The Ultimate Guide to Internet Deals

Sometimes it takes clever bait to land the big fish. At first, Cisco wasn't very interested in NDS, Stone says: "So we went to all of our customers who owned Cisco routers, and we asked them to help us get Cisco's attention. They set up a forum and started talking about how great it would be if Cisco's products supported NDS. We got 500 emails the first day, and some of them were sent to [Cisco CEO] John Chambers as well. Then he started getting phone calls too." Last November, Chambers finally gave in.

To keep its deal-making campaign moving at a fast clip, Novell used the Lucent contract as a template for future deals. "Developing the Lucent contract was a nightmare," says Stone, adding that the process lasted about four months. "Everybody and his brother -- every executive, every product manager, every engineer -- had to have a hand in it. But having that contract as a platform made later deals much easier."

Making sure that deals are quick and simple is important to Stone, who wants Novell to regain its reputation as a company that stays ahead of the pack. That's why he does as much negotiating as possible through email and the Web, and why he does his best to keep money out of the discussion. "It used to be that technology deals were all about the licensing fee that I got from you in exchange for my software," says Stone, who started and sold his own company -- Object Management Group -- before joining Novell. "The problem with that model is that I didn't care how many people actually used the software; I only cared about the fees that I was collecting. In the Internet era, it's all about installed base: How many people use the product today? Besides, whenever money is placed on the table, something gets screwed up."

So most of Novell's deals are joint marketing-and-sales agreements in which little or no money changes hands. That model is becoming more and more typical of Internet deal making: "These deals are about 'I'll mention you in speeches, use my Web site to distribute your product, and help you publicize the product,' " says Stone. "There are lots of things to focus on that are more important than trading dollars -- like 'Will customers buy it?' "

Stone is also a fanatic about paper: He hates it. "I won't allow people to do anything on paper -- except the final contract," he says, sounding as if he can't wait for the day when legal signatures can be rendered in pixels. Entrepreneurs who apply for financing from the Novell Internet Equity Fund fill out a Web-based form. Using keywords drawn from the form, a computer then forwards the application to an appropriate executive in Stone's group. Discussions about whether to do a particular deal take place largely via email. Documents are edited online -- which reduces the chance that an outdated copy of a contract will remain in circulation.

For Novell, doing deals digitally means identifying service providers -- such as lawyers and investment bankers -- who are willing to forsake paper. "It's very simple," says Stone. "You play by my rules, or I don't hire you. Working electronically is just more efficient." Many of Novell's Internet investments -- which range in value from $1 million to $3 million -- are wrapped up in as little as two weeks' time. The deals are templated ("all that changes are the names and the numbers," Stone says), and Novell's attorneys, along with a valuation expert from an investment company, review each contract via the Web.

Novell is also vigilant about never announcing a deal before it's finalized. Stone believes that by putting out "pressware" -- instead of releasing real software -- companies erode their reputation and hence the perceived value of partnering with them: "People stop listening to you, because they assume that you're crying wolf."

And, Stone emphasizes, when Novell does issue a press release about a new partnership, that just marks the beginning of the deal. "You'll really piss off your partners if you don't follow through on what you promised," he says. To enable proper follow-through, Novell assigns dedicated personnel to work with each partner. The company also holds monthly status meetings. At those meetings, Novell wants to know not only how each partnership is holding up but also how it can be expanded.

Novell treasures its relationships with partners because it knows that they hold the key to the company's future. Novell's people also acknowledge that Internet deal making -- like all deal making -- is social. That's why, last January, Stone and Steve Adelman, 42, vice president of corporate development, organized the first-ever Novell Global Partners Summit in Snowbird, Utah. The event attracted 400 people. "It was an opportunity to get together for a couple days to talk about how we can work together better," Adelman explains. "We want to leverage what we have as a network of companies, rather than as pairs of partners."