The rise and fall of Sun Microsystems

The competitive landscape was always changing and dynamic and with Microsoft always moving up the food chain and trying to crack the enterprise it was inevitable we would start encroaching on existing companies territories.  It was also likely that some of these companies might innovate.  One of the brightest and certainly most vocal competitors Microsoft faced was SUN Microsystems.  They were led by the ever vocal and brash Scott McNeely.

The history of SUN was interesting.  The name stood for Stanford University Network.  Originally the building complex they were in, housed two other companies Silicon Graphics (SGI) and a company called Cisco.  All three companies can lay claim as Silicon Valley legends. Scott was with a group of techies and when they chose roles he became President because he was a business guy and frankly did not know a whole lot about technology.  Check the archives of “60 Minutes”if you want to verify.  Coincidently he was a Detroit guy like Steve Ballmer.

I was always impressed with SUN as they made hardware, but beyond hardware, they designed the chip (SUN Sparc), the Operating System (SUN OS) and then manufactured the boxes.  This was in contrast to Microsoft which had a philosophy – you either made hardware or software, but you did not do both.  They also had some very smart people who qualify as Tech Legends.  Bill Joy was the CTO and a software guy at a hardware company.  At Berkley he had written a OS called BSD.  A forerunner to Linux and I believe something Linus Torvalds and company learned from, in particular what not to do.  James Gosling a key player in architecting Java and Eric Schmidt, who went on help some startup called Google.

For some of you reading this post who are not as technical you may ask what is Java?  To put it basically it’s a programming language.  So people who wrote applications for a living had the option to choose Java as the language they want to write in.  But why?  Well this is where it gets interesting. For this of you have followed my blog you, if you remember my blog on Novell I discussed their failed effort to unify Unix.  Novell had the right idea, just the wrong approach.  SUN had a different approach.  I probably heard this summarized best at a Microsoft technology event by Corporate VP Paul Flessner.  SUN was following what Microsoft was doing with Windows NT Server and realized  that with the marriage of File and Print services and application services Microsoft had a winning formula for developers.   At the time Unix devs chose whether they wanted to write apps for IBM AIX, SUN Solaris, HP UX, to name just a few.  So SUN came up with the Java Virtual Machine (JVM) and said write to the JVM and then it will support and take care of the underlying OS.  So whether you were running Windows, HP UX, AIX Solaris etc..if you wrote to the JVM your app would be supported (in theory).  As Paul said, it was the smart thing to do.  In the dev world the marriage of Java and the JVM is what we refer to as managed code.  You do not have to worry about the underlying OS as much since the JVM handles everything (in theory).

As SUN gained popularity and Java really went crazy in the enterprise another thing took place, the dotcom boom.  Two things really happened in the dotcom bubble for SUN.  The first being that a pivotal player in dotcom was the Telecommunications carriers.  Anyone who followed the stock market at this point realized that the stock valuations globally of Telco’s really went through the roof at this time.  To shed a little light on history here, AT&T Bell Labs created the UNIX operating Systems.  The OS that runs the phone system we are all on today is predominantly UNIX based.  As these carriers built out their networks – the developer problem they had was solved by what SUN was providing with Java.  They also wanted the lowest cost UNIX system, which at the time SUN was lower priced then what other vendors like HP or IBM had to offer.  The second thing that happened was this Telco evolution that was going on extended to all the Dotcom startups.  I spent a lot of time traveling to Silicon Valley in those days and all over the place were the SUN billboards, “Sun Microsystems the . in Dotcom”.  During this period SUN was blowing away it’s quarterly earning’s every quarter.

During this rise to glory it was the first time Microsoft was starting to hear that we were evil.  It was hard to take.  It was not new, but in the past these types of evil jabs were from people in the industry.  These new attacks seemed to resonate out to the general public.  It became common at Microsoft to walk into an office and see a picture of Scott McNeely on the wall being used as a dart board.  As I move forward on my blog I will come back to this area of perception, but these attacks really made a lot of Microsoft employees angry and they hurt.

Microsoft did respond and we came out with our own Java tool called J++ and started showing up at conferences.  I had an opportunity at a Microsoft class once to hear then VP , now President of the Server & Tools Division, Bob Muglia talk about this.  Bob was a short stout man with a high-pitched and squeaky voice.  Bob said that Microsoft went to a conference for Java developers and not only showed up with our own IDE (Integrated Development Environment), but it was the best one at the event.  SUN was quick to recognize what was going on.  If we built our own empire of Java Developers we could start defining and taking ownership of the JVM.  If we were leading the developers on how to write the JVM, well then Sun would be minimize..  Sun Microsystems did what all smart companies do, they filed a lawsuit.

During all this SUN had what they perceived as a big problem with Java.  Make no mistake Java was huge in the industry.  However SUN was not making any money on Java.  They refused to hand it over to the standards bodies (which in my view would have been the smart thing to do).  They also were more clueless about Open Source then Microsoft.  I think they missed the point on this one.  They did conferences for Java, but they really should have built a strong program around the developer community – once you have developers they can write applications to your platform (and others).   They could have created a strong developer brand around Java.  They would have owned the direction of the community. In the end  SUN was so afraid of seeding any control of Java, that they did nothing.    They were also a hardware company and they had a huge hit with software.  Hardware is great for revenue,  you can get really big numbers, because it is expensive to buy, but your margins are not that great.  On the other side software is cheaper and you really need economies of scale to drive big revenue numbers.  However software margins are huge, usually around 90% so Net Profits are great.  The one thing I will say having sold developer tools for a number of years is as developer technologies progress prices usually fall.  Making money on developer tools is not like Windows or Office, average growth is around 11.5%.  SUN really needed to build a home run software application that ran on the JVM that  they then could have market to the Enterprise masses, sadly that was just not in their DNA at the time.

As the dotcom boom died so did SUN Microsystems.  The problem SUN had was that so much revenue was being generated by the dotcom boom that when it went bust all of SUN’s eggs were in one basket.  It was surprising to see how much revenue was being generated for SUN by the telecommunications industry.    Having called on the French based telecom equipment maker Alcatel, I knew that these accounts were large (if memory serves me correctly Alcatel was a $40 million a year account for SUN).  A second thing that occurred  was the rise of Linux.  What was interesting was for all the Open Source Community talk of anything but Microsoft, Linux did not impact Windows, but it killed all the high-end high-priced UNIX OS’s.  I love penguins.  The biggest winner of all with Linux was IBM.  Another story for another blog. 

Sun Microsystems would exist for a long time afterwards, but it never regained the voice it had in the industry .  Most of the really brilliant people have left though a few remain.  They recently completed the process of being acquired by Oracle.  Too bad, they were an exciting company to follow, but in the world of the internet, empires rise and fall faster than ever seen before.  Moving forward it’s only going to get faster.

Good Night and Good Luck,

Hans Hoffmann May 18, 2010


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