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McNealy: Computing prices to fall

Customers are paying up to 10 times what they should to buy and run computers, but a correction will come soon, Sun Microsystems CEO Scott McNealy tells conventioneers.

SAN FRANCISCO--Customers are paying up to 10 times what they should to buy and run computers, but a correction will come soon, according to Sun Microsystems CEO Scott McNealy.

"The world has to be getting a little disappointed in our industry," McNealy said Tuesday, addressing attendees of the company's SunNetwork conference here. "We are overcharging in our industry by an order of magnitude," or by up to 10 times, he said. "That cost...is going to come out of our industry in the next five to 10 years."

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McNealy: Enlightenment via utility computing
Scott McNealy, CEO, Sun Microsystems

The companies that will be hit when computer prices fall to their proper level are the ones that have a vested interest in maintaining today's complicated computing environments, McNealy told reporters after his keynote address. He gave IBM and Microsoft as examples. "How much of IBM Global Service's revenue (comes from) maintaining the complexity of the PC environment?" he asked.

McNealy, with his fondness for car metaphors, had one ready for the occasion. If cars were as complicated and custom-built as today's computing gear, there would be vastly more mechanics, car painters, tow truck drivers, car designers and other support workers needed to deal with the chaos and unpredictability, he said.

Sun believes it has the answer to the problem: Customers should buy collections of hardware and software already assembled and suited to the task at hand, and they should run multiple tasks on those systems to ensure computing capacity isn't going unused.

As expected, Sun detailed its push to profit from simplification Tuesday, unveiling pricing for its Java Enterprise System bundle of server software. It also released price details for Java Desktop System, its Linux-based rival to Microsoft Windows and Office.

The Java Enterprise System will cost companies $100 per employee per year to use, Sun said. That fee includes professional services to help customers switch to the Sun software, as well as training and 60 hours a week of support. The company argues that charging customers that way is simpler than pricing software packages out for different customers depending on how many e-mail boxes, servers, server processors, terabytes of storage space they use.

"If you have 4,000 CPUs because you have an incredible messaging load, knock yourself out," Jonathan Schwartz, a software executive at Sun, said.

The Java Desktop System costs $100 per desktop per year or--for customers using the Java Enterprise System--$50 per employee per year, Sun said.

McNealy promised to take the word of its customers regarding employee totals for the Java System product family, rather than sending out auditors from the Business Software Alliance to ensure companies aren't using more software than permitted.

"Send us a note. We trust you. Most of the big organizations that are going to be excited about this, aren't going to cheat us," he said.

The Java System software runs only on Sun servers using UltraSparc, Intel or Advanced Micro Devices processors. Customers who agree to run it on Sun storage systems too will get a discount of $5 per employee per year, according to Aisling MacRunnels, director of software operations and business models for Sun. Customers who sign up for round-the-clock support must pay an extra $10. Buying a developer version will cost another $5.

Sun has signed up 10 customers so far, including publisher World Book, (a financial services company with 5,800 employees) and a telecommunications company with 36,000 employees, MacRunnels said. About 90 companies have approached Sun for price quotes, she added.

The Santa Clara, Calif.-based server giant is hoping the idea will boost its flagging revenue, which has slid dramatically since the lavish technology spending spree of the late 1990s. The company's top 65 customers have a total of 10 million employees, said Schwartz--which would mean $1 billion in annual revenue for Sun, if those customers bought the Java Enterprise System.

Sun has for years tried to shake its image of a hardware-only company by elevating the importance of its software group, but it still lags IBM, Microsoft, BEA Systems and others overall in the software market. The new Java System products show the company is trying to seize the initiative, McNealy said.

"We are not on the defensive here. This is all upside," McNealy said.

Sun has been boosting its software efforts through acquisitions, as well. It bought CenterRun this year, and Terraspring and Pirus Networks last year, to boost its N1 management software framework.

The company announced other moves at the conference:

• Sun will indemnify customers using its Linux-based Java Desktop System, Schwartz said, but not for the Linux component of its servers, which use versions of the operating system from Red Hat and SuSE.

• Sun has signed up new partners who will include Sun's Java software on PCs sold to individuals. Earlier licensees Hewlett-Packard, Apple Computer and Dell have now been joined by Toshiba, Acer and Samsung, according to Schwartz.

• Java-based smart cards are "probably the most strategic asset Sun has," Schwartz said. The cards, used in mobile telephones worldwide to authenticate users, are the reason $6 billion is being spent on selling ring tones each year, while nothing is spent selling digital music, he said.

• Sun won't approach customers with fewer than 1,000 employees to sell Java System products, but instead will leave that part of the market to business partners, Schwartz said.

• In an attempt to convince observers that Sun is creating new desktop technology, Schwartz showed off a Linux user interface called "Looking Glass." The display treats Windows as three-dimensional panes of glass that can be hinged out of the way or made transparent.