Innovation Loves a Crisis

I thought I’d share a note I sent earlier in the week to Sun’s leaders – about the turmoil we’re seeing in the markets, and how I want our team focusing their efforts.


Begin forwarded message:
From: Jonathan Schwartz
Date: September 30, 2008 12:02:29 AM PDT
To: All Sun
Subject: Headlines, Financial Crisis, etc.

You can’t have missed today’s headlines – the American Congress failed to pass a critical bill authorizing the Treasury to put a floor under the US banking sector. The market swooned, and politicians in the US, and across the world, are bickering over the right long term answer – jump in and take action to save the troubled institutions, or step aside and let the market sort it out. Several more banks/insurers were shuttered or bailed out today – I’m confident we haven’t seen the last of these collapses and rescues.

And I know there are questions about “how does this affect Sun?” Well, I believe almost all our core customers will be affected – not just the banks, but the telcos, hospitals, media companies, construction firms, airlines, governments, startups, you name it. Every customer that depends upon credit as a means of financing their business – whether it’s a university or a Fortune 100 transportation company – is going to be under severe stress.

It’s also going to create a huge opportunity – if we’re on offense. Not on defense, not worried about the impact on Sun, but driving the outcomes for Sun’s customers and shareholders.

And here are a few important things to remember.

1. Our customers look to technology as a means of driving value and productivity.

You’re not going to hear from any of our customers, “let’s stop buying technology and hire more people to do the work.” They’re going to default to the opposite – automating work, and finding answers and opportunities with technology, not headcount. And in that process lies an opportunity for Sun – to engage with customers in driving down cost, driving up utilization, and driving the changes that yield immediate and long term benefit. The right question for every customer you meet is – “how can I help?” I assure you, they’ll have ideas for us. And we have no shortage of ideas for them. Personally, I’m reaching out to customers and partners just to check in and offer help – I’d recommend you do the same.

2. That said, we are aggressively expanding our customer base.

Our concentration in financial services and telecommunications is exactly why we’re working so hard to expand our customer base. We’re dramatically underpenetrated in the global market – and that represents a great opportunity. I need every executive to think seriously, esp. in the market-facing portions of the organization, about growing our current relationships and growing new customers. The ‘and’ is important – growth matters in both contexts.

And why do I think we have permission to grow new customers?

3. Because innovation loves a crisis.

Remember the bursting of the internet bubble? The initial wave of open source adoption followed that collapse some six or seven years ago. That same zeal for breakthrough, game changing economics is back with a vengeance – and this time, Sun’s positioned as the single biggest potential beneficiary. Want proof? As companies move to lower the cost of proprietary database vendors, their number one choice is: MySQL. The number one choice to lower spending on proprietary storage: ZFS with OpenStorage. How will the proprietary alternatives fare against xVM? Glassfish? Lustre? OpenSolaris? Same, from where I sit. There’s opportunity everywhere I look.

We can, and should, be on offense across the board. From our newest Batoka and M-Series SPARC systems, to our newest Constellation Intel and AMD blades, from our network identity offerings (talk about automating labor-intensive processes!) to leveraging our amazing SunRay thin clients, or our PS and Support Services capabilities – we have the most powerful offers we’ve had in years. Imagine if our portfolio had been this strong when the dot com bubble burst – we’d have swept the floor, and been in a dramatically different spot.

Which is all to say, there will be no end of opinions surrounding what the US, or the EU, or the Asian governments should be doing to bolster economic performance. I’m not that interested in the public debate – I am infinitely more interested in the private debate – going on inside every one of our customers surrounding “which OS will we pick?” “What’s my open source strategy?” “How can I radically reduce spending on proprietary storage?” “How can I save on power and space?” Which vendor understands my problems?” “Which vendors are asking if they can help – which are truly my partners?”

In times of crisis, we have a big opportunity to stand apart from our peers, to be better connected to the market, even if it’s in turmoil. Yes, our customers are going to be under stress, but that’s simply another way of saying “open to change.” And I want Sun to be the company engaging them in the transition – with our ideas and our roadmaps. The door is open.

And yes, we will see some customers disappear – we will also see many emerge even stronger. And the market, as it’s done for the past 30 years, will return to growth – led by the companies that took advantage of the downturn to become even more valuable, to grow even faster.

So I want to assure you, we are watching the market very carefully, to understand the impact on Sun, and the challenges in front of us – on a macro and micro level. But I and my leadership team know the drill, we’ve seen this before when the last bubble burst – *now is the time* to get in front of the opportunity, and firmly establish new ground. Now’s the time our customers will be most open to change.

Let’s be sure we’re there to help – and to take advantage of the opportunity.



Filed under General

31 responses to “Innovation Loves a Crisis

  1. As you once said "i was in the office every single day" when the .com bubble bursts. Good to know SUN is seeing and seeking innovation and challenger under these terms. It gives hope and a good paradigm for all.

  2. BuzzCut

    Why don’t you stop making stuff up about the economy, and take responsibility for trashing the stock. There is no "financial crisis," face it, it’s just an excuse for fatcats. The reverse stock split and ticker symbol change didn’t work, what else do you have up your sleeve? You’re a chicken, I bet you won’t even post this comment.

  3. What about Drizzle? Some of the best MySQL Developers and Community people at Sun have been spending a lot of time on it, and have moved or are moving to full-time Drizzle work.
    From where I’m watching, this leaves some gaping holes on the MySQL end?

  4. Raghu

    Sweden becomes the first nation to recover fully from the Great Depression(1932). It has followed a policy of Keynesian deficit spending.
    See how you can use this in your organization and also in your circle of influence(US corporate world).

  5. This is indeed very encouraging for all of us. I am thrilled to see such an opportunist view of this crisis, which has scared one and all. This is sure a lesson learned by me and these are the lessons they don’t teach in B-Schools. Great display of leadership…

  6. sun investor

    two points:
    "Our concentration in financial services and telecommunications is exactly why we’re working so hard to expand our customer base"
    should I read this a guidence for the next year. that you revenue is going to decrease as your concetration areas are getting hurt
    "let’s stop buying technology and hire more people to do the work"-
    What you said is true in general for the last 10 years and will remain true for the next 10 years. no one is questioning the value of technology. the issue is how bad are you going to be hit as a result of decrease in capital spending in the next year. you ar already 1t about 5-6 billion market cap. how bad can it be

  7. Guido

    Great Vision. As I’ve wrote some post ago.. there’s a big potential in the small medium market that is thoroughly uncovered. Maybe, it’s also the most crisis affected part of industry, where the IT costs reductions might be the difference. Sun has a complete product portfolio for enterprise and big companies well known by these (technological) companies, but not a good presence on small business. I think that in order to gain marker share in this segment, you should propose some "end user" killing product; so, Sun will have the necessary broader visibility to enter this market.

  8. Beautifully said, Jonathan.

  9. DHT

    Can you confirm that you are going to ensure that the staff who bust a gut for Sun over the last 12 months will see some financial reward?
    Or do you expect us to carry on working long hours for no gain?
    Will you post this?

  10. Red Pen

    This is so long. Remember the old E.B. White line to a friend: "Sorry this letter is so long, I didn’t have time to write a shorter one."

  11. Jonathan, I agree that Sun has an amazing opportunity here… but a word to the wise. You might want to check that your sales force is actually pushing the new Sun technology, as opposed to pushing super-expensive legacy technology. For sure, I know of current cases where Sun sales people are pushing expensive disk arrays rather than ZFS on cheap disk; and VMWare (which costs more than the server itself) rather than xVM; and… well you get the picture.
    I don’t know if it’s the sales folks’s bonuses that aren’t aligned to selling new (less expensive) Sun tech, or whether they simply don’t know about it; but if they aren’t sellin’ it, then people ain’t gonna be buyin’ it…

  12. @BuzzCat
    post your noise with your real name, then you could probably gain the right to call someone a chicken. You’re just annoying. Go get some signal to convey and try to be constructive for once. Like it or not JIS didn’t change only Sun (ongoing) he is about to change the whole game, but you won’t realize it being only focused on your little share of stocks, right ?
    @Others: sorry had to get rid of that.
    @JIS: go Jonathan go :), I trust in that you won’t cave

  13. Stock is a gamble, and as the old saying goes, "don’t gamble anything you’re not willing to lose." As for the comment asking if people working hard for Sun will see some benefit…unless I’m mistaken, Sun pays their employees a fair salary, and bonuses and raises are not unheard of. If your compensation isn’t what you want it to be, it’s not because the stock is falling.
    As for Arjen’s comment, I think he missed the fact that Sun has a Drizzle team, and that there has always been turnover at MySQL, both coming and going. I was just mentioning the other day that plenty of good MySQL DBA’s are changing jobs; people like Baron Schwartz and Patrick Galbraith, who did not leave MySQL. I don’t see MySQL as losing more people than general MySQL DBA’s….and the Drizzle team is part of Sun, so Sun’s not losing the engineers at all.
    And he can’t believe that there’s a lack in MySQL, or he’d be changing his consulting business.
    I think this e-mail is a great example of a POSITIVE message from upper management. So many times you see "we are doomed, nobody has any money, we will no longer be allowing departments to buy tissues, they are now personal items, so if you want tissues bring your own into work, they will no longer be provided for you." (how much could tissues cost anyway?) Anyway, point being I have seen negative and even threatening (if you don’t cut budgets people will be FIRED!) messages from high above.
    This is a positive message, encouraging people, but not full of fluff. And yet it’s still met with negativity (comments). I guess you can’t win.

  14. Rick

    "Resilience", for a lack of words, is what you described(IMHO) how (I hope) Sun will continue its work,…
    …and then it kinda hit me, Technolgy, in general(that not only Sun is in) is NOT a paper tiger, it’s NOT just a virtual existence, like STOCKS and/or Wall Street !
    In fact, it’s real and tangible, including the obvious -> water,food,clothing,shelter. There can be NO communication-breakdown, most especially digial-info-technolgy as well as the older analog type,in ALL their forms – both hardware and software right down to the "wire/wireless".
    -It means we continue, innovate, compete, replace, re-build anew if we have too, to make LIFE better for everyone, until that last breath.
    -now thats what I call a real company.
    as always, Good Luck -keep it up Sun.

  15. This captures the essence of survival. Very well written Jonathan. Indeed with its principals open source stands to gain in this time of economic turbulence.

  16. Jonathan:
    Buying HW from SUN is a pain at least in Spain:
    – It takes months to get the HW.
    – Sun sends those "small and medium (SME)" clients to partners that don’t look like a real company.(Only 5.5% of companies in Spain have more than 20 employees)
    – I see great opportunities in Spain for Intel workstations but Sun should focus on architects, consulting firms and those kind of companies that need high performance.
    – Dealers and SME buy from HP because don’t know about Sun. I have not seen a single add from Sun in dealers magazines, therefore dealers don’t know the brand.
    – Sun gives more than HP in the money/performance equation for Work Stations but is not ready to give the "right size" technical support, it ** over spends ** in technical support and doesn’t fix the issues.
    – It should be easy to work with Sun for dealers and SME, it isn’t now.
    I have mixed feelings about Sun. I love the brand, the equipment and the SW but I find it difficult to work with Sun employees that don’t have passion about Sun and act poorly, giving a bad buying and support experience.

  17. Kevin

    Please keep SG&A and R&D under control so that you continue to make a profit as well as maintain your great cash flow during these difficult times. Also, it helped last quarter when you provided a pre-release of key numbers – could you consider doing it again for this Q1FY09 please?
    I believe if you could somehow split your numbers into two between diminishing old Sparc (III, IV and IV+) revenues and the revenues for your newer technologies, then it would be much more apparent to the market that Sun is growing in many areas (T2, blades, storage), even if it’s not growing on the bottom line right now.
    It’s always hard to see how gross margins of 45% or so don’t deliver net margins on Sun’s bottom line, given your management with Mike. Are you sure you need to employ 35,000 people when a company like Apple has only 21,600? Sometimes it feels like Sun is clinging to delusions of former greatness rather than facing its reality in a tough IT market, but that’s juts my take. I also note the blog comments theme that Sun sales is not meeting smaller customer needs. Would a merger or partnership with Dell at least help with sales to the SMB sector?
    I wish Sun good fortune in these testing times. May all your wonderful open source seeds grow big and strong in time. Doing the Right Thing always pays back, but not immediately.

  18. Feedback

    When economy is bad then that gives great opportunity for well run companies to buy other small and good companies at a value price. Lessons from BERKSHIRE HATHAWAY, INC.

  19. W. Wayne Liauh

    Have you ever had a chance to ponder a "trivial" question as to why no one in the greater China area (China, Taiwan, HongKong) is using OpenSolaris? Please see:
    Sun’s developers are what still keep me committed to OpenSolaris, but you should force your management to do more than just trying to kiss you up.

  20. Mark Hughes

    When times are tough, people don’t spend money on support contracts, they make do with the free stuff and fix it themselves.
    You haven’t got a compelling case for anyone to buy Sun hardware, Solaris support, MySQL support, when they could use cheap generic hardware, Linux (mediocre but free, and readily available admins), MySQL or PostgreSQL and admin it themselves.

  21. Holograham

    @Mark Hughes, I think you are making one of Jonathan’s primary points… in tough times, the uptick of adoption of MySQL and OpenSolaris (and Glassfish and ZFS) will be breathtaking.
    Financially, I doubt that’ll good for anyone (except maybe their cheap whitebox business). But strategically, it sure seems as if Sun will be better off with a broad increase in adoption – surely better off than Oracle, or the competition.
    And at least in larger companies, self-support isn’t really an option (it violates most IT governance policies).

  22. Puff the Magic Dragon

    Kevin (Oct 5th),
    are YOU sure you understand what the 35k employees at Sun do – before calling for RIFs?
    You number about Apple is quite wrong, too, as good ole Steve Jobs employes well over 28k people.
    You finally lost me at your synergy attempt between Dell and Sun; who have totally different sales models.

  23. Mark Hughes

    Most of the 5-100-person companies I’ve worked with have just done their own support, especially post-dot-com. Some larger non-tech companies buy support, but many in tech just take care of themselves. Nobody *needs* company support for Linux or MySQL, it’s just easier.
    When companies go from poor startup to rich stable company, they tend to go to Oracle, they don’t keep their cheap MySQL hackery alive with support, that’s throwing good money after bad. MAYBE, somewhere in there, is a Sun hardware or support sale, but few and far between.
    If Sun plans to ever dig out of their hole, they need to figure out a way to make money. SHOCKING conclusion, I know. There’s still been no articulation from Schwartz about how that’s going to happen, other than "1. Get market share for free software. 2. Uh… 3. PROFIT!"

  24. Very encouraging article. There is light at the end of the tunel for the whole industry (and the economy in general)

  25. Bil W.

    Your financial reward is called a "JOB" and a "SALARY"!!

  26. Larry Chen

    Please check if there are tools available to back-up a MySQL database?

  27. Kevin

    @Puff, the 35k people at Sun delivered a business operating margin of 3% in FY08. Of course, if Sun were a charity, then I’d be extolling their virtuous activities instead of writing percentages. The 22k (28k?) people at Apple delivered an operating margin of 18% during the same period. So I ask you which is more important – what people "do" or what results they achieve?
    Regarding Dell, why not ask Javier Ruiz whether he finds it easier to buy what he *needs* from Dell or Sun in Spain? Maybe by "different" you mean "better"?
    Don’t get me wrong – I completely believe in Jonathan’s leadership and Sun’s direction, and my money is where my mouth is. I just like to ask the hard questions to keep you thinking.

  28. Barry Bunnell

    In addressing students at NYU’s Stern School of Business, Todd Harrison of Minyanville said in referring to the current credit crisis, "In order to get through this, we’re going to have to go through this." As an investor approaching retirement I took comfort, somehow, in that remark. He went on to talk about the tremendous opportunities that this period is going to present. I am equally comforted to see that Jonathan shares this outlook. I think the best minds are thinking this way. I have just finished restructuring my investment portfolio to include mid term US treasury notes. The only stocks that have remained in the portfolio are my Sun shares. We are going to go through this together. I am sticking with Sun.

  29. Puff

    fair enough….
    BTW, the 28k number for Apple is from their latest court filings. They indeed gave 22k on their SEC filings, but that was 2007.

  30. Amit

    Hi jonathan,
    Well said. There is no second doubt that Sun has great innovation history and capability. I have been a Ex Sun employee and i sincerely wants Sun to rise again and brighther than ever. I have just a single suggestion – Sun should do much much more effort for adoption ( For e.g supporting more hardwares, Applications, interoperabilities, and so on , BTW i have Sony Vaio and had very very hard time to make opensolaris work for Wireless/Wireline interfaces, Touch Pad and few more … ). Wish you Success in your effort to bring Sun Shine again.

  31. Feedback

    Hi Jonathan,
    As you mentioned the coming economic distress is a great
    opportunity for Sun to monetize in many ways. I sincerely feel the same. Every company wants to cut costs and improve efficiency. Sun is in such a great position with the great product portfolio right now than ever before. Clearly, its a matter of vision (where do you want to take this company) and coming up with good business models. You have been presented with another opportunity to save Innovation (=Sun) and set the direction for extreme growth.
    Sun needs to get to #1 position in these areas. No #2 just #1.
    Developer Platform
    1. Solaris (Need more work in x86, tools, drivers, easy of use)
    2. Java
    3. Netbeans (Need more attention to performance(startup, library scanning, module initialization & stability)
    Enterprise Platform
    1. Solaris (No doubt in my mind this is a great OS for enterprises)
    2. Glassfish (I hope to see this product will be #1 soon, moving in right direction)
    3. MySQL (More, more, more & more opportunities for Sun here)
    4. Netbeans (Should get into Enterprise World)
    5. Java
    Systems & Storage
    1. Energy efficient and innovative systems
    2. (Need more work. End-End matters and storage plays a role)
    3. Storage innovation
    4. Data center innovation
    I think, Sun is in such a unique position than anyone on earth. With these great opportunities, Sun can reboot the world.
    I am confident on Sun’s growth. Its completely in your hands to make this company again a Gem in the industry.
    End-to-end and complete solutions are important. Sun has all – software, systems & storage.
    Good Luck!
    A Shareholder

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