MENLO PARK, Calif.— The biggest industry trend in the IT sector is the move from the Internet world to the participation age, said Scot McNealy, CEO and chairman of Sun Microsystems.
Speaking on Feb. 24, the 24th birthday of the firm, at its annual media summit held at its campus here, McNealy said the closed, proprietary technology model was giving way to open technologies, open source, open interfaces and community development, or any combination of these.
“We have had open-source implementations and open hardware interfaces and many of our technologies have been developed in a community process. This eliminates the barrier to entry and minimizes the barrier to exit, which is huge for customers on [IBM] mainframes or Windows systems,” he said.
Another big trend is managing the “custom jalopy Frankenstein data center” that each of Suns customers had developed, as it would take as long to unravel these proprietary “hairball systems” as it did to create them, McNealy said.
“Consolidation is also another big trend,” he added, taking a swipe at Hewlett-Packard by saying, “at some point you cant OEM all the parts and call yourself a manufacturer.”
With regard to the move away from the “Internet age” to the participation age, in which instant messaging, blogging, e-mail and podcasting are the norm, McNealy said this move was a good and positive thing and would enhance all forms of media.
Suns whole mission is about providing the infrastructure that drives that participation age, he said.
“Our tag line always has been, is, and will remain for some time going forward, that the network is the computer. If we added 3 million people to the Internet every week for the next three years, three-quarters of them would still be on the wrong side of the digital divide,” McNealy said.
The strategy is all about sharing, open source and open infrastructure, he said, adding that financially the company is doing “just fine … we are struggling to tell this story, particularly as cash and profits seem to be a diverging thing n the world of accounting today.”
Sun is doing $2.2 billion dollars worth of research and development a year, which brings pricing advantages with it, McNealy said, adding that Sun is also the most partnered company in the world because all of its interfaces are open.
Suns New CFO Talks
McNealy then introduced Suns new chief financial officer, Mike Lehman, who left the Sun board and joined the company as an employee this past week. Lehman said the company was in better shape that it has been for years and that the big challenge it faces over the next six months is how to best execute its vision.
Lehman also added that he had a little-known history with Suns Chief Operating Officer and President Jonathan Schwartz, who had once reported to him, and that they had shared an office. “But now he gets to tell me not to answer any questions and go back to work,” Lehman quipped.
Taking the stage next, Greg Papadopoulos, Suns chief technology officer, looked at open-source software and software as a service, asking the question of what the two concepts had to do with one another, if anything.
While open source is fundamentally about freedom for developers, he said, just because something was based on open source did not mean there would be end-user freedom and no costs.
There is also a misconception that open source is a faster way of developing software, he said, rather than its being “a more transparent and collaborative way of developing software.”
The next stage in the open scenario was open services, he said, where developers would use Suns storage grid rather than buying their own, bringing freedom for service developers.
Situations where open source-based services could be shared and executed include when working on common patterns for service levels and management, he said; not just publishing the code, but also the prototypical services. “We are without doubt headed towards a classic phase change,” he said.
COO Jonathan Schwartz Compares
COO Schwartz was next up, and started off by saying it was important to note that developers, who are very important to Sun, do not buy things, they join them.
“More developers adopted Sun technologies in 2005 than in the entire history of the company,” he said, adding that Sun would be a retailer for developers, but there was no single model for this.
Suns sales force now only calls on those customers who have already downloaded its Solaris operating environment, which would mean they were already aware of its products.
“A perfect customer for us is one we dont visit, who places their orders over the Web, and [one for whom] we can use a local partner to support them,” he said.
Losing market share and customers to Red Hat and Linux would be far better than losing it to Microsoft Windows, he said.
The barrier to exit from Solaris to Linux is low, but the one for moving back from Red Hat to Solaris is even lower, while the exit cost from Windows would be much higher, he said, adding that Sun was certifying that it was binary-compatible with Red Hat Linux.
“Our software will be most appealing if it runs on hardware in addition to ours, while our servers will be most appealing if they run software other than Solaris. We are going to be multi-OS on the server side and multi-platform on the software side, because, as we grow the overall market we participate in, we can bring more of our customers into our product fold,” Schwartz said.
Asked about Suns relationship with HP, Schwartz said the company had an interesting problem on its hands, as, “they ended life for their PA-RISK architecture, and so enterprises can either upgrade to Itanium or they can move to HPs Proliant servers. Moving from the HP-UX operating system to Solaris has a very low cost,” he said.
Of the 4-million Solaris licenses delivered over the past year, more than two-thirds of these were on non-Sun hardware, primarily on HP x86 hardware, he said, adding, “HP is becoming a more interesting partner to Sun over time as they have come to be so much less threatening to us in the enterprise.”
On the financial front and with regard to Suns standing on Wall Street, McNealy said, “We need to see some revenue growth, there is no doubt about that. But our gross margins have been improving and we have done a great job of reducing costs.”
For his part, Schwartz said, “Growth is our number one priority.”