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Commentary: Sun's hopes for new wireless boom unfounded

Sun and its competitors hope wireless will replace the Web as the main driver of growth in the server market. Meta Group thinks these companies need to reexamine their business plans.

Sun Microsystems' announcement of a new business unit and a $100 million venture fund aimed at the wireless market indicate Sun and its competitors hope wireless will replace the Web as the main driver of growth in the server market.

See news story:
Sun, IBM take aim at wireless market
We believe these hopes are ill-founded and that these companies need to reexamine their business plans and pricing strategies, which are based on the presumption that strong growth in the server market will continue. We also believe this is an excellent time for customers to play hardball in pricing negotiations to drive down the high price of servers.

The problem for server vendors is that wireless applications will not generate the same huge swings in server demand that Web applications did. In the Web market, server growth clearly was driven by factors like page views (page count, page size, page complexity) and the requirement for systems to handle new types of users. Moreover, many of the applications implemented were also new.

The wireless arena, however, is more substitutive than additive from a server standpoint--at least for the intermediate term. Wireless call minutes will escalate, but billing, and operational systems should be able to scale to accommodate this growth, minimizing the requirement for wholly new systems. More data per call will have to be processed to accommodate requirements to serve Wireless Application Protocol (WAP)-like pages to handheld devices and applications like fraud detection.

But the amount of data handled will be modest in comparison to the Web, thanks in part to the smaller screens and minimized processing power of handheld devices.

While the Web generated an explosion in transaction count and complexity, which drove tremendous server market growth, we don't foresee wireless driving the same type of server-side capacity explosion.

In addition, companies will convert from HTML-based systems to XML-based systems during the next few years. Once in XML, content can be served to many devices, including full-featured PC browsers and other mobile/wireless devices. Repurposing of the installed base of servers from HTML to XML to serve the growing market for companion and alternative devices will not greatly benefit Sun.

Moreover, greater Wall Street scrutiny is being applied to all companies, including wireless service players. Infrastructure spending will be aggressive and sizable in the wireless arena, but wireless players will devote more attention to business and technology integration upfront, as opposed to "start from scratch" application spending coupled with knee-jerk server buying.

This will be especially true if the economy slows much more than it has already. The days of wanton spending on servers are finished--in telecom and in every other industry.

As the server market cools, all of the server companies will become more aggressive in the market. This will be an excellent time for buyers to negotiate for lower prices.

Buyers therefore should refuse to sign contracts to buy servers at the prices everyone was paying during the last two years of the Internet boom. Instead, they should wait for reality to sink in among the vendors. Then buyers can gain a strong advantage at the negotiating table.

META Group analysts Peter Burris, William Zachmann, Dale Kutnick, Val Sribar, and Jack Gold contributed to this article.

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