Still changing the subject
Apr 6th 2006
From The Economist print edition

Sun’s chairman and chief executive thinks slogans are a substitute for strategy

SCOTT McNEALY, the boss of Sun Microsystems, a struggling maker of enterprise computers, was on stage again the other day. The occasion was entitled “The Economics of Sharing: A Participation Age panel discussion”, and was meant to be a display of “thought leadership”. Sun had invited a professor, a consultant, a venture capitalist, a pioneer of micro-lending in poor countries, as well as your correspondent, who moderated the debate. The first question went to Mr McNealy, who argued that Sun, which “could have become the next Microsoft” at various points in its 24-year life, had instead always chosen to remain true to its belief in sharing, which all forward-looking companies should now adopt. The other speakers then proceeded to agree that, yes, participation is good and sharing is good—in lots of industries and lots of places.

“Participation” is certainly all the rage—consider the role of blogging and podcasting in the media industry, for example, or the effect of open-source software on the technology industry. But it is not clear that Sun has anything special to contribute. The Sun-sponsored panel on the “Participation Age” and associated slogans looks “like another attempt to change the subject,” mused one of the panellists afterwards.

The subject that needs changing, from Mr McNealy’s point of view, is this: during the dotcom boom of the late 1990s, Sun was the preferred maker of the powerful server and network computers that “new-economy” companies bought in bulk with the money that venture capitalists were throwing at them. Mr McNealy thus became an emblem of the internet boom. He captured the Zeitgeist with two great slogans, proclaiming that “the network is the computer” and boasting that Sun (as the supplier of the machines that ran the internet) was “the dot in dotcom”.

Then the boom turned to bust, and suddenly hardly anybody wanted to buy computers—least of all those made by Sun. That was because Sun had been stubbornly ignoring an industry trend toward low-cost, standardised hardware and software that customers could buy piecemeal and patch together. Sun’s rivals—such as Hewlett-Packard, IBM, Dell, Intel and Microsoft—had embraced this trend and happily made whatever pieces they were good at. But Mr McNealy, who was one of four co-founders of the company in 1982 and became chief executive at the age of 29, insisted on a complete, proprietary Sun “solution” based around Sun’s own processor chips (called Sparc) and operating-system software (called Solaris). It was an all-or-nothing proposition for customers. Many customers chose nothing.

Partly as a result, Sun’s revenues have been declining steadily. In 2001 Sun pulled in $18 billion in sales; that fell to $11 billion last year. The company has been making losses for the past four years, and is expected to lose money again this year and next. Sun, not Microsoft, has become the clear loser from the rise of Linux, the open-source operating system, which many customers are using to replace their old Sun systems.

For a long time Mr McNealy was in denial. Anybody who asked would be treated to his analogy with cars (Mr McNealy comes from a car family in Detroit, and named his sons after car models). When buying a car, do you buy the carburettor, the tyres, the exhaust and all the other bits separately, then cobble them together? Of course not, the critic would concede; one buys a whole car. So Mr McNealy won his arguments—but lost his customers, who had come to the conclusion that computers were in fact nothing like cars.

Gradually, Mr McNealy came around to the new way of doing things. Always a good sport, he mounted a stage in 2002, dressed as a penguin (the mascot of Linux) to announce that he would offer Linux on Sun servers. He struck a deal with AMD, a chipmaker that is the main rival to Intel, so that Sun could supply computers built around AMD’s chips in addition to its own Sparc chips. Mr McNealy bought a company—which had been started by Andy Bechtolsheim, another of Sun’s four founders—that made computers based on industry standards, the antithesis of Sun’s approach. He bought a large data-storage company, too.

So little time, so many stages
To his chagrin, none of these moves won over his critics. So, more stages were mounted. Mr McNealy hugged and swapped hockey jerseys with Steve Ballmer, the boss of Microsoft, a firm he had always loved to hate. He got up on a stage with Eric Schmidt, who used to work for Sun, but is now chief executive of Google, a much sexier technology company that fascinates the press—but it turned out that the two men had nothing in particular to announce.

Mr McNealy then made two gestures that he considers shockingly bold. Last year he made Sun’s operating system, Solaris, open-source, so that—as with Linux—anybody can in theory use it free (though in practice, customers usually pay service fees for maintenance). Earlier this year Sun went one better and also made the design of its Sparc chip open-source—a rare example of open-source extending to hardware. Surely these two actions proved that Mr McNealy not only preaches the “economics of sharing” but practises it, too?

Unfortunately, none of this visionary stuff seems to be helping Sun. All the changes Mr McNealy has made since 2002 have been attempts to convince customers that buying gadgets from Sun was no longer an all-or-nothing proposition. But too many customers have become used to listening to and doing business with Dell, HP and IBM instead. Rob Enderle, who runs an eponymous technology consultancy, says that Sun is “like a soccer team that suddenly shows up in the Super Bowl against an [American] football team.” Mr McNealy’s slogans are usually right. The network really is becoming the computer. An age of participation may indeed be dawning. The trouble is that Sun, the company, may not be there to witness it.