New Rules, New Game

To the uninitiated it’s confusing to say the least. A software strategy

that is based on the premise that customers shouldn’t have to pay for

software. A software business division that is forbidden from ever paying for

itself. And a transformation, at this stage from a hardware company to a

"systems company."

As Sun Microsystems makes moves to deliver on its new software strategy

called SunONE (for Open Net Environment), under the newly appointed head of

software Jonathan Schwartz, V-P (South Asia) Lionel Lim explains the philosophy:

"We believe customers have software licenses and upgrade prices pouring out

of their ears. We believe they are sick and tired of paying for software. And we

believe it’s time that stopped."

The India Story

The India story works on two levels. The 450-strong Sun Indian Engineering center in Bangalore was responsible for the development of version 6 of SunONE’s app server and has played a large role along with the Bay Area center in version 7 of the app server. Given its talent base says Sun India MD Bhaskar Praminik, "Sun’s IEC will continue to play an important role in the company’s software strategy." VP South Asia Lionel Lim, backs that up. In addition, a lot of the linux work at Sun is expected to move to India with its inherent talents in this area. The IEC is already delivering on Sun’s Linux strategy and is currently engaged in delivering the SunONE software stack on Sun Linux. This includes the SunONE app server, webserver, portal server, identity server and directory server. Locally, the company is also talking to a lot of partner companies in India for the application development side of the linux business and one should hear something more concrete on that says Marketing head KP Unnikrishanan "in some time." This initiative will also be led by the IEC that will in all likelihood have control over any IP so generated. In addition, the company has globally identified about a 1000 people for its software sales division. The Indian SunONE software sales division in India is now being headed by Manish Kapoor who has six Sun members as direct reports though the big numbers come from partners like TCS and Mindtree Consulting. However, the customer will continue to deal with a single Sun sales representative on the front end even as software sales become an important part of the backend.

Sun’s proposition–we can provide you everything from hardware to system

software, middleware, app servers and office productivity suites–and

they     will all be scalable and easily integratable with

each other. What’s more, they will be cheaper than the competition. Central to

this proposition is Sun’s positioning as a systems company and its stress on

what Lim calls "integrated margins." That means that Sun will not stop

charging for software . Instead, it will likely follow a policy of software

bundling–some free, and some integrated into the cost of the deal.

Which is probably just as well. Currently software accounts for less that 5%

of the company’s revenues though Lim says software and

"software-driven" sales put together would be closer to 15-20% of the

top line. Taken alone–even a doubling of software revenues alone in the near

future is not likely to make a significant difference to overall income. It

might however help mitigate the bottomline problems the company has been having

of late.

Bottomline issues



With an unexpectedly slow pick up in September, Sun recently announced a

first quarter net loss of $111 million on revenues of $2.7 billion (the company’s

financial year ends June) — a return to loss after just one profitable quarter

in AMJ. With it, CEO Scott McNealy also announced 4400 job cuts or 11% of the

work force. Combined with the 3900 jobs cut a year ago, that’s a 20% cut in

employee count in the last 18 months of the slowdown.

The biggest concern then is Sun’s profitability. And Executive VP Software

Jonathan Schwarz is expected to help fix part of that. Though Sun has said the

job cuts will leave the R&D and engineering workforce largely untouched the

key question is this–without that money, will Sun be able to match IBM’s

legions of engineers or the muscle that the Microsoft-Intel alliance brings to

the market?

Yet, the company’s set out to do what at the moment seems the most

Herculean of tasks–to continue engineering efforts in software at diminished

profitability that will take on both Microsoft and IBM (and to a lesser extent,

Dell) with R&D efforts that they can get to the market quickly and cheaply.

A lesson in history?



In many ways it’s similar to what HP tried to do two years ago when it

bought over middleware company Bluestone and revamped its software offerings–mostly

NetAction and OpenView - at a big new launch. It was what the company then

called–the "Foot in the Door Policy". Hardware off-take was getting

hit; hardware margins were heading steadily south; competition was buffeting it

from all sides; so HP repackaged and hoped to get an entrée into dwindling IT

spend with its software offerings.

That didn’t work out. HP got out of the Bluestone deal and paid a hefty sum

to acquire Compaq instead. Foot in the door policies have somehow had a history

of looking great on paper but never really working out in reality.

Analysts fear Sun may be making the same mistake. Besides, it has its own

history of botched software policies to be wary of. The StarOffice business–while

growing slowly and steadily–wasn’t quite the threat the company had hoped it

would be to Microsoft’s office offerings. While some of that might change with

the new pricing and support policies for corporate customers, the fear is that

it might be too little, too late. Similarly, in 1993 AOL took over Netscape and

handed over the business to Sun. The company ran that successfully for a while

but then quickly lost the lead. Besides, competitors says the company’s even

got onto the linux bandwagon a little late and the catching up may cost it a

pretty penny.

The Pressure Points		The Pleasure Points
	Sun Microsystems is being buffeted at both ends. On the high end server and ‘totally systems’ bussiness by IBM and the lower end by Dell		Sun has numerous cards up its sleeve. Not the least among it, Linux based desktops that will cost half to own and operate than comparable machines running Microsoft.
	Falling profitability and continuing job cuts.		Bundled software policy that could lead to systems priced lower than Dell. Might include Solaris with linux with app server, directory and web server.
	With its ‘purist’ philosophy — we only do unix and we do it best — it faces the prospect of turning into an important but niche and small player.		Liberty Alliance taking off reasonably well with an impressive roster of partners
	Failed past experiments — the thin client strategy that never really took off. Earlier software forays that ended half way.		Sun’s NI plan (a way of linking server and storage devices), may have an edge over competitors like HP’s Utility Data Center and IBM’s “eLiza” autonomic computing initiatives.
	Questions on what it has to turn itself into a "systems company."		High customer loyalty
			Disgruntlement with Microsoft’s licensing policies.
			An in-your-face, against conventional wisdom attitude that has so far worked well for the company.

The rule changers



Sun itself is however banking on its ability to get into the market late and

as Lim calls it "change the rules of the game." Besides, the company

has a strong partners’ policy. As Lim says, "We don’t have to do

everything ourselves. Our partners will do a lot of it for us." To be fair

to Sun, it also has a history of successes on that count.

The company also fairly successfully launched the Liberty Alliance project to

counter Microsoft’s Passport and signed up support from some very big names

that include General Motors, Bank of America, Nokia, Cisco, Vodaphone and Visa.

The big question now is whether the same will work for the company’s software

play. Combined with its issues on the hardware side (we do only one thing and do

it best philosophy), the answer to that question may well determine Sun’s

future. The road to "World domination" as some in Sun have loved to

say, or the Silicon Graphics way — important but niche and limited.

Sarita Rani in Bangalore