Joe, you are reading too much into it, its all about choice.

Re:
What if this is a new twist on Embrace Extend Extinguish. The goal could be to consolidate the market around one or two major enterprise Linux distributors and marginalize the rest

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It's interesting to think about this as an EXX strategy. But I can't agree with the idea:

1) (Most) Linux organizations are always watching the fine print with Microsoft.
2) How can Linux be any more marginalized than it already is? sigh...

The only benefit I see for Microsoft in this agreement is "Linux insurance" and public image.

The windows desktop era is over (to the applause of many), MS must do what ever they can now to survive. A NOVELL life line is important to MS. NOVELL wrote software a decade ago that Microsoft needs to monitor, and secure their SaaS attempt.

Remember the MS Novell agreement was to not sue each other when patents were infringed, then MS forked over $550 million (for 5 years use)of patents... and Novell Paid MS 50 million...apparently NOVELL patents are worth more than MS patents.
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Novell is Networking, they invented it, its their roots. They are good at it, NSS is far superior to any "platter splatter" MS has.

MS on the other hand is marketing, they write crappy software and you continue to buy it in hopes of the next version will fix your problems today... your caught in their cycle. ID-10-T.

Remember why most businesses bought computers? It was to gain the competitive edge...in a single company solution (OK monopoly) there is no completive edge opportunity.

Renault uses SUSE directly. There was an announcement sometime ago that there where changing their desktops to Linux but i can't find it. In France there is a "movement" to change to Linux (the parliament, police, PSA group etc). It seems that France, at least in the public sector, wants to steer away from Microsoft. And who is to blame them except Microsoft of course. As for EXX danger i think that now companies are much more "wise" in dealing with Microsoft and don't forget that Novell is not the only company in the Linux ecosystem.

Beside MS being a formidable sales org.,they insure hardware companies write drivers for their software and installing drivers is still a no brainer for MS windows users. This is an area the Linux community has yet to address effectively.

When they do address the hardware issues MS will be in deep trouble, in these recessionary times.

Duke Nukem says:
Novell is Networking, they invented it, its their roots. They are good at it, NSS is far superior to any "platter splatter" MS has.
@Duke Nukem:
Well, not quite. Computer systems have been networked together for many years long before Novell. A friend and I added networked remote-accessed disks to the custom minicomputer operating system I developed... all back in 1980. And we weren't the first by any stretch of the imagination.
But yes, as you say, Novell pioneered networking for low-end PCs. And it's only fitting that they are now have Suse Linux. I found out in 1988 that it's as difficult to keep Unix systems from networking as it is to get DOS/Windows systems to network.
@Tom Berber:
It's me, renamed since my previous post at
http://www.microsoft-watch.com/content/operating_systems/windows_seven_enough_already.html#comment-266750

@Philosopher

Got it. Thanks!

"Consolidation" is all about economies of scale. The economies of scale in closed-source software are quite horrendous: for instance, it cost more to develop Dimdows Vista than to send Apollo 11 to the moon. Yet, having paid the fixed cost of developing that software, the unit cost for manufacturing each copy is essentially zero.
With this distribution of pricing factors, and the market being as price-sensitive as it is, it ends up with a small handful, or even just one, dominant player making a profit, while everybody else goes to the wall.
With open-source software, the fixed cost is distributed over the community. This allows the product to be distributed for the unit cost, i.e. zero. There is no need to add a markup to amortize the fixed cost. Equally, there is no tendency for "consolidation" of lots of smaller players into fewer, but larger companies, since there is no economy-of-scale advantage to be gained from this.
The net result is that we have over 350 Linux distributions in the marketplace, and the long-term trend is towards even more proliferation, not less. If Microsoft thinks it can somehow "corner the open-source market", it's dreaming.