CRN Interview: Scott McNealy

Sun Microsystems Chairman and CEO Scott McNealy shares his views on the merger between Hewlett-Packard and Compaq Computer merger, channel relationships, Linux, Web services and the evolving hardware arena in an interview with Senior Editor Elizabeth Montalbano at Sun's headquarters in Santa Clara, Calif.

CRN: What impact will the planned HP-Compaq merger have on Sun's business?

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'All of our go-to-market strategies are all about how we work with channel partners . . . . we'll use our reseller and systems integrator partners as the Army, Navy, Air Force and Marines. And all we're going to do is be Chief Of Staff.'

MCNEALY: Actually, the way I describe it is if you look at the combined HP-Compaq, both companies are getting out of the enterprise server-creation business and design and manufacturing business. Compaq is getting out of it; they're becoming a reseller for Wintel. HP is getting out of it; they're becoming a reseller for Wintel. You put the two companies together, and they do [digital cameras, printers, PC reselling and systems integration.

The company that most mirrors that today is Canon. They look like a head-to-head, toe-to-toe, perfect reflective image of Canon. Now when was the last time you thought Canon was a competitor to Sun Microsystems? We're actually pretty good partners with Canon. And I would argue that, longer term, there is probably more potential for collaboration with Hewlett-Packard--we sell them iPlanet software and work with them on Java--as they decide that they're not doing Alpha, PA or Unix. That's probably what happens longer term. It'll probably be post-me, when they get over being mad at me. So it's really kind of a nonevent from our perspective.

CRN: As part of their merger strategy, HP and Compaq aim to become more services-oriented. How can Sun take advantage of that and work better with solution providers?

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MCNEALY: If they want to be a platform-independent, technology-unbiased systems integrator--like an EDS or a PricewaterhouseCoopers [PWC, we'll work with them. If they want to be like IBM Global Services and be inbred and have a family tree that doesn't fork, and be totally technology-biased and tainted, then we won't work with them.

CRN: Have systems integrators been courting Sun as a partner in light of the impending HP-Compaq merger and competition from IBM Global Services?

MCNEALY: All of them. Every one of them. The small and medium-size integrators, the big global integrators, and the vertical and geographic-based integrators are all coming to us. And we're saying, 'We're not going to be in the integration business. We're not going to compete with you.' I grew up in the car business. You built cars, and you sold cars. You're a car manufacturer, or you're a car dealer. You pick one and stay out of the other's business. I understood the difference, and we treasure our relationships with Accenture, PWC, Cap Gemini, CDC in Japan and all the local VARs. It never occurred to us to [try to buy PWC or merge with Compaq. It never occurred to us. We call it mankind vs. IBM Global Services.

CRN: How much does Sun plan to invest in the channel in 2002 vs. 2001? Will there be a significant increase?

MCNEALY: Well, all of our go-to-market strategies are all about how we work with channel partners. We reorganized to a client-engagement model, where we can go in and work with even our end-user customers and bring all the different parts of Sun and all of our different partners together in a coordinated way that's noncompetitive. So even our direct-sales model is becoming more channel-friendly in the sense that we want to bring in the services capability of our channel partners.

There's no thinking at all inside this company that we want to be the general contractor. We're going to do that in a near-zero head-count manner. We'll take the fiscal and financial responsibilities, but we'll use our reseller and systems integrator partners as the Army, Navy, Air Force and Marines. And all we're going to do is be the chief of staff. We'll be the one presenting to the shareholders a good return on these particular customer engagements. So to [ask are we going to be putting more into [our channel--we're going to put everything into it. It's not like we have any other model.

CRN: You said Sun's direct-sales model is getting more channel-friendly. How so?

MCNEALY: That's what I call the customer-engagement model--we call it CEM. Instead of a sales rep, we're trying to get an engagement model with all the different parts of Sun and all of our partners together in a coordinated model. It may sound like just a name change, but when you go in and tell a sales rep, 'You're in charge of sales to this customer. Here's the price list. Go sell,' it's very different than when you go in and say, 'You're the customer-engagement manager, and you have to get all the partners and all of the parts of the company to work together in a coordinated, one-throat-to-choke kind of model.' It's a very different goal process. Plus, we still sell tons of OEM business, tons through the VARs, resellers and systems integrators.

CRN: Recently, Sun ended its relationship with a number of its solution providers partners, some of which went bankrupt.

MCNEALY: We tend to drop the relationships with bankrupt [partners.

CRN: Does Sun plan to add solution provider partners because of this?

MCNEALY: You'll have to go talk to the [Sun channel gang. We leave those decisions to the people on the ground. We're trying to get people who are value-added partners. We're not looking for box brokers, as everybody knows. That's a 1980s kind of a thing. We're looking for people who have passion, understand the vision and the model, and are willing and able to invest in the model.

There's a whole crew out there who are a bunch of white-box resellers. That's not the game we're trying to play. We're trying to solve big, complex, interesting and sophisticated networking problems, and that requires some nontrivial expertise. A lot of the software companies tend to have a lot of the consulting you need. The channel partners that we're dealing with are often systems integrators, consultants and custom software developers who also have packaged, prefab Enterprise JavaBeans or J2EE-compliant business logic they can bring to the party, too. So the whole thing tends to blur. There aren't all these simple little shrink-wrapped software companies, white-box companies, systems integrators and VARs. That's kind of how it was in the '80s. It's a lot more blurry [today.

CRN: Sun changed its tune on Linux this year . . .

MCNEALY: How did we change our tune? By the time we made that tune shift, we had shipped over 100,000 Cobalt Linux boxes. And I believe we're the market leader.

CRN: I remember at a conference last year that you said Linux and Sun's Solaris were the same thing.

MCNEALY: They are. One's a Unix [operating system and the other's a Unix [OS. I still say that. Who says Linux is not a Unix? But they are different implementations. We now have two implementations of Unix. Actually, we have more than that. We have Solaris 2.6, 2.7, Solaris 8, Solaris 9, and we have Linux. We have multiple implementations--we have Linux for x86. So we have lots of different Unix implementations. But they're all Unix, they all run Sun ONE, and they'll all be managed by N1 as we develop that product over time.

One kernel is a Unix kernel that I call the sport utility vehicle. It's got air bags, reliability, availability, serviceability, clustering, remote monitoring, 64-bit, scalability--the total package. It can haul. It's the top of the line. And then we have the scooter version, which is fast, low-cost--they're both low-cost--and has very little to get in the way of your Java applet and hardware. There is zero royalty to us on both. We have full access to the source code on both, and neither of them are Microsoft. We tell people to write to neither Solaris nor Linux. That's a kernel. You don't write to the kernel; you write to the Sun ONE architecture. So we're trying to extract the OS and the microprocessor farther away from the software developer and end user.

CRN: Can you talk about Sun's Linux investment and whether that will help the company go after the Intel-based server market?

MCNEALY: There isn't an Intel market. There's only the customer market. [McNealy then points to his mobile phone. See that cell phone? It's a Motorola phone. I don't know what [processor is in there. There are 100 microprocessors in your car. You don't go after the car microprocessor market and then buy a car. You go out and buy a car. People are buying services, and they don't care whether it's on Intel. We have PowerPC chips in our big, freakin' WebTone switch. Do you know where they are? They're in the controller for our disk drive. Who cares? It's like a DRAM. Nobody cares about the processor architecture. Nobody cares about the kernel architecture. People care about the services delivered, and that's where our focus is.

We've got IBM disk drives, Seagate disk drives, Fujitsu disk drives, Hitachi disk drives--all kinds of disk drives. We've got DRAM from Taiwan, Korea and Japan. We've got kernels that are open-source, we have owned IP kernels, we have different microprocessor architectures, all up and down and inside. We've got digital signal processors, CPUs, disk controllers, network controllers, all of these different pieces. None of them matter because you don't write to any one of them. You write to the Web protocol, the network interface protocols, the Sun ONE architecture. That's what you write to, and that's what you access.

CRN: But customers also care about pricing, and aren't Linux servers on the lower end of the price spectrum for Sun?

MCNEALY: Give me a 64-bit, 16-way Linux machine. How much does that cost? You can't buy one. But you don't want a Linux machine. What do you want to run? Tell me what you want to run, and I'll give you a system that will give you that service. You want to run mail for 50 people? We're probably not the right company to come to. You want to run mail for 500, 50,000 or 50 million people, come see us. We've got a system that can help you--and it may or may not have Intel chips, AMD chips, SPARC chips or PowerPC chips. I don't know, and I don't care. I'll just configure a system with all of our equipment, software, service and support. We'll bring you service partners to help you bring in the applications and the integration you'll need, and away you'll go.

CRN: I heard a rumor that Solaris is on its way out and Sun is going to do all Linux. Is that true?

MCNEALY: Where'd you hear that? Tell me who told you. No. That hardly even deserves an answer, it's so stupid. Unix is our strategy: open interfaces and open protocols. And we have multiple pipelines for SPARC. We even have some non-SPARC pipelines. We always have [had them. We use PowerPC in the controller because it makes more sense there. In the one- to two-way space, X86 may be a better pipeline at any moment in time. The beauty of the Sun ONE architecture is we can use whatever pipeline, kernel or I/O architecture we want because we hide the world from it. I mean, you don't really know when you step on the gas whether it's a V-6 or a V-8. Some cost more because they go better.

CRN: Can you discuss Java's momentum in the marketplace and how it relates to Microsoft's .Net platform for Web services?

MCNEALY: There are only two [Web services architectures: .Net and Sun ONE. Each has millions of developers. They say we have several million; Microsoft has 3 to 5 million. I don't know what their number is. Microsoft had, pretty much, 3 million to 5 million developers seven years ago, and we had 100,000 developers. Now we have several million. We're growing faster and gaining share.

So it really is kind of a horse race between us and '.Not.' We like the momentum. Again, that's mankind against Microsoft. Did you get a chance to go to JavaOne? It's amazing. What's interesting is, a lot of the suits are gone because we've done all the business deals. All the appliance companies are signed up, all of the cell phone [providers, all of the car makers. There are no more business dealings. Now it's into execution mode again--kind of like the early days. It was the propeller heads, then the suits came in over the three or four years, and then we didn't negotiate many deals. All of these folks are already signed up. Now they're moving on to generations two, three, four and five of their Java architectures.

It was a very technical conference again this year, which I liked. Of course, I missed last year, so I saw a pretty interesting change from two years ago when we were still signing lots of deals, trying to get Sony to sign up and all the rest of it. Now there's nobody that wants to meet with me. They want to meet with James Gosling [Java inventor and a Sun vice president and fellow, Rich Green [vice president and general manager of Java and XML platform software at Sun and Rob Gingell [a Sun vice president and fellow. They're booked. I go there, go to a couple of press things and leave. That's the way this conference should be. The IQ level there is scary.

CRN: How fast are we going to see an industrywide transition to the Web services model?

MCNEALY: Aren't you there yet? I have a Java card I'm wearing that I use to access the front door [at Sun's headquarters with and that I access my Sun Ray [desktop terminal with. I have a Java phone that I carry with me that downloads Java applets. I have a Java browser that I do 100 percent of my work from. I have remote access from any laptop. Anywhere there's a Java browser, I get complete access to everything that I have inside of the company. I'm there. Where are you?

CRN: You're also the CEO of Sun Microsystems.

MCNEALY: Where's your CIO? Who's your CIO? Have them come visit us. We can do this for you.

CRN: Well, it seems like many companies are still focused on integrating legacy applications with middleware.

MCNEALY: We've done all of that. We did that. We integrated. I've got access to every legacy application we need inside of our company. There are tons of companies that are doing that, tons of companies that are way farther along than CRN is. The question is not when will we see it--it's when will you see it? And that's not a question for me to answer. I can help you. But your company, your CEO, is the one you should be asking that question of, because it's not like we need to invent anything. It's already been done.

CRN: So do you believe Java and .Net will co-exist peacefully as Web services platforms?

MCNEALY: If .Net survives, yes. The world will find a way to bridge. Either the courts will force Microsoft to open up its APIs, or Microsoft won't be smart enough to keep us all out.

CRN: So does that mean Sun will allow open-source implementations of Java specifications without licenses? Will Sun give up some control of Java?

MCNEALY: I didn't know we gave up control. I thought what we did was expand the community, and we gave up no compatibility there. There was no mention that we're going to allow [others to destroy the customer's or developer's desire to have write once, run anywhere. We didn't change the security model. We didn't change the software deployment or provisioning model, or anything like that. All we did was allow more folks to work in a tighter community. And it isn't a control issue. Driving on the right-hand side of the road at all times is not a control issue. That's a survival issue. You can't have a civil society without some level of conformity.

CRN: But some people using Java technology think it should belong to the community.

MCNEALY: The Java specs are published by Sun through the JCP [Java Community Process, and they still are. That was true before the Apache announcement [to work with Sun, and it's true after the announcement.

CRN: But the licensing belongs to whom?

MCNEALY: Sun, for our implementations and the brand. You can't put the Java brand on Windows. We will sue you, and we will win. We already did that.

CRN: But a technology company can't say its products are Java-compatible without a license, right?

MCNEALY: You can't use the Java brand unless you submit to the terms and conditions around compatibility testing and all the rest of it. Yeah, that's true. And that will always be true. We think that's a better model.

People will tell you that 'write once, run anywhere' works better on the Java platform than any other multihardware platform--even Linux. Take a Linux app. Are you guaranteed that that Linux app binary will run on every other Linux machine? No. And will it run on every other Linux machine with a non-Intel piece of hardware? Absolutely not. I can take a Java applet and put it on any microprocessor, or any operating system, and have a pretty high probability that it will work. You can't even take any Windows app and put it on a Windows machine and be guaranteed that it will work.

CRN: In which Sun segments do you expect to see the fastest growth over the next several years?

MCNEALY: We only have one line item on the price list. It's the big WebTone switch. So we expect that product line to continue to grow. Literally, that's how I look at it,one big, single business unit here.

CRN: Who do you view as Sun's No. 1 competitor right now?

MCNEALY: The CFO. I'm serious. We're in a capital equipment slowdown that's pretty impressive right now. There are a lot of people buying very low-end, small servers right now just because they can buy them on an expense report. And when it comes time to do server consolidation, outsourcing and all the rest of it,[i.e. when there's capital to go do that,you're going to see that our product line is positioned much more for big service providers, for server consolidations, for lower total cost of ownership, for larger-scale implementations, for higher reliability, and for higher security.

Right now, people are taking huge risks on security, availability and manageability because they're buying one- to two-way little, tiny servers to get a little bit of incremental computing power. And when the economy comes back, they're all of a sudden going to bump up into security problems, administration problems and scalability problems and, lo and behold, we'll have even better machines out for that. Our SunTone certified service providers will be able to step in and say, 'Don't buy any more. I've already got them installed.' So the market is still coming in our direction. It's just two steps forward, one step back kind of [progress.

CRN: Who do you think Sun's biggest competitor will be then?

MCNEALY: I don't think longer term that there's any question who the survivors are: General and Motors, which is Intel and Microsoft; IBM Global Services; and Sun. Those are the three major players.