This was a really big part of it. The other aspect that people seem to ignore was the back-and-forth sales calls on big customers by both Novell and Microsoft.
Novell: "We've got this great OS now, and it is inexpensive, and if you later want to part ways, there's Red Hat and other companies who you can turn to for support. It's the new thing, and Microsoft is 'Legacy'. You want the newest and the best, don't you?"
Customer: "Well Microsoft does kind of suck, and is expensive."
Microsoft: "So Novell is telling you to become the next AutoZone, hmmm? They got sued for running an OS with patent problems you know."
Customer: "Dang. We're already a big company that attracts frivolous lawsuits. Novell - we are not interested."
The Novell sales reps goes back to their bosses. They hatch a plan. Microsoft takes the bait.
Novell: "Remember how Microsoft was warning you about Linux? Well, they sell Linux now. Ours! You interested?"
What is Microsoft going to counter with? "Uh, we'll take your money, but we might sue you later." What would that do to their future sales (of all types)?
You are 100% correct that Novell did think about Red Hat as a competitor, and that drove a big part of the decision. It was a huge mistake to turn on Red Hat. When you try to feed your teammates to the alligator, all you are really doing is trying to be eaten last. With your teammates, you could have slain the alligator.
But they did choose to say "We and Microsoft are buddies now, and you won't have any trouble running Windows VMs under SLES, or SLES VMs under Hyper-V. Neener neener neener Red Hat." It may have gotten them a few sales, but the taunting of a beloved teammate sure pissed a lot of people off. Not to mention becoming best buds with the alligator.