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Sun subscriptions--gimmick or good idea?

The company's moves to sell data storage and services by subscription may be considered defensive, gimmicky and late--but that's doesn't mean there isn't something to them.

Sun Microsystems' moves to sell data storage and services by subscription may be considered defensive, gimmicky and late--but that's doesn't mean they're bad ideas.

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What's new:
Continuing its unconventional pricing methods, Sun announced last week that it would provide data storage for $1.95 per gigabyte per month as well as data center services at a single price that's subject to a discount.

Bottom line:
Some analysts say that even if the struggling computer maker's main objective is to drum up excitement, it still may be helping customers and itself: Selling storage gear based on the number of megabytes used should appeal to customers, in part by letting them avoid up-front costs.

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Sun last week announced it would provide data storage for $1.95 per gigabyte per month as well as data center services at a single price that's subject to a discount. After mulling the plans for a few days, some analysts say that even if the struggling computer maker is mainly trying to drum up excitement, it still may be helping customers and itself.

"Sun didn't move in the direction of greatly expanding its use of subscription pricing models when the company was in robust, good health, at the top of the dot in dot-com boom," Jonathan Eunice, an analyst with researcher Illuminata, said, referring to Sun's ad slogan from the Internet mania days. "Many of its recent changes have been in the 'Hmmm...OK...Hmmm...So what do we do now?' category. That doesn't, however, mean they aren't smart moves."


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The company never really left
the storage market--it just
seems that way. Now it must
show how strong its commitment is.

Subscription pricing--which Sun already had offered for software packages--can help the company generate more predictable revenue, Eunice suggested. And offering to sell storage gear based on the number of megabytes used should appeal to customers, in part by allowing them to avoid up-front costs, said Brian Babineau, analyst at researcher Enterprise Storage Group. Already, storage rivals such as Hewlett-Packard and EMC have creative financing packages, he said.

"It's a little behind the competition, but it's a step in the right direction," he said.

Sun has been laboring to get its business going in the right direction. In the wake of the dot-com boom, Sun has weathered 12

"Many of (Sun's) recent changes have been in the 'Hmmm...OK...Hmmm...So what do we do now?' category. That doesn't, however, mean they aren't smart moves."
--Jonathan Eunice, analyst, Illuminata
straight quarters of declining year-over-year revenue. As part of its turnaround plans, Jonathan Schwartz was elevated from software chief to company president and chief operating officer. In his previous role, Schwartz introduced pricing plans by which a customer could use as much of Sun's server or desktop software as it wanted, paying according to how many employees it had.

Other information technology companies have been introducing pay-as-you-go pricing plans as part of a wider industry push toward making computing more like a utility. But Sun's initiatives have been among the most unusual, such as an offer to let governments in developing nations pay for software based on the number of citizens and how developed the country is.

In that sense, the new services and storage pricing models aren't a radical shift in direction for the company. With its new Preventive Services offering, Sun aims to give customers a set of multiple services covering Sun gear at a single price. The package, designed to help customers avoid problems in the first place through diagnostic checks, is priced based on factors such as the number of data center employees and the complexity of the hardware and software in use.

In addition, Sun said customers who meet and sustain performance goals in their data center will be offered discounts of up to 20 percent off long-term services subscription costs. Sun already has been making a push to offer preventive services, as its services efforts have expanded and become more important to the company.

The 30-terabyte hurdle
On the storage front, Sun says it will let customers pay $1.95 per gigabyte per month for use of a high-end disk array product, along with some software and services. Sun requires that customers sign up for at least 30 terabytes of storage and agree to a three-year contract.

Customers can pay additional amounts per month for features such as performance monitoring.

According to Sun's calculations, this utility computing approach permits a customer using 30 terabytes of capacity to pay roughly a third of what they would if they purchased or leased the storage gear.

Michael Isaac, analyst at researcher Saugatuck Technology, finds the offer wanting when it comes to flexibility. "By locking in a commitment for, say, 3 years to get $1.95 per gigabyte per month, Sun's subscription pricing still falls considerably short of the true vision of pay-as-you-go pricing where you can scale up or down, depending on need," he said.

But Adam Mendoza, Sun's director of strategic alliances for network storage, said the contract length is not a great burden, given that setting up a high-end array can take a couple of weeks and that companies typically expect to hold on to storage gear for more than three years. "This is actually very practical in terms of a time-frame commitment," he said.

In any event, Sun's pitch isn't meaningful yet to all customers. Joe Fuller, chief technical officer for Trader Electronic Media, is a Sun customer with far less than 30 terabytes. That threshold "would pretty much take us out of the running," he said, but "the idea is intriguing."

Sun hasn't forgotten customers like Fuller. It intends to create similar pay-per-use programs for low-end and midrange environments.

Storage struggles
Sun's storage division has been struggling, especially when it comes to midrange products. According to researcher IDC, Sun's revenue from external disk storage systems fell from $229 million in the first quarter of 2003 to $227 million in the first quarter of this year. Its market share slipped from 7 percent to 6.5 percent, according to IDC.

Mendoza acknowledges that Sun's midrange storage products have not been strong. But he says the company is plugging that hole

"We doubt these discount-warehouse prices are really the bargains that they appear on first sight."
--Michael West, analyst, Saugatuck Technology
with an array due soon that incorporates technology from Sun's acquisition of Pirus Networks. The product, dubbed the StorEdge 6920, will have features such as the ability to make "snapshot" copies of data with minimal disruption to applications, Mendoza said.

That new system also was introduced by Sun last week at its conference in Shanghai, China. Not all critics, though, were won over by Sun's slew of news.

Michael West, another Saugatuck analyst, suggested the services and storage pricing options are desperate, dubious moves.

"After many years of feeding off high-end financial niches and dot-com start-ups, Sun is now rooting around in the cellar for whatever it can find," he said. "We doubt these discount-warehouse prices are really the bargains that they appear on first sight, but until the details are forthcoming, we can only assume they are not."

But Fuller, for one, hasn't written off Sun completely. He's impressed by the amount of cash the company has in the bank, its spending on research and development, and its recent products. "I'm not too concerned about their overall health," he said. "But I keep my eye on them."