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Commentary: Sun to replace dot-com revenue

The company, adversely impacted by the decimation of dot-com customers and Web-centric enterprise projects, looks to its traditional customers for new revenue.

    Sun Microsystems, adversely impacted by the decimation of the dot-com customers and Web-centric enterprise projects that fueled its fast growth in recent years, is looking to its traditional customers for new revenue.

    Both the Sun/AOL iPlanet instant messaging (IM) development project reported today as well as the announcement of the Sun-EDS "Continuum of Services" marketing partnership reflect Sun's efforts to increase its revenue from more traditional enterprise customers.

    The coordination of EDS and Sun sales efforts is the latest indication of how the center of gravity in the IT marketplace has shifted away from dot-com organizations and toward traditional corporate customers--the stronghold of large outsourcers like EDS, IBM Global Services and CSC.

    As the high fliers of the dot-com boom struggle through the rubble of bankruptcies, layoffs and downsized expectations, vendors like Sun, which profited from the spending of Web start-ups, are looking "out of the box" to find ways to encourage more traditional corporations to buy their products. However, the slowdown in the economy (primarily in the United States) will also mean that corporate buyers will be more cautious.

    In addition, Global 2000 customers will likely have more complex and customized requirements that require a more solutions/services-oriented selling approach as opposed to simply pushing through the sales of server boxes. While EDS can help Sun in this respect, the sales cycle may lengthen due to the need for external coordination and additional customization.

    In the past Sun has not been particularly effective at partnering with other vendors--but in the current environment getting a large systems integrator like EDS to improve its support of Sun's products makes sense. Additionally, EDS has a strong track record of legacy systems integration, which would facilitate the deployment of Sun's solutions within traditional enterprises.

    This deal also says a lot about the outlook for Web hosting, ASPs and managed service providers (MSPs). It suggests that both EDS and Sun see these market segments as worth investing in, and even if other vendors are failing, they see a viable future--all positions we believe to be true. It also validates our view that larger companies will eventually dominate these spaces, which are currently littered with fragmented start-ups.

    We expect more deals of this type involving large players, in different market segments, as all try to figure out how the merging of technology and services will manifest itself and what combination is needed to win. While large players getting involved helps validate the market and bring confidence to users, they will only get tangible value if their involvement results in real integration (technology, process, or other).

    In general, we view the EDS/Sun announcement as a potentially positive development for users, with the caveat that such partnerships require significant effort and effective high-level leadership to make them produce results. Working more closely with Sun may help EDS broaden its offerings, but only if the two companies make the necessary investments in training, hiring and coordinating project opportunities. Sun will be challenged to negotiate and familiarize itself with EDS's large and often confusing internal sales and business divisions. It will take a series of significant successes to prove that these two monolithic organizations can nimbly execute on the lead sharing, co-marketing and project coordination that they envision.

    See news story:
    Sun, AOL prep corporate instant messaging
    Users should expect every large systems integrator to support the major vendors in every technology area. If EDS and Sun can extend their working relationship successfully so that customers receive added value (more effective solutions, faster project delivery, more customized and robust service levels while maintaining predictability in spending), so much the better. However, we do not expect this non-exclusive collaboration to result in a major value differentiation for EDS or Sun outside of existing customers of both organizations.

    The iPlanet corporate instant messaging (IM) project is another indication of Sun (and AOL) searching for ways to tap new revenue streams from the corporate market. We view this project as a long shot, given the strength of current IBM (Lotus) and Microsoft IM products that are packaged with collaborative groupware environments, along with free ad hoc alternatives such as Yahoo's instant messaging.

    The business value of IM is not the chat or messaging capability, but presence management--being able to detect when someone is logged into the directory and hence available for communication. Key to IM success in business will be extension of IM to mobile devices that business people carry with them. This requires channel agreements with wireless service providers (or at least regulations preventing "blocking" of IM services through WAP phones). In the absence of significant change to AOL's mobile strategy (branded two-way pagers, Sprint PCS phones, some SMS-capable phones), any iPlanet corporate IM offering would have a difficult time making up ground on IBM and Microsoft.

    In upcoming months, users should expect many more arrangements across technology lines similar to EDS/Sun and Sun/AOL. On paper, these types of arrangements benefit existing customers of both organizations, at a minimum. However, driving real value requires any players involved in this type of relationship to put significant resources behind the deal, making value beyond a press release difficult to achieve.

    Users impacted directly by the EDS/Sun collaboration must pay close attention to contractual terms and conditions governing service levels (such as customer relationship ownership, escalation procedures when problems arise, points of contact, locking down fixed fees for a bundled set of support services from EDS). Organizations negotiating with Sun on new purchases should take a firm stance on prices. In the current environment, users should expect significant discounts from list price on purchases from Sun and other vendors striving to meet even their downscaled revenue goals.

    Meta Group analysts Val Sribar, Dale Kutnick, Tim Hickernell, Felix Yeung, David Cearley, William Zachmann, and Corey Ferengul contributed to this article. Visit Metagroup.com for more analysis of key IT and e-business issues.

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