Why Isn’t Sun Microsystems Growing Revenues?
If you’ve ever watched an interview with Sun’s CEO Jonathan Schwartz, or read his blog, you’ll realise he has the phenotype of a great CEO. If you’ve bought any Sun servers in recent years, you’ll also know Sun makes some great hardware. If you’ve had a problem during the buying process, you’ll know that Sun’s management really cares that Sun customers have a great experience. If you’ve ever used Sun software, you’ll know they make great software. Sun really is a great company, with a great offering.
However, yesterday, Sun surprised investors by posting a quarterly loss. To address this, Sun announced job cuts. Yes, this will help with profitability. However, the really big questions surround Sun’s revenues, which aren’t growing. That’s pretty surprising, given the strength of the company’s offering compared to the competition. So, why isn’t the company growing its revenues (they seem to be staying pretty flat at between $3.2B and $3.8B per quarter)? I can’t claim that I’m 100% sure why, but I can think of a few things that might be both contributing factors and also easily and quickly addressed…
Sun Isn’t Maximising The Potential Of Its x64 Hardware - People don’t know you can buy x64 hardware from Sun, and they don’t know the servers are certified for Windows 2003 Server
I know a few CIOs, COOs and CEOs of companies that buy reasonable amounts of x64 server hardware. They tend to buy HP or Dell. Recently, when chatting to one of these people about a new data center they were building, I asked if they’d looked at Sun’s x64 servers. Their reply? “Oh, I didn’t know Sun made x64 hardware… and anyway, we want Windows 2003 Server for these, not Solaris.”
You can’t buy an x86 box from Sun with Windows 2003 Server pre-installed
Whether people like it or not, Windows 2003 Server has a pretty big market share; I think around 60% of servers ship with Windows. If you want to buy a server from Sun, you can have it with Solaris pre-installed, or a couple of flavours of Linux pre-installed… but if you want Windows 2003 Server, you have to get the license yourself, and install the OS yourself. The web-site tells you, “This OS is customer-supplied”.
Now, Sun signed a deal with Microsoft in September 2007 to become a Windows OEM. They were supposed to start selling servers with Windows pre-installed within 90 days from then. I have no idea what happened; and haven’t seen any communuications from Sun on this matter since that announcement.
Sun Is A Systems Company, Not a Box Company - But That’s Not How Its On-Line Store Works
Sun is not a “box company” - they spend billions on R&D each year. They’re a “systems company”. They offer servers that are genuinely innovative and well-designed. They also have one of the most impressive (or it will be, when it’s all finished!) software stacks in the technology industry: data center management; server-side hardware virtualisation; operating system; relational database; application server; cross-platform desktop application layer; cross-platform developer tools; and desktop OS virtualisation. However, when you visit the on-line Sun store, it looks like Sun is a box seller not a systems seller: the workflow of the purchase is all about individual parts, not about buying systems.
For example, let’s say I want to buy the following system: an x64 server running Windows 2003 Server, with some disk-based storage, and some tape backup storage, along with the relevant software to make it all work, pre-installed. That would mean, when the hardware arrives, all I have to do is plug everything in, boot it up, and I’m ready to start configuring the system. Well, I can’t do that with the on-line Sun store. I have to work out which bits are compatible and have the right features myself; and then go buy my OS from somewhere else… and then, when I come to set it all up, run the risk that I’ve bought the wrong bits and so not everything will work. I want to buy the system from Sun in such a way that I know everything will work together (for low-end systems, it should be necessary to go through a value-added reseller).
The above was just a simple example. Why can’t I go to the Sun store, and do something like the following workflow, which would take advantage of Sun’s unique offerings:
- Specify the kind of server I want, and the amount of storage - e.g. two quad-core CPUs, 8GB RAM, with 1TB SATA storage on-board. The web-site would then recommend potential servers to look at.
- Specify that I want virtualisation software pre-installed, and OSes installed on top of that… so I’d like both Windows 2003 Server and Solaris 10 to be preinstalled on top of a pre-installed virtualisation layer.
- Specify that I: don’t want to pay for support of the virtualisation softare (i.e. I’ll have that for free); don’t want to pay for support of Windows 2003 Server; but that I would like to take out support for Solaris.
- Specifiy MySQL and Glassfish app server on Solaris, and just MySQL on Windows 2003 Server
- Specifty that I want support on Glassfish, but no support on MySQL
Now, I don’t know how many potential customers want to buy their systems this way, so I have no idea if this kind of thing would affect revenue growth. However, I do know that Dell, for example, puts a lot more effort into its on-line store than Sun does. At the very least, putting some “systems features” into the Sun store would differentiate Sun’s on-line offering from those of the box sellers. Also, I find it hard to believe that at least making it easier for customers to buy systems running Windows wouldn’t be good for business.
Mr X wrote:
Good points - your right on the money with the perception that Sun doesn’t equal something you would run Windows on and that it’s simply too hard to spec stuff up and buy.
Sun traditionally did everything through VAR’s and them seem to be unwilling to undermine them and do much direct. For example we have support on Sun, from Sun, but we have some valued added reseller holding for us - causes no end of problems and adds no value . That’s not to say VAR’s don’t ever add value, but sometimes you know exactly what you want.
Then need to make a decision on this - it is too hard to buy Sun kit. Either provide software that the VAR’s can use/skin or put up a proper direct channel. Apple had a similar dilemma a few years ago, and while their offerings are different, they took the right decision in massively upping their direct presence - not only can they then control the quality of the buying experience, in Apples case, the presence on the high street massively improves brand awareness.
Another weakness in their X86 range is they don’t have all the nice features yet for lights out etc that SPARC do, and more importantly key applications - for example Oracle really lag on them ( if you choose solaris ). ie Oracle 11g is nowhere in sight for Solaris X64
Also in the lower end space people are looking not just for systems, they are looking for solutions - again that’s not really Sun - they expect the customer to be technically saavy - quite frankly a lot of IT departments aren’t, never mind companies too small to have IT people.
Posted 02 May 2008 at 1:30 pm ¶
Mr Y wrote:
Your blog addresses how Sun could sell more servers, but the company itself seems focused on open source software. While they were heading for the yesterday’s shipwreck, Jonathan and the boys were spending their time buying MySQL, a typical headline grabbing move, but hard to see where the money is in open source. The management is not focusing on selling servers, so it is no surprise that they aren’t making any money.
Posted 03 May 2008 at 5:29 am ¶
Asam Bashir wrote:
After ten years of trying, when a company is still not going anywhere, fast, then it’s time to rethink strategy and maybe get in a new team. As I’ve said before, Apple should just buy Sun, dump Solaris, and get Sun staff to develop for Mac OS X Server. Best bits of Solaris can be added to Mac OS X, Java can be dumped, and instead they should offer a WebKit/Cocoa based API for programmers to develop cross-platform applications and licence the technology to both the mobile and desktop markets….
Posted 03 May 2008 at 12:41 pm ¶
Asam Bashir wrote:
Well, ok, Sun would be a liability for Apple anyway, Apple has a solid plan and doesn’t need them, but probably could use the former Sun employees…
Now that Yahoo is free, how about a Yahoo and Sun merger? Two companies, badly managed with confused strategies, but together, might just be enough to take on Google. JavaFX could be Yahoo’s answer to Android, Yahoo servers and possible future cloud applications hosted on Sun hardware and software. A CEO with enough vision could make it happen, and a serious threat to Google is a good thing for the market in the long-term. No conflicts here with Apple, obviously Microsoft comes out worse…
Posted 04 May 2008 at 5:26 am ¶
simon wrote:
@Mr X. Yes. One advantage of more investment in direct selling could be to sidestep some of problems Sun has with its salesforce, and its VARs.
@Mr Y. Sun’s Open Source strategy is a good one. From where they are now, they can add a massive amount to their market cap by delivering on this. MySQL was a great buy for Sun. I know a lot of people find the Open Source stuff hard to understand, but that doesn’t make it the wrong way to go.
@Asam. I’m not quite sure what the purpose would be of buying Sun, and then throwing aways its most valuable assets such as Solaris and Java
Posted 04 May 2008 at 10:29 am ¶
Asam Bashir wrote:
Sorry, @3 was a joke, but suggestion to merge with Yahoo was an interesting idea, where they could keep development of Java and Solaris going, but by working with Yahoo on it’s consumer related activity, it might be a way of giving Sun some experience of end-technology and GUI. Sun needs some focus, and maybe a Yahoo branded JavaFX phone OS, and some kind of Java desktop layer, could be developed that is good for both Yahoo and Sun. The same reasons for Microsoft wanting to buy Yahoo could be applied to Sun, and Yahoo can start taking on Google Apps etc…..
Posted 04 May 2008 at 3:43 pm ¶
simon wrote:
Anything could be possible after Monday, if Yahoo!’s share price goes through the floor. As it is, Sun isn’t big enough to acquire Yahoo!, even if they wanted to, because their market cap is too low. However, there’s the market is overvaluing Yahoo! at the moment, and undervaluing Sun. In 2006, Sun’s revenue was $13.8B compared to Yahoo!’s $6.9B; and Sun’s profit was $473M, compared to Yahoo!’s $660m. Fundamentally Sun looks like it could be in better shape than Yahoo!: if they can just grow their top line a little bit, that should drive rapidly increasing profits and share price.
Next week is going to be interesting from the Java perspective. JavaOne starts on Tuesday. There’ll be a number of updates on “consumer Java”, including on JavaFX Mobile.
Posted 04 May 2008 at 4:56 pm ¶
JulesLt wrote:
Ah, but the market also takes into account the potential for future growth, and with Sun that is looking shaky.
They aren’t really a services company in the way IBM are - they should be the world’s biggest Java consultancy, for instance, but aren’t.
They aren’t a box company, either. Do the advantages of Sun’s x86 servers really outweigh a commodity box from Dell??
Directions : Move from hardware VAR towards the appliance computing market. At least two of our customers use appliances (servers running a single app) that are basically Dell servers running Linux rebadged by the reseller.
It’s difficult to convince an end company to pay more for a Solaris system, particularly if they lack expertise to manage it, but an appliance you just drop into the network is easy to understand. Think Cisco, think ‘hardware’ firewalls.
They should be making it easy to assemble an enterprise architecture out of a few purchased bits of kit.
With auto-discovery technology like Bonjour why can I not simply assemble my architecture by using a GUI to link a Tomcat based Java app with the database server at one end and load-balancers at the other?
But that, I think, has long been there problem - fantastic engineering, appreciated by a technical audience.
Posted 06 May 2008 at 12:08 pm ¶