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Sun opens wallet for software push

The server giant is giving workers triple commission on software sales--a sign of the increased importance of software at the company.

SAN FRANCISCO--Sun Microsystems is turning to a tried-and-true method to spur software sales--hard cash.

The Santa Clara, Calif.-based company has begun tripling salespeople's commissions when software is involved in a sale. The program is designed in part to encourage Sun salespeople who have focused on selling hardware to achieve "much greater literacy in software," Barbara Gordon, vice president of worldwide software sales at Sun, said in an interview.

Though Gordon declined to offer specific figures, she said Sun is pleased with the incentive program's results so far. "We have seen an increase in software sales," she said.

Finding new ways to make money is crucial for Sun, which has suffered under fierce competition, a recession and the vanished revenue from Internet and financial services customers.

The tech giant got its start more than 20 years ago selling workstations, then adapted those products for the more profitable market for servers--networked computers that perform round-the-clock chores such as managing bank accounts. Sun profited in particular from the Internet spending frenzy of the late 1990s, but struggled to make much money off software and storage products even during those boom years.

The incentive program shows that Sun is trying to change that record. In addition to the software sales incentive, the company also offers a similar "accelerator" for sales of storage equipment, though the storage bonus is less than that for software, Gordon said.

It's a good approach, Gartner analyst David Smith said. "It makes sense that if you want to sell something, you need to (provide an incentive for) the sales force," Smith said. The only problem is that if the incentive doesn't have its desired effect, the company's failure is even starker.

The new incentive program began in July, at the beginning of Sun's fiscal year, said Gordon, a member of the company's compensation committee and a 15-year Sun employee. Under it, a salesperson selling $100,000 worth of servers and $100,000 worth of software, for example, is paid a commission from Sun based on $100,000 worth of servers and $300,000 worth of software.

The program has also succeeded in spurring "behavioral changes" outside the software sales force, spreading knowledge of software further, she added.

Sun has 550 to 600 software salespeople, about a tenth of the number of its overall sales force, Gordon said.

Coming together
Much of the software Sun sells stems from the iPlanet project, a sales and development partnership between AOL Time Warner's Netscape server software division and Sun Microsystems. Until a year ago, iPlanet was a division kept almost completely separate from the rest of Sun. In the last year, though, it's been renamed the Sun Open Network Environment (Sun ONE) and had its independence eliminated.

That subordination accelerated when Jonathan Schwartz took over Sun's software group in July. "I don't want my staff to grow an independent business that has no value to Sun. We're not a hardware company, we're not a software company, we're a systems company," Schwartz told CNET in an August interview.

Sun ONE and Sun's Java software are sold as part of an integrated collection of hardware and software, including Sun's servers and its Solaris operating system. A key part of this technology merge is adapting higher-level software so it becomes just another feature of the operating system, Gordon said.

Under Schwartz, Sun is "integrating all our technology into the operating system" so that choosing which software to use is "a delete function versus an installation function," Gordon said. "Over time, our business model is to deliver all our software technology and have you pay us for what you're going to use."

The change to a more unified software strategy began 18 months ago at Sun's annual Executive Advisory Council meeting, at which 12 or 15 top customers tell top executives what they think the company should do, Gordon said.

One sales incentive Sun lacks is one for driving the Linux operating system into the marketplace. Linux competes with Sun's Solaris on lower-end computers, and while competitors such as IBM and Hewlett-Packard began their support for the collaboratively developed Unix clone in 1999, Sun only bowed to the market reality and embraced Linux in 2002.

But while Sun takes the lead with some new technologies--such as convincing customers to move to its N1 technology for pooling computing equipment into a single vast resource--it's not taking that approach with Linux.

"I don't see the need for Sun to push Linux in the market," Gordon said. "We're not going to overly emphasize it."

Sun advocates building and using an "integratable" collection of software and hardware: components that comply to industry standards so that customers may swap out a Sun component and use another product with no difficulty.

Sun's integrated hardware-software strategy contrasts with that of its two biggest competitors, IBM and Microsoft. IBM--the computing company with the most sprawling suite of software and hardware offerings--tends toward independence between its various groups. Microsoft dovetails its software together, but doesn't mention Sun's philosophy of an "integratable" technology.

Sun needs to do better with its "integratable" idea, Gartner's Smith said. "That's a great message," Smith said, but he added: "I don't think they've explained it well."

Now, Sun's integrated technology approach has led to a different sales approach from executives from Chief Executive Scott McNealy on down, Gordon said. "Software is the strategic discussion that we lead the majority of our sales calls with."