share, manage and publish files on the Internet. Content Exchange speeds the delivery of content from a Web server to the Internet by intelligently and dynamically preparing Web content for distribution to users over content delivery networks.
Although Simon Khalaf, vice president and general manager of the Net Content division, would not comment oon the pending spinoff, he says he is looking at the branding of the caching system, trying to improve its visibility and thus the revenue the company receives from it. Novell markets its caching software and hardware designs to OEMs such as Dell, Compaq and IBM. Yet, few people other than former NetWare users recognize that it is a Novell product inside the box.
There are dissenters regarding the wisdom of Novell's decision.
"It is too early at this time to create value out of that group, since they are at the very early stages of revenue growth," says Steve Dube, an analyst with Wasserstein Parrella.
"I would like to see more contracts and revenue before they do anything of this sort," he adds.
Novell also recently signed contracts in which Global Center and CMGion will use its content services.
"Novell is better as an integrated company, particularly since the caching and Net Content business use the directory and NetWare," Dube says.
Customer reaction to the spinoff news has been generally positive.
"Even though I'm happy with ICS now, in the beginning, I had quite a few software issues," says Chris Wacker, supervisor of Internet services for PTSI, an ISP in Guyman, Okla.
"We would probably have a more dedicated support staff [from the spinoff]. Right now, it's like there is someone buried in an office somewhere who might have time to help."
Novell has suffered from three dismal financial quarters and has said its return to profitability will be slow.
Wall Street estimates that Novell will report fourth-quarter results of $.02 per share on Nov. 21. Sources close to Novell say the company's results for the fourth quarter are "disappointing" but will match Wall Street estimates.
Volera is a word taken from the French verb "to fly." The company will consist of about 220 employees located in offices in the San Francisco Bay Area and Orem, Utah. Khalaf will head up the company, sources say.
Drew Major, Novell's chief architect and the designer of ICS and an original designer of the company's network operating system, NetWare, is also expected to join Volera. The company has been operating in stealth mode, a Novell source says. Novell registered the domain name volera.com and .org and .net extensions in June.
This story, "Novell to spin off caching company called Volera" was originally published by Network World.