Sun’s Network Innovations (3 of 4)

As I referenced in my prior entry, I’m reviewing Sun’s three major strategic imperatives, and our progress going in to next fiscal year. Our strategic imperatives, in order, are:

1. Technology Adoption
2. Commercial Innovation
3. Efficiently Connecting 1. and 2.

This entry focuses on the second, Commercial Innovation, and reviews our core revenue products, services and strategies.

By now, you understand Sun’s approach to growing the market – driving adoption of key technologies drives Sun’s addressable market. Once you’re using one of our fundamental technologies, Sun’s innovations focused on those technologies are relevant to you. The beauty of free distribution is you don’t have to pick customers, they pick you.

Three very valuable markets emerge from this adoption. I’ll focus on the first two here, the products and services we sell.

The first market is obvious. Software isn’t downloaded onto air.

Systems Innovations
There’s always some system platform underneath software – sure, it might be a laptop in a dorm room*, but it’s just as likely to be into a Fortune 500 company, attached to servers, storage and networking equipment. All told, this datacenter systems market is more than $150b annually.

And in this datacenter market we build exceptional systems – screaming fast entry level servers, all the way up to the most efficient mainframe class systems. We build super fast storage, from our new flash based platforms to eco-efficient tape and archive solutions. We also build the world’s fastest networking switches, powering the planet’s largest supercomputers. We cover the entire spectrum, and work with the smartest partners in the industry to serve customers across the globe. Although we focus on our own technologies, like Java, MySQL and Lustre, we also optimize for VMware, Microsoft’s Windows and we’re generally recognized to run Oracle better than anyone on the planet.

Now, you heard me call these our Systems products, not just hardware products. These systems are obviously more than just naked components, they’re engineered with remote management and monitoring, component redundancy, integrated virtualization, and on board storage and networking. That’s why our margins are higher than the industry’s***. I’m very proud of our Systems team, they are the most talented platform engineers on earth, and they earn consistently stellar reviews.

But where’s this first market headed? Here’s where it’s going to get interesting.

Datacenter Systems Convergence – Who Plays? Wins?
As I’ve said before, general purpose microprocessors and operating systems are now fast enough to eliminate the need for special purpose devices. That means you can build a router out of a server – notice you cannot build a server out of a router, try as hard as you like. The same applies to storage devices.

To demonstrate this point, we now build our entire line of storage systems from general purpose server parts, including Solaris and ZFS, our open source file system. This allows us to innovate in software, where others have to build custom silicon or add cost. We are planning a similar line of networking platforms, based around the silicon and software you can already find in our portfolio.

We believe both the storage and networking industry’s proprietary approach, and their gross profit streams, are now open to those us with general purpose platforms. That’s good news for customers, and for Sun.

At the heart of this convergence is Solaris – enabled by technologies such as ZFS (around which we’re building our entire storage line), and Crossbow (around which you’ll see us build some very compelling networking products). Technologists interested in ZFS and Crossbow can visit, or request an OpenSolaris CD (click the CD image).

I’ve provided a picture here to make the point – these three industries (servers, storage and networking), are converging, driven by the raw performance of the underlying server operating system and microprocessor.

That means these adjacent markets are all open to Sun and the Solaris community. Leveraging inexpensive, general purpose components is one big advantage for us, but there are others – using a general purpose OS allows us to easily embrace specialized components (from flash memory to GPU’s), or adapt to new storage or networking protocols entirely in software. The underlying OS and server are so fast, these extensions and enhancements are simple feature updates, and ones we can leverage across servers, and storage and networking.

This isn’t to say the networking or storage companies don’t have their own operating systems. They do, but in both instances, they’re proprietary, have tiny volumes, and despite paying lip service to open standards and the Linux community, their core operating software is unavailable to developers, it’s truly proprietary. Their niche OS’s also lack cross industry support, which is why our Solaris OEM agreements with IBM, Dell, Intel, Fujitsu and HP are so important to our end customers – they know they’ll never be locked in. Today’s storage and networking vendors remind me of the server vendors in the late 1990’s – with expensive software bolted to expensive hardware. Ultimately forced open by innovation.

At Sun, open source isn’t for servers. Open source is for datacenters.

Where’s the Money?
Let’s also look at the financial backdrop to this convergence. For these networking and storage vendors, entering the server market means suffering profit degradation – the server industry is vastly more competitive than the storage and networking marketplace.

On the other hand, as Sun grows into the storage and networking markets, we’re thrilled with higher profit margins. We’re unique among platform vendors in being able to deliver Servers, Storage, Networking and Virtualization on our own terms, very well integrated and at our own prices. How will we differentiate against our peers?

Simple. Integration, innovation, and as a result of building atop open source and commodity components, we are the low cost supplier. They, on the other hand, will be forced into all kinds of contorted partnerships and complex reselling arrangements. They may ship the boxes, but they won’t control the platform software – or profit streams.

How is our Systems business doing? The portions of this business sensitive to software adoption, primarily the low end of all these products, is doing quite well, growing double digits**. The weakness in our Systems business is really focused on the high end. This reflects really two things – the first is the deferrability of high end system purchases. Our high end business was up 20% a little over a year ago, it was down more than 20% in the December quarter of 2008 – across the industry, customers are holding off on big ticket purchases.

The second, and arguably more important headwind was a decision made back in the 1990’s to cancel Solaris on Intel, in the belief it would protect Sun’s SPARC hardware business. Conversely, that mistake destroyed a generation of Solaris developers, and accelerated the rise of alternatives to traditional SPARC hardware. And now you understand why we prioritize developers – they are the seeds from which great forests grow. If you don’t water the roots, the trees wither.

But how do you make money giving software away to developers? Well, let’s switch gears, and talk about Software and Services.

When Free is Too Expensive
One of my favorite customer stories relates to an American company that did nearly 30% of its yearly revenue on Christmas Day. They were a mobile phone company, whose handsets appeared under Christmas trees, opened en masse and provisioned on the internet within about a 48 hour period. When we won the bid to supply their datacenter, their CIO gave me the purchase order on the condition I gave him my home phone number. He said, “If I have any issues on Christmas, I want you on the phone making sure every resource available is solving the problem.” I happily provided it (and then made sure I had my direct staff’s home numbers). Christmas came and went, no problems at all.

A year later, he was issuing a purchase order to Sun for several of our software products. To have a little fun with him (and the Sun sales rep), I told him before he passed me the purchase order that the products were all open source, freely available for download.

He looked at me, then at his rep, and said “What? Then why am I paying you a million dollars?” I responded, “You can absolutely run it for free. You just can’t call me on Christmas day, you’ll be on your own.” He gave me the PO. At the scale he was running, the cost of downtime dwarfed the cost of the license and support.

Numerically, most developers and technology users have more time than money. Most readers of this blog are happy to run unsupported software, and we are very happy to supply it. For a far smaller population, the price of downtime radically exceeds the price of a license or support – for some, the cost of downtime is measured in millions per minute. If you’re tracking packages or fleets of aircraft, running an emergency response network or a trading floor, you almost always have more money than time. And that’s our business model, we offer utterly exceptional service, support and enterprise technologies to those that have more money than time. It’s a good business.

All in/all up, our Software business is among the fastest growing businesses at Sun. I’ve attached our latest financial summary at the end of this blog. We span network identity (built with the OpenDS community), application infrastructure (biult with Glassfish and OpenESB), data management (built with MySQL, ZFS and Lustre), embedded software (such as Java, and the emerging JavaFX), alongside our core operating system and virtualization software (Solaris, OpenSolaris and VirtualBox). These open source platforms generate, alongside the services attached to them, over a billion dollars a year, making Sun by far and away the world’s largest open source software company. (For those that continue to ask if we make money with Java, the answer is yes, it’s on a ramp to hit about $250m this year – one of our best businesses – and that’s just Java on consumer devices, excluding servers).

Every day, these products are being adopted globally, driving university curriculum, corporate trials and design wins, influencing skills, even supporting Presidential campaigns. We know not every download yields revenue or users, but they do yield awareness and trials – a small, but intensely valuable portion of which yields revenue and profit. Our sales reps see the purchase orders at the point of value, not at the point of download. The revenue’s recognized over the period of the Service contract – a business model the rest of the industry, at least for mass market products, will inevitably adopt. Fighting free and open software, like fighting free news or free search, is like fighting gravity – and btw, gravity gets a lot stronger during economic downturns.

And in a nutshell, that’s how we monetize adoption – with targeted, high value innovations.

We deliver the world’s most effective and efficient Systems portfolio, spanning x86 and SPARC servers, storage and networking. And the world’s most appealing Software and Services products, spanning embedded software to high performance file systems.

We call all these products network innovations. I know that defies industry categorization, but that’s what innovation’s all about, defying categorization.

I’ve only touched on two of the three opportunities opened by mass adoption. And with that as a teaser, I invite you to return for the final blog entry, talking about what might be the most valuable of them all – a market enabled by the innovations described above, and set to transform the entire marketplace. Embodying the phrase, The Network is the Computer.

See you then.


* and before you dismiss those users, some of the world’s biggest internet companies/datacenters were started on laptops in dorm rooms… a trend I expect to accelerate.

** Sun’s x86 systems business, for example, grew over 11% last quarter, when both HP and IBM’s comparable businesses shrank in double digits. For those wondering “how do you differentiate?”, just ask our customers.

*** Compared to other industry standard server vendors.


Filed under General

21 responses to “Sun’s Network Innovations (3 of 4)

  1. You’re spilling the beans on how to do business effectively in any environment.
    Provide value and then go deep with more significant applications of the tease.
    Too bad most businesses are so "smart" that they won’t quite get it and adopt similarly effective principles.

  2. Arjun Rathore

    I really like the direction Sun is heading towards under your direction. I think Sun is positioning itself for future and patience will be key. I do not think we can see immediate results but definitely the foundation for success has been laid. I have a suggestion in the area of Performance testing and automation. There is scarcity of good open source performance testing and automation tools. This might be worth exploring especially since commercial tools are so expensive and not worth it. Sun can have a head start here.

  3. This Servers, Storage and Networking strategy is very compelling. By delivering the hardware and software together people end up adopting Solaris without even knowing it. They don’t need to understand all the nerdy details, just see the value of the combined product. This is a very wise move, you are making Solaris more relevant by making it invisible.
    I will be following Crossbow much more closely from now on. It will be very interesting to watch you guys take on Cisco. This disruptive open source strategy is definitely the way to do it.
    You might want to also consider adding VoIP/PBX to the list of legacy enterprise systems that need to be opened up. There is a robust, well-designed open source PBX Server called SipX that is primarily backed by Nortel (due to their acquisition of the creators, Pingtel). Now that Nortel looks like they are going to get broken up it might be the perfect time for Sun to snatch up those assets.

  4. Well, it is a great vision. I question any company’s ability to pull it all off. But Sun seems best positioned. Storage is definitely cracking open in part due to the trends outlined here and in part due to the commoditization of storage caused by VMware.

  5. Alex Parnesi

    How does your partner Cisco feel about Crossbow? And how does Crossbow position you with your products to compete with whatever Cisco’s supposed to be announcing. Will they introduce their own operating system, or as you say, just announce reseller agreements with Microsoft and VMware? I’m confused, can someone explain.

  6. Rohit

    A great post indeed. Sun seems, poised for the future. I would like to know, about xVM Server, your Xen based bare metal hypervisor. I am a technical enthusiast looking forward to its release.

  7. I recently came across your blog and have been reading along. I thought I would leave my first comment. I don’t know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

  8. These posts are wonderful, a bright and hopeful thing in the time of despair. More than the software and the hardware this effort to instill hope and the fighting spirit against the odds makes Sun different than the others.
    Business will go but it is these little milestones of courage that turn the tides silently. Even if they don’t, they bring the essence back to many lives.
    Very effective presentations, even a lay person can understand the way open source works after watching these videos. Thanks for the effort.

  9. Great blog entry Jonathan, nice to see someone talking sense.
    Do I believe it? Hell yes! – signed my company up as a small Sun Partner years ago.
    Keep on innovating.

  10. bro

    those three vids are actually really well done – very thought provoking indeed.
    I also like the switch from geek-attire to the suit when the money-talk starts with the latest installation;)
    what I missed in today’s post is a fourth circle in the graphic about the converging markets: the office.
    the office is not just a domain that can be mapped into the cloud or datacenter. it is its own sphere where users and consumers interact with the network, with storage and with the datacenter.
    the latest opensolaris release has a great desktop, there is openoffice, there is mysql, there is id-manager, there is java and javafx. but where is the vision to integrate all that into one unique productline??
    sun has all the pieces at hand to build a desktop that is standards-based, free and offers superior features with respect to data-security and data-validity.
    put the multimedia-codecs in there that ppl want, get the usability right and make it pretty. judging by the glassfish interface sun even has some great gui designers nowadays. I’d like to that applied to the desktop-portfolio too.
    there are a whole lot of it-managers both in public and private institutions that are eagerly waiting for a viable alternative to microsoft, not least one where good support is available.
    ppl are sick of the lock-in with microsoft, their pricing politics and their upgrade-despotism. the current crisis offers the chance to break into that space.
    last not least: governments are the biggest it-spenders right now and will reshape the it-landscape like nobody else. open-source and open-standards are imperative for public institutions in liberal-democratic societies, even microsoft has understood that. look at the shared source license, at cardspace etc.
    sun already has everything in place, it just needs to be bundled up and marketed well. there could be a solaris-open-office desktop in every second public office around the world if you get it right.

  11. ozogla

    The innovation that I really want from Sun is a Java based OS with a desktop build on JavaFX. That will be the real game changer.

  12. Geek

    So far so good. All what you have been saying since 2006 is now well clarified by these videos and I can say that I understand where you are heading now.
    But, I am still a strong believer that SUN should have a mass market product vision too. I think there should be another circle in your graphics linking the Server to the user. And that one should have handheld hardware powered by JavaFx and Java laptops/workstations.
    I’d like to break free from Microsofty dominion and I am not the only one on this planet. Millions are waiting for a viable open-source alternative on the desktop. The Handheld market is an emerging market and it would be sad if SUN ignored it… You provide the software but I don’t think it’s enough.
    Looking forward to the next video.

  13. SN

    > Millions are waiting for a viable open-source alternative on the desktop
    Did you try Linux lately?

  14. bro

    > Millions are waiting for a viable open-source alternative on the desktop
    Did you try Linux lately?
    yes – happy ubuntu user. and osx user and opensolaris user.
    but try to get mid-range to enterprise grade support & training for desktop and office-productivity for linux. good luck.

  15. Opteron

    As Sun moves to networking and storage markets, Cisco moves to the Data Center market, competing against their networking partners, IBM and HP!
    This gives SUN an opportunity to also partner with HP and IBM in the networking market. Good game!

  16. Anonymous

    Found in IHT today – Cisco pushes into server computer market
    If Cisco is interested in entering the server business, it makes sense to partner with Sun, right?

  17. dilly

    Yes, what is Sun’s response to Cisco’s new server product?

  18. Sun is really making huge progress under the new management. The outlined networking-storage-server strategy making a lot of sense. I think Sun has turned the corner. The ongoing financial crisis will only delay it by 2 or 3 quarters., but not kill the Sun. There are a great amount of very loyal customers out there, including me.

  19. Mark

    " … general purpose microprocessors and operating systems are now fast enough to eliminate the need for special purpose devices. That means you can build a router out of a server … "
    Given Bill Yeager built router was based on a DEC PDP11 (a server), and the Len Bosack built his first Cisco router on one of Andy Bechtolsheim’s workstations, I hardly find the ability to build a router on a general-purpose compute platform to be revolutionary.

  20. I think this could be a good opportunity and Sun has always been at the forefront.

  21. Hi Jonathan,
    In 1998 I was involved in building Harrods Online as Chief Architect (employed by Harrods). We used a heavily Netscape based stack, using both Netscape Web Server and Netscape Application Server. And at the time Netscape had over 56% of the Enterprise Web Server market-share as well as being some of the best available technologies at hand.
    Both of these technologies were available under free to use licenses from Netscape, with payment for support on top. Well I have to tell you in three years running this stack in production we never once paid for support, not a bean, nada, not on Christmas day, not on any day. Why? Because these were such stable technologies performing in their core capabilities that we knew from direct experience that very little would go wrong and because we architected a fully redundant and highly-available architecture based around horizontal scaling, network load-balancing, and avoiding session persistence where possible.
    Looking back I would have liked to have paid Netscape something, even a token amount, because they were a great company, sadly missed, and perhaps if they’d been able to generate more revenues they’d still be with us. However this was a completely economic based business decision so we didn’t. Of course Sun eventually acquired these technologies through the iPlanet Alliance and we were able to integrate some of the innovation, robustness and domain knowledge into our own technologies.
    I really wish at the time MySQL had been available, because we wouldn’t have had to pay Oracle either (our biggest license cost outside of Vignette, which was a core component). And before you ask, no, Harrods Online never went down because of any of the Netscape components, if anything by far the biggest problem areas were Vignette (esoteric, overtly Vignette specialised skill set required) and Oracle (connectivity to Vignette, Netscape, the other technologies we used, a number of content version issues, and it’s applicability as a web-scale technology). I know that some of these issues in these technologies have been resolved, but in both cases this was true then.
    What’s cracking is that Sun has some of the best Architecture Services for Open Source deployments, especially large-scale implementations. Sun have a genuine sweet spot in the three areas needed to get these to work in the most cost efficient manner: Open Source Software (low barriers to entry, low barriers to exit, ease of availability, applicability to function), cost effective and highly price performant Hardware (Servers and Storage, both Open Source and Open Standards based), and the Professional and Managed Services needed to tie it all together and ensure operational effectiveness.
    Frankly, I suppose we were ahead of the pack in many ways at Harrods Online, because the architectural principles used there are precursors of the one’s you’d see in a modern web-tier architectures, such as Flickr or Delicious. I know that if I was building that now not only would we have a near on 100% Open Source stack, but I’d also be looking at how I could offload some of our costs (especially in terms of low level and non-functionally focused skills and technologies) by utilising a Cloud Computing based infrastructure and platform provider.
    All the best,

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