The VARBusiness Interview: Sun President And COO Jonathan Schwartz

VARBusiness

The setting for our interview with Schwartz was MOCA's annual Net@work Partner Forum. MOCA is one of Sun largest distributors. There, Sun showcased several new benefits for partners, including the new Sun Learning Platform (SLP) tool set, the Intellectual Capital Access (ICAccess) portal and the iForce Enterprise Consolidation Program.

Rich Severa, president of Arrow Electronic's MOCA Division, noted how well his Sun business has performed of late. He told the several hundred Sun VARs in attendance that his company recently enjoyed its best single quarter in the past four years. In fact, he mentioned that the recently completed quarter came within less than $10 million of his company's best-ever quarter thanks to strong sales of Sun hardware and software. He believes the resurgence of server sales among enterprise customers is one of the most underreported stories in all of IT today. To wit, Sun says it grew its partner revenue by 7 percent over the previous year in fiscal 2004, generating more than half its revenue through indirect sales.

Few things, of course, could please Schwartz more. His company is again turning heads and rebuilding credibility after several disastrous quarters that have included steep losses and layoffs. But now changes there have led to improved performance. The radical pricing plans for the company's Java Enterprise System software stack, which offers the software for $100 per employee for infinite usage, has actually helped lead to an increase in software sales at Sun. Next up: the much anticipated delivery of Solaris 10, Sun's new flagship OS upgrade.

In the interview that follows, Schwartz reveals where Sun is upending its rivals with radical, new thinking that is proving to be disruptive to the traditional way of doing business. At the event, for example, he openly compared his plans with that of wireless giant Verizon, which sell phones at below cost to secure lucrative service contracts. Sun, Schwartz say, will follow that business plan and others to upend IBM and HP. Below he shares additional plans with VARBusiness senior executive editor T.C. Doyle.

VB: Negative hardware margins ... how much stomach upset are you trying to give the guys on Wall Street?
Schwartz: We're going to do whatever we can to open the broadest market possible. And I think that only happens not when you take price down on a product, because you can be a Target discount store, but when you deliver value to the customer, and, by the way, to partners. So if we can say, "Subscribe to the operating system and the hardware is free," and a partner can build value on that, that's what will upset the market place, not because we say, "Look, we're going to sell hardware at a loss."

VB: Pick up the thought about innovation in technology and business models. We have a special issue coming in the December timeframe, and it's all about what's innovative today. Disruptive business models, disruptive ideas, etc.
Schwartz: I think we qualify. Lord knows we haven't been quiet.

VB: Would you guys have been as radical in your innovative approach had things not gone the way that they did? Do you think that liberated you in some sense to try new and bold things?
Schwartz: [Sun CEO] Scott [McNealy] named his first child Maverick. I mean, I know that's a bit pap ... It's in the DNA; it's totally authentic. Every once in a while, we have to just return to our roots. And, yes, I think when you're growing 60 percent quarter over quarter, you're not doing a lot of introspection. But I think there's an awful lot more of that occurring. We open-sourced Star Office,how long ago? Four years ago?

VB: So how do you not run the risk of being so innovative that you don't listen to customers, something you have conceded that has hurt you in the past? How do you rein in your ideas and put them into a simple, easy-to-take tablet form?
Schwartz: I don't think we have ever, and to our credit, and maybe this is a little bit self-aggrandizing, our innovation, especially when we have gotten to the especially disruptive moves, has always been the most effective means for engaging the customer base possible. It has never been, "Let's go astray here." I could argue that it's the business as usual -- the failure to innovate -- that takes you off course. It is seldom if ever the innovation itself because the feedback from the market is so rapid. I mean, we have had 40 million downloads of Open Office, and Microsoft just included a reference to that in its SEC filings. Did that affect Wall Street? Not in the least. Wall Street doesn't care about a cheaper office productivity suite. But in the developing and emerging world, it's the dominant office suite now. Look at NFS: When we open-sourced NFS and, in effect, gave it away for free, it in essence became a little piece of esoteric technology. Is TCP/IP and NFS popular? What else is there? What are you going to do, bring back token ring? I think we have been remarkably focused in the disruption. The Java Enterprise System business model -- 100 bucks per employee, infinite right to use -- has been remarkably pro customer. I think it makes it difficult for part vendors to figure it out.

VB: At the time of announcement, there were some concerns that it would have some manifestly tricky implications for your revenue model. Did that happen?
Schwartz: No. We've grown. Our software business grew after we did the Java Enterprise System rollout. The other thing that I think is an interesting twist on the IT industry is this: I was with the head of a large telecommunications company recently, talking about how we are getting to the smallest number of deliverable parts -- literally a single DVD -- and we are working to increase our ability to create a pricing model for a customer. So I said the first toe in the waters is $100 per user with infinite rights to use. And he looked at me and smiled. And I said, "What are you smiling about?" And he said, "Do you know how many calling plans we have?" I said, "No, how many?" He said, "Two thousand, and it is a competitive advantage."
So as far as I am concerned, our objectives are to really do three things: No. 1, make sure we have the best technology in the world, bar none. It is the means of growing in a commodity market. No. 2, simplify the delivery of those both so that our customers can manage their costs as well as Sun can manage its cost to keep things as simple as possible. No. 3, innovate like there is no tomorrow on business models, delivering models, partnering models, value propositions, etc., 'cause that's where we can get the diversity. And I think looking at the partnership we have with MOCA and the relationship we have with the channel, I don't think we have been effective yet in delivering the value of that innovation to the partner community. And I know we can; we just need to put our heads together and figure out how we create such an extraordinary incentive that the first thing a partner thinks of is, "My God, I want to build my business with Sun," 'cause that's were you make all the money. You don't make all the money trying to partner with Dell; you're nuts. Partnering with HP? That's a waste of time. Come back to Sun; they'll share the wealth, they'll share the technology, they'll share the leads, etc.

VB: So roll it all up: You do have momentum, loyalty, if not fidelity with partners ... What's your No. 1 issue keeping you from enjoying greater success?
Schwartz: I think our No. 1 problem, the No. 1 issue, is perception. It's just plain and simple -- getting the message out. IBM has been very effective appending the word "beleaguered" to the name "Sun Microsystems." It appears of late, however, that HP has inherited that mantle. They are now the "beleaguered" Hewlett-Packard. But it still comes up. Going back to your core constituency: Why am I spending the time I am here at [the MOCA Net@Work Partner Forum]? Why are we spending time on Wall Street? Well, because as far as I am concerned, those are the two, core constituencies. Get the meanest, baddest, most demanding customers in the world, and get the people who, like us, send their kids to school based on the success of Sun. If all I did was go talk to Wall Street and a partner community, I would be done; I would feel like my job was being effectively managed.