The Lotus/Novell merger.

THE LOTUS/NOVELL MERGER

Any thoughts on the impending merger between Lotus and Novell?

For the next year or so, the deal is bound to look pretty inconsequential. The two companies will look and feel like separate enterprises; there won't be any real synergism from combining product lines, management, or day-to-day operations.

But the potential synergism could be enormous, once the two companies sort out the inevitable turf wars and communications snafus. Lotus has been putting a lot of effort into what is essentially a connectivity strategy (multi-platform versions of 1-2-3, Notes, an elusive server-based dbms product). Now, Novell strengthens the technology foundations of that strategy and--perhaps more importantly--gives Lotus direct access to Novell's direct sales force and industrial-strength VAR network. "This merger is about servers," says Lotus's Frank King. "And we think Novell has the right answer for servers."

How does the deal affect the network environment?

Lotus is the traditional "legitimizer" of system-level products, and we suspect the merger effectively puts Novell's NetWare over the top as the de facto network standard--a position Novell hadn't quite achieved on its own, despite a market share of about 60%. chances are, IBM will jump on the NetWare bandwagon in the near future, effectively orphaning its own (and Microsoft's) LAN Manager. Once third-party developers see a clear network standard finally emerge, a lot more LAN-based products will reach the market. And most of those will be optimized for NetWare, further reinforcing Novell's status as a true system-level standard.

How does the merger change the landscape for Microsoft?

Microsoft's Bill Gates argues that comparisons of size are fundamentally meaningless: "The key thing is individual products." Gates is dead right: Microsoft is only threatened if it falls behing Lotus/Novell in such intangible areas as vision, product innovation, and long-term direction.

In one sense, the merger underscores the fundamental differences in approach that Microsoft and Lotus take toward product development. Traditionally, Microsoft has tried to build a diversified portfolio of applications and system products, mostly graphical, in the hope that users will adopt a kind of one-step shopping approach to software standards. By contrast, Lotus and Novell (and WordPerfect, an informal member of the new alliance) are essentially single-product companies that dominate individual niches so thoroughly that even the most tenacious competitors have trouble gaining a toe-hold.

Who's got the more durable strategy? So far, the answer is far from obvious. Like the German army in World War II, Microsoft often finds itself fighting on too many fronts. But some of Microsoft's long-shot investments--particularly in the Macintosh and Windows markets--have turned into real winners. In these markets, at least, Lotus now finds itself little more than a distant also-ran.

Does the Novell merger signal the beginning of a new round of Lotus

acquisitions?

Almost certainly. In the past, Lotus bought small technology companies that provided seed technology for internal development. Now, we expect the focus will turn to acquisitions that provide strategic market presence and new sales channels. One area that's bound to get more attention: database technology. Lotus already owns 15% of Sybase (ironically, Microsoft is also a Sybase investor); now, Lotus has to figure out how to mesh Sybase's SQL Server, 1-2-3, and NetWare into a product that will inspire heavy breathing among corporate MIS managers. If the only way to create that product is to buy a piece or two from another database company, we suspect Lotus won't hesitate.