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Jonathan Schwartz, its ponytail-wearing chief, has turned the company around by focusing on free software for new business
Five years ago, Sun Microsystems was "staring death in
the face", says Greg Papadopoulos, now its chief technology officer. It
had just lost $2.72bn (£1.4bn) on revenues of $11.4bn. He says: "We
thought, the whole world is changing to this." By "this" he means open
source software: "You can't help but look at any student coming out of
college, or a startup, or what's happening inside the IT departments,
and not run into [the web server] Apache and Linux [operating system]
and MySQL [database] and PHP [web-scripting language]." Each of which
is free, open-source software.
That near-death experience changed
Sun. Jonathan Schwartz, its chief executive since 2006 (and president
and chief operating officer since 2004), is sure that open-source
software will dominate. "The world's focus on open source and
interoperability is just beginning.
One
hundred per cent of the web startups that we talk to are beginning on
the assumption that they'll use open source," he says. Which is why Sun
offered $1bn for MySQL, the open-source database, in an agreed takeover
in January.
Core business
Yet Sun is not
just a software company: 60% or more of its business is hardware. The
core of its business is servers in data centres. Equally, hardware is
nothing without software, and Sun's products include the Solaris
operating system, the Java programming language and an office
productivity suite called variously Open Office or Star Office. Java is
more than just a language; it has a cross-platform runtime that allows
Java applications to run on a variety of PCs and devices. "We estimate
that the Java runtime platform runs on well over 1bn PCs, more than 1bn
phones are powered by Java, and with the victory of Blu-ray, the
majority of next-generation DVD players will be running Java," says
Schwartz. All this software is free.
But how do you give away your software and still deliver profits?
One
route is hardware, says Schwartz. "MySQL has approximately 11m
deployments around the world. The number that actually purchases a
service contract is in the thousands. The number that purchases servers
and storage is in the millions."
As open source penetrates
further into enterprises, service and support revenue will grow. "If
you talk to some of the largest companies of the world, Vodafone or
DoCoMo or China Mobile, you'll find they disallow the use of free
software in mission-critical environments, unless there's a global
support contract behind it. The market is divided into those willing to
spend time to save money, almost all of whom buy hardware, and those
willing to spend money to save time, almost all of whom buy service and
support."
The point, says Schwartz, is that giving away software
opens up new markets. "We're downloading about 1m copies of Open Office
every week. The value is that we get to meet 1m new potential customer
opportunities."
The figures are adding up for Sun, for now at
least. In its year ending June 2007, it reported its first positive
operating income since 2001, earning $309m on revenue of $13.8bn. The
most recent quarter, to December 2007, is its best for some time,
showing $262m operating income on revenue of $3.6bn.
However, despite Sun's commitment to open source, it has a mixed reputation when it comes to sharing development with the
community.
"We have open source but we don't have open development," notes Ben
Rockwood, an external developer who works on open-source Solaris. "Sun
has done an admirable job with releasing code, but Sun's history in
open development efforts with the free software
community
has been abysmal. I refer to it as 'glasshouse development' - that is,
you can look in at what's going on, but you're not part of the action."
Is it too hard for
community
members to get their work included? "People say the same thing about
Linux," counters Schwartz. "With Open Solaris and Open Office and
MySQL, what our customers want is a road map of support so [they can]
run their business on these products."
Niagara rises
Meantime,
Sun has moved to favouring efficiency over performance, a canny move as
the cost of energy rises. "Four or five years ago we began to reinvent
SPARC [the architecture of Sun's processors]," says Schwartz. "We spoke
to search companies all over the world, online media companies,
telecommunication companies, even a variety of financial services
companies. We heard that they were out of space. We heard that
electricity was becoming a dominant driver of expense in their data
centres. So we recrafted our platform around that feedback."
The
result was a new processor code-named Niagara, introduced in December
2005. "It was a curious product," says Schwartz. "It was 32 times more
efficient than any other computer in the marketplace, but at doing 32
things simultaneously. At doing
one
thing, it was a tenth as fast. In essence we delivered a greyhound bus
into the marketplace for mass transit, when all of our peers were
delivering Ferraris. That's now a billion-dollar product." Niagara has
now evolved into Niagara 2, a 64-way processor.
Schwartz believes
that advancing technology means that the cost of running corporate IT
systems is falling. "The performance that we are delivering is dwarfing
the requirements of most customers," he says. That sounds like bad news
for Sun; except that he sees other categories of computing more than
compensating. "The web and the social infrastructure marketplace as
well as the marketplace for high-performance computing will completely
eclipse the market for enterprise infrastructure."
Papadopoulos
says that Sun has changed - but others have not. "We had to move
ourselves to that. The part that surprised us is that it doesn't look
like anybody else [from our era] came with us. IBM for example embraced
a lot of open source, but never transformed the company behind it. And
I don't think Microsoft is going to do that any time soon."
He
identifies a trade-off between the high profitability of proprietary
software versus the high volume of open source. "Proprietary software
is a kind of drug," he says. "Companies that are proprietary can charge
what they want to for their software. Why? It's because the switching
costs to move off
one
piece of software to another is very high. So what you are able to do
as a proprietary company is to raise your prices just below what the
pain is for the customer to switch across.
Outrageous distribution
"When
you go into this open-source model you are giving up the potential to
inflict that much pain on people. And you are giving up potential
profit-making. But the exchange that you make is that you get this
outrageous distribution channel. I'm getting thousands of people a day
to take my stuff and I don't have to pay them to take it, they're doing
it, and creating future business opportunities."
Finally:
Schwartz is well-known for his ponytail (leading the blogger Daniel
Lyons, aka "Fake Steve Jobs", to dub him "My Little Pony"). Now he's a
bigwig, why does he still wear it?
"I started a company with a
bunch of friends and back then, especially on the east coast, there was
no way you were going to raise venture capital unless you were a
seasoned CEO with a track record of five IPOs. So I had a bunch of
really good friends, we all moved into a house, we had no money so we
lived on rice and beans, and haircuts would have taken money, or I
would have had to have given a pair of scissors to
one
of my buddies and said, 'Here, go ahead, cut my hair'. So it just
seemed more prudent to let it grow. And then it became a bit of a joke
among us that we'd get it cut after we started making money. And then,
when we actually started making money, none of us wanted to get our
hair cut because we might not make any more money. So it's been there
for a while, and I don't think about it much."
Read the original article: http://www.guardian.co.uk/technology/2008/feb/21/opensource.sunmicrosystems
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