When I became COO I took out to dinner two of my senior members of the microelectronics team. I told them, Look, Im a software guy, not a hardware guy. I need you to teach me your business. To this they responded, Dont worry about it, Jonathan. Its OK. Its all software.There were definitely people inside the company who questioned our approach. There is no foot-dragging on open source now, but still lots of questions.As he stressed, the open-source battle is not between Red Hat and Sun. They are allies. Red Hat and Sun both want open source to succeed, and both want this phenomenon that started at the edge of the network to define the entire computing landscape.We distributed nine million licenses of Solaris in the last two years. I guarantee we wouldnt have been able to make nine million sales calls. Seventy percent of these licenses are on Dell, HP, and IBM. This gives us a great platform to build a partnership with these hardware companies, and it also gives us a great pool of users, some percentage of which will want to pay us.
Most dont care about the license they care about the money theyre not spending. But those students and free users of today are the corporate buyers of tomorrow.The result has been ntastic. We build the bric of the Internet, and increasingly speak the language of the Internet. One customer recently told me that they loQA Jonathan Schwartz on Suns open-source business strategy? Runescape Money codesve Sun because we understand the Internet. We understand community, standards, etc. Thats different from what we were hearing four years ago.Why? How do we monetize these? When that technology is run in a Fortune 100 company in a mission-critical app, the CIO will hunt me down to pay me money. The cost of downtime for them is huge compared to the cost.Why? Think about this: In a year where Sun arguably moved more aggressively to give away more free software than any other company, we grew our software business by 13 percent. It was the stest-growing business at Sun . We pumped out more software last year than we have in the history of the company. We gave it away. And yet our software business grew by 13 percent.There are a lot of different ways that I could spend my time. Its a great feeling to be able to do right for the world and for my shareholders at the same time.
Were in the second wave of the Internet. The companies that will win will be those that define this next phase. Open source will define it.Jonathan Schwartz is a man on a mission. While at Linuxworld today, I took an hour to visit with Jonathan Schwartz, CEO of Sun Microsystems. After spending an hour prodding Jonathan with questions about Suns history and future with open source, I was left with one clear impression,There are four fundamental questions/topics in open source,Revenue is a lagging indicator of developer adoption. If you have a lot of revenue today, good news! You did something right three years ago.The single most important question that you have to ask in the software industry is Do you understand your industrys demographics?
When Scott and I decided four or five years ago that this was a direction we were going to head, that was it. It was no longer a democracy. Leading a company is about leading and difficult decisions.Were a technology inventor. We build the technologies that we think are valuable and differentiating. We dont defy categorization because we think its fun to do so, but rather because these are the markets we think we can succeed in. How would you classify Apple?Exactly. You dont. You like yourMac, and the experience is more than just hardware or software. Its both.One of our biggest strategic challenges is that we have roughly 4,000 quota-bearing salespeople. To me, it feels like my biggest competitors have 4 trillion sales reps. Im not going to beat them by hiring more sales reps. Im going to beat them by leveraging the single-biggest sales channel the world has ever known: the Internet.I dont expect many college students, developers, or start-ups to spend a lot of money on intellectual property. I expect someone whose job is on the line if a system ils to spend considerably more than nothing. The key is figuring out the difference between ones market and ones community. They are not the same.But not from the developer. No self-respecting developer pays for software. The average start-up or corporate developer doesnt want to buy any software. Nor do they have to, because there are great open-source projects that do the same things that proprietary products do.
I dont think Marten Mickos et al. need much advice. Theyre doing a bulous job. The people who need the advice are the traditional proprietary software companies. They dont recognize the tidal wave that is encroaching on their shores. When you can go with Postgres and save $3 million to $4 million in building the next-generation consumer Internet service, theres clearly massive disruption in play. That disruption vors open source.In a wide-ranging interview with the Sun CEO, we dig into the companys open-source strategy and its belief that freedom today is revenue tomorrow.With the Java platform Id guess we reach 20 to 30 percent of the Internet every day.Each of these constituents may think about Java in different ways, but in each case Java sells my brand. If you believe that brand is central to the next wave of Internet monetization–and I believe it is absolutely central then the more people that know my brand, the more benefit inures to me.Sun seems to have a longer-range vision of its open source contributions than others, which seem highly near-term tactical in nature. What do you hope to gain from contributions to communities like OpenOffice?Align your sales forces compensation to fit your model. When Sun made the shift to open source, our sales force was the group within Sun the most opposed to the change. We therefore changed our sales compensation model to compensate them on bookings, not revenue. But we also offered to compensate them on revenue. So, if they wanted to close a revenue contract instead of a booking contract, they got to choose between the bigger of the two numbers.
It took a day for them to make the shift. Open source gives them a body of users of trial software that they never would have been able to reach before. Now they are the biggest promoters of open source at Sun.But the marching orders were clear: we had to change if we wanted to move forward. And so we have.This is a serious question for us. Despite being a $14 billion company with $2 billion in research and development, every dollar is precious. We dont want to waste any money that could otherwise drive value for Sun.The question to ask is, What portion of the world knows my brand?Were not a hardware company. Were a systems company. Folks have a hard time with this because they want us to be something that were not.So, back to the earlier question, slightly revised: what advice would you give to the CEOs of proprietary software companies?Whos asking? The answer you give to an 8-year-old is different from the one youd give to a CIO. This last topic provides the answer to the open-source revenue question.If youre a London developer that happens to work for a bank, maybe you have your laptop set up with Ubuntu. Its perfect for you, and its free as in beer. But if youre the CIO at that same company, youre going to demand a support contract for Ubuntu running on your mission-critical servers, because you dont want the risk of systems going down without backup.Theres no way we could match this kind of global growth by sending out compact disks or sales reps–free software allowed interested developers/customers to identify themselves to us–rather than the other way around.
And allows us to build vibrant relationships and communities across the globe–based on a free basic update service for individuals or small businesses, and higher value offerings for larger businesses. We are meeting new customers because Solaris no longer requires our hardware.Whats the business model? I dont know. But if you dont have adoption, it wont matter what business model you use. Companies that sell open source are prioritizing community and adoption over instant monetization.We will win.Fascinating, scinating stuff. Sun is a contender again, and largely because of the vision and tenacity of Jonathan Schwartz.You made the shift to open source, but surely there was a lot of consternation internally over the shift. I cant imagine that the decision went down smoothly.Early on at Sun I ran our developer tools business. Theres no clearer place than that to see that if you dont drive adoption you wont get revenue.Understand the demographics of your market. You need adoption in order to get sales. You dont need to monetize every user of your software.