Open-source software: It's the free coffee cup of today

Few customers will pay for MySQL, but they're installing it in large numbers, giving Sun an opportunity to visit them and try to sell them servers and storage systems.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read

MENLO PARK, Calif.--Companies used to give away pens, squishy balls and coffee cups to worm their ways into the hearts of customers. Now, they pass out database software.

That is, in a sense, Sun Microsystems' strategy with its $1 billion purchase of MySQL, said Sun CFO Mike Lehman at Sun's Global Media Summit here today. Very few customers have or will pay for MySQL, he admitted. However, they are installing it in large and growing numbers and that gives Sun an opportunity to visit them and try to sell them servers and storage systems.

In Sun's 2009 fiscal year, which begins in the second half of 2008, MySQL will add 1 percent to revenue, but cause operating income to drop by one percent, Lehman said. But in fiscal 2010, MySQL will increase operating income by one percent.

Sun CEO Jonathan Schwartz noted that more than 11 million customers have installed MySQL. Only about 1,000 of these will sign service contracts. "But almost all of them will buy hardware," Schwartz said.

So there you have it--the world runs on giveaways. History shows it works. too. Dell used to only have a minor share of the Intel-based server market. The company, however, began to give servers to large customers after they bought a certain number of desktops. Dell sales reps would then ask to see how well the servers operated when they visited. The giveaway helped Dell overtake Compaq in this space, both Dell and former Compaq employees have told me.

After a few turbulent years, Sun has been recovering and growing for the past year and a half and has regained its confidence. Overall, Sun as a company will see revenue growth of 5 percent in the second half of the fiscal year 2008, which is basically the first two quarters of calendar 2008.

"We are delivering a very healthy bottom line," said Schwartz. "We have made improvements in operating profitability, which have come as a result of income in business and gross margins and not cost cutting. We are now very orientated toward growth."

Schwartz said it's tough to gauge the impact of any economic slowdown in the U.S., but he was generally upbeat. "We're not immune to any economic trends, but around the world we see more companies spending more time and more money to use technology to expand their business," he said. The U.S. represents 40 percent of Sun's business.

Over the long term, he added, there's nothing out there that seems destined to slow down the pervasiveness of tech into society and business for the next fifty years.

Other notes from this morning's session so far:

•  Sun is seeing a lot of pickup in sales of its Sun MD, which is a data center in a shipping crate, said Schwartz. (It used to be called the Blackbox.) Roughly 80 percent of Sun's customers are asking about it, he said. One of the more interesting customers that has moved ahead with it is MTS, a cellular carrier in the Russian republics. The company needs the mobile data centers because of the wide geographic swath it covers and the lack of top-quality infrastructure across central Russia.

While most customers worry about the cooling systems in these mobile systems, MTS' biggest concern is snow. The system has to move into parts of Siberia that get 15 feet of snow. So Sun installed snow cages.

Other customers will ship these to Beijing for the Olympics to render footage from events.

•  Emerging markets will remain an engine of growth. Sun's revenues are up in single digits in the U.S., but 66 percent in Russia, 20 percent in Mexico, 26 percent in India and 18 percent in Greater China. Social-networking companies and Web 2.0 customers are buying, too. One social-networking customer has 10,000 servers already and is growing its IT spending 5 percent a week. That's on par with a financial services company, said Schwartz.

•  Sun will concentrate, said Schwartz, on three markets: enterprise infrastructure, Web infrastructure, and high performance computing. Expect to see Sun make more acquisitions in these spaces---Cluster File Systems was one of the company's more crucial acquisitions last year--and more emphasis on R&D in these spaces.

•  Schwartz also threw out one of those zany "what if" scenarios he's fond of. Think of Sun as a media company, he asked the crowd. It's intriguing, but ultimately it boils down to Sun will provide back-end hardware, software, and services to help publishers.