Sun's fighting chance

Forrester CEO George Colony argues that if Sun goes down, it's going to go down taking very big swings.

Sun Microsystems seeks to avoid oblivion by pursuing a simple but powerful strategy.

Its plan? Attack Red Hat, use control over the operating system and the platform to disrupt competitors' pricing and business models, out-engineer everybody in the x86 space and use an alliance with Microsoft to fight a common enemy: IBM.

Last week in California, I visited two Sun bigwigs: Jonathan Schwartz, president and chief operating officer, and Scott McNealy, chairman and CEO. When Schwartz asked me, "What do you think of Sun?" I gave him an honest answer. "Sun risks becoming the Data General of the decade. The company could easily slide toward becoming a 'zombie'--a lot of cash but no life, staggering and lurching with a fading heartbeat at each step," I said.

Schwartz's comeback was, "You're wrong, and here's why." He then laid out the surprisingly simple and cohesive strategy that Sun will follow in pursuit of a recovery. Here it is, in a stripped-down form.

Linux is like every other operating system; it's about the foibles, greed, mistakes and engineering prowess (or lack thereof) of one vendor--in this case, Red Hat.
Step No. 1: Make the argument that Linux equals Red Hat. Linux has become a social force, with all of the free world supposedly cooperating to create an always improving operating system that is forever cheaper and more valuable than the old versions of Unix.

Sun's view is that Linux is nothing more than Red Hat. The operating system is not about world peace and the charitable work of the world's great programmers. It's like every other operating system ever created: It's about the foibles, greed, mistakes and engineering prowess (or lack thereof) of one vendor--in this case, Red Hat.

Step No. 2: Belittle Red Hat. By collapsing Linux into Red Hat, Sun now has a clear target. It can hammer away at a company, as opposed to waging the impossible task of fighting a social movement. And according to Sun, Red Hat is a very vulnerable target--a company with limited resources, engineering talent, world coverage and capabilities--with potentially serious intellectual-property issues.

When Sun visits billion-dollar companies, it uses an effective line of attack: "You're going to entrust the future of your company to what vendor? A little software player with no proven abilities in the enterprise business? Are you out of your mind?"

Step No. 3: Contrast Sun with Red Hat. Sun has been a trusted, pragmatic partner with its customers for decades. It is going to return to those customers and clearly contrast its long-term relationship with newcomer Red Hat. The company is doing this now with its old Wall Street customers.

Step No. 4: Play up the OS-plus-platform advantage. Sun is playing a very old game here, but it will play it hard. The company is saying that you cannot be a legitimate, long-term player without controlling and harmonizing the operating system and the platform. You must have control over both to offer easy and cost-effective solutions for your customer.

Hewlett-Packard is letting HP-UX die in favor of Red Hat and Windows; IBM is introducing Power systems that don't run AIX; and Dell never had an operating system.

Watch for Microsoft and Sun to concoct some tough frontal attacks on IBM, their avowed common enemy.
Sun makes the claim that it will be the only vendor with a strong platform--Sparc at the high end, x86 at the low end--that also has a strong operating system to offer with Solaris at the high and low ends.

Step No. 5: Disrupt the market with a new pricing model. Sun wants its server pricing to mirror cell phone pricing. When you buy a cell phone, you do two things: One, buy the operating system and the phone together; and two, subscribe to cell services for monthly fees.

Sun is pricing the server the same way--get the server for a very low price or potentially no price, and pay for the maintenance and applications (the value imparted) on a subscription basis. Sun believes that this new pricing model will only be possible for a vendor that sells and integrates the operating system and the platform. It can cross-subsidize between the two.

Step No. 6: Feature customer choice. Sun has dropped all of its stridency around Unix--it is offering choice at the high end and at the low end. It is offering not only Solaris but also Linux and Windows for the operating system. And it is finally offering x86 via the Opteron chip from Advanced Micro Devices.

Step No. 7: Feature engineering. Sun is playing an old game here, too: "My tech is better than yours." It is saying that it will out-engineer not only at the operating-system level with Solaris but also on the hardware front. It is claiming that the new generation of Sparc will have vastly lower power consumption than Itanium and Power while featuring faster throughput and superior multithreading.

On the x86 front, Sun is saying that Opteron--AMD's answer to Intel's Itanium--is superior to what Intel has to offer and that, through its long-term engineering experience, it is going to produce x86 products superior to those of Dell, HP and IBM. Sun claims that engineering remains a distinctive competence of the company--a battleground where it can hammer the competition, especially the low- or no-R&D companies like Dell.

Step No. 8: Feature the Microsoft-Sun deal. The money flowing from Microsoft to Sun will help. But more importantly, watch for Microsoft and Sun to concoct some tough frontal attacks on IBM, their avowed common enemy.

Where the potholes are
I'll say this for Sun: Its strategy is simple and to the point.

If Sun goes down, it's going to go down taking very big swings.
You can criticize the company for many transgressions, but you can't fault it for lacking guts. If it goes down, it's going to go down taking very big swings. Schwartz and McNealy make a good team--brains and will in a tight package.

The potential stumbles or counters that I can see are:

• A fixation on engineering, not price. Dell will eat Sun for breakfast if the latter doesn't trade off engineering perfection for price. Sun has avoided this trap so far.

• Betrayal by Microsoft. Redmond has been known on a few occasions to play its own self-interest first when it comes to deals. McNealy and Steve Ballmer, his counterpart at Microsoft, are high-emotion cases--their trust and cooperation run the risk of wild up-and-down swings.

• Linux becoming more than Red Hat. If IBM can keep Linux independent of Red Hat, Sun's target will vastly widen, thus blunting its strategy. And, of course, IBM could always acquire Red Hat, yielding instant credibility.

• Engineering risks. The strategy depends on some breakthrough original engineering, such as Sun's chip multithreading project. If Sun can't deliver on the big promises, it will suffer.

I've hung around with many tech zombies in the past, from Wang Laboratories to Prime Computer to Digital Equipment. When I stare into the eyes of the Sun management team, I still see life; this team doesn't look like it's ready to give up or stop trying to compete. Given the strategy and management, I believe that there is a good chance that Sun will be around for a strong third act.

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