In-Depth

Surprising Sun Sets Software Pace

Sun Microsystems Inc. is betting huge sums of money that it can quickly gain a strong software toehold in the development operations of large corporate IT organizations. The workstation manufacturer has followed up its spectacular success in spreading the Java gospel with a two-plus year buying spree aimed at fortifying its software business.

Founded in 1982 as a maker of Unix-based engineering work-stations, Sun hit a few financial bumps a decade ago but eventually managed a successful transition to the Unix-based server business. More recently, Sun took advantage of its Java development and ownership to become at least a perceived leader as a provider of Internet products, and analysts say its systems are used to build and run many corporate Web sites. In recent years, the company’s computer revenue has grown significantly at the expense of rivals like Hewlett-Packard Co. and IBM.

The company has clearly benefited from a Unix resurgence caused by its suitability as a Web server platform. Unix has also benefited from continued delays in the shipping of would-be rival Windows 2000 from Microsoft Corp. Late in January, Sun opened up its Solaris source and stopped charging license fees for systems with eight or fewer processors. It is packaging iPlanet as part of Solaris, and looking to make money on service and support programs.

Java: Darling of developers

The key to Sun's software expansion strategy is Java, the revolutionary tool unveiled in 1995 as a development language with the promise of "write once, run anywhere" capabilities. Java quickly became the darling of developers, giving Sun an opportunity to gain a much more meaningful place in the minds of corporate IT executives. Java has gained strong support from nearly every major player in the computer industry - except Microsoft, of course.

In addition to Java, Sun has spent approximately $750 million to improve its development tool offerings at both the high- and low-end by acquiring Forté Software Inc., Oakland, Calif., and Czech developer NetBeans Ceska republika a.s.

In December, Sun began shipping Java 2 Extended Edition (J2EE) to bring Java into the higher end server world. J2EE surprised some observers with its on-time delivery and others, including some strong partners, with its higher-than-expected price tag. Sun's recent decision not to cede control of Java specs to an independent standards group also threatens to diminish support.

To date, observers agree that Sun's efforts to buy its way into the application server and development tools businesses have been somewhat rocky. The application server strategy - now dubbed iPlanet - is becoming clear after a calamitous acquisition of NetDynamics less than two years ago. Sun has said it will now concentrate its efforts on new versions of Netscape Application Server (NAS) offerings built by the so-called Sun-Netscape Alliance created jointly by Sun and America Online. By mid-2000, Sun plans to place NAS under the iPlanet moniker.

Meanwhile, experts are expectant that Sun's recent development tool purchases will vastly improve on the previous weak Java Studio offerings. Observers do note that the company's failure to define a clear software development strategy for IT developers has so far been masked by its success with Java and in selling servers and services for implementing corporate Web operations. Sun insiders concede the software efforts have been slow, but maintain that the firm is now on the right track.

Observers say Sun has been under pressure - for some time - to come up with a solution that is broader than its traditional business of servers and operating systems. Many large IT organizations look to buy integrated systems from a single supplier rather than best-of-breed components that have to be integrated. "Sun is getting grief from the customer base to offer a solution," commented Ann Thomas, an an-alyst at Patricia Seybold Group, Boston.

"Potential customers are looking to customers like Sun to be more of a solutions provider," added Michael Gilpin, an analyst at Giga Information Group, a Cambridge, Mass.-based consultancy. "It's expensive [for corporate IT organizations] to do their own integration of software and hardware."

"Today, Sun is very much a hardware and Solaris organization," said Gina Centoni, director of Java platform product marketing at Sun. "As time goes on, we're not going to be satisfied with just selling Sun hardware. The goal is to take everything but Solaris to multiplatform environments."

Giga's Gilpin said recent Sun software acquisitions show that the company is attempting to become a solutions provider. However, he said, "their ability to deliver is still somewhat in question."

The need to more clearly elucidate its strategy to IT executives is not lost on top Sun executives. "We do need to show more details," conceded co-founder, Chairman and CEO Scott McNealy late last year. "The development strategy will be laid out over the next nine months."

'The big opportunity'

Sun's latest foray into the business of selling software development tools comes as part of its efforts to rule the World Wide Web. "The Web is now in charge," noted McNealy. "The big opportunity is connecting things to the Internet. There's a lot more things than there are people." McNealy said the new stable of Sun tools improve mightily on the company's previous efforts in the development tools arena.

McNealy outlined plans that call for Sun to somewhat copy the Microsoft model of flooding the market with free, low-end software. For example, in mid-1999, Sun began distributing StarOffice, an integrated desktop application suite for no charge. At the end of last year, a low-end toolset called Forté for Java Community Edition, based on the acquired NetBeans IDE, also became available at no charge. "Fundamentally, software is going to be free," McNealy said of Sun's long-term plans, though he would not disclose which packages are to be taken off the price list. Insiders say the rest of the Sun tool line, which will include a comprehensive version of NetBeans and the high-end Forté tools, will carry competitive price tags.

The latest development tools strategy must gain the support of key users if it is to succeed, said Christine Axton, an analyst at Ovum Ltd., a London-based consulting firm. "Sun doesn't yet have the understanding of the development community that it should," Axton said. "Taken together, the acquisition strategy has been quite odd. I can understand each move alone, but together they have fragmented the developer community. Developers don't want a story that will change tomorrow."

Observers do give Sun high marks for radically changing its development operation after the acquisition of Forté. "Sun has never demonstrated an ability to sell software," said Thomas at the Patricia Seybold Group. "But I do like some of the things they are doing. I like them bringing in Patricia Sueltz." Sueltz, the former head of IBM's Java operation, was hired last fall to replace the highly regarded Alan Baratz as head of Sun's software operation. Baratz left to join investment banker Warburg, Pincus & Co.

"This group is much more capable of selling software than most people at Sun [have been] in the past. They brought in Forté's management team to run tools. They know how to sell these technologies," added Thomas. "This is the first time there has been a group within Sun that knows how to sell software. There is evidence that this group could be successful. I don't think Ed [Zander, Sun president and COO] and Scott [McNealy] will ever understand that they need to sell software. They know that software is part of the solution. It is important to Sun to get people that understand that."

Sun was forced to change the management of its development unit last month following the sudden resignation of Forté co-founder and former Chief Executive Martin Sprinzen, who had earlier agreed to take the post of vice president and general manager of Sun's Internet Application and Performance Tools unit. Former Sprinzen lieutenant Jonathan McKay was immediately named to take over the group. Mc-Kay, who headed Forté's marketing operation before and after its acquisition, said he plans to continue the unit's current strategy for the foreseeable future. Analysts also expected few significant changes in the short term, though McKay is expected to better take advantage of Sun's sales and marketing teams.

And Sun's tool business is suddenly substantial, note observers. Analysts estimate that the company's tool business, including acquired and holdover development software but not application servers, generates $100 million to $150 million in revenue.

While Sun's development tool plan has not yet been completed, insiders say the strategy will include three lines of tools. The NetBeans IDE unveiled in December will be the low-end tool and will continue to be distributed without charge. A midrange product will incorporate the low-end tool and add-on modules such as an updated debugger, a repository and/or a screen painter that will compete with offerings from Inprise Corp. and the Symantec tools recently acquired by BEA Systems. The Forté SynerJ tools, which are expected to be renamed Forté for Java Enterprise Edition and the Forté 4GL, will make up the high end of the product family.

"These are the tools of the future for Sun," said Bill Roth, Java 2 Extended Edition product line manager. David Taber, senior vice president of business development in the Forté unit added, "In the big picture, you get a range of IDE packages instead of just one IDE. The one you get now is free - NetBeans lets you get started and build a ‘hello world' app." Sun will also recruit third-party software developers to build add-ons for the IDEs, Taber said. The Forté operation will also sell Sun's existing line of compilers, and some low-end Java technologies.

Until the Forté acquisition, Sun sold the internally developed Java Studio toolset that even insiders agree did not meet the standards required by corporate developers. "Java Studio admittedly is rickety," said Sun's Centoni. "That's why we bought Forté. Sun is looking to satisfy developers."

Sun plans to utilize multiple sales channels for the tool products. The plan calls for the Sun sales force to sell the tools for the Solaris platform, offering an integrated package of tools and systems. This group competes with rivals like Microsoft, IBM and, to a lesser extent, Hewlett-Packard.

Meanwhile, the standalone Forté sales force will sell each of the tools for multiple platforms, including Solaris, Linux and Microsoft Windows NT. The low-end tools will be distributed mostly via the World Wide Web. "We can sell for mixed development environments," said Sun's Taber, adding that "we will take our share of NT business." The Forté unit also retains responsibility for the EAI software brought out prior to its acquisition.

Taber added that Forté engineers are working with the team building the latest Netscape Application Server to integrate the Forté tools into the server. The Forté application server was cut from the product line after the acquisition by Sun.

Mixed reviews

Observers note that few computer makers have successfully garnered significant revenues from software sales. Giga Information Group's Gilpin noted that while IBM has been somewhat successful through the years selling databases, development tools and application servers, most other hardware makers have had little success. For example, Hewlett-Packard and the former Digital Equipment Corp. made several serious thrusts into the software business, yet mostly failed to gain customers for anything but operating systems.

Can Sun succeed where others have failed? "Sun is many people," Gilpin said. "Whereas I think there are members of the executive team that know they need to make it work, I don't think that idea has made it into every nook and cranny of the sales organization. They are mostly interested in selling hardware because of compensation plans. Possibly management should alter those plans to help software sales."

Sun ended 1999 with some significant Java moves, including the on-time shipment of Java 2 Extended Edition and a widely reported decision to halt efforts to hand responsibility for the Java standard to an international standards group. Both moves were met with mixed reviews from partners and analysts. Witness IBM's decision not to license the J2EE platform and to level strong criticism at Sun's decision to retain control of the Java specifications.

Despite those criticisms, the benefits of Java's capabilities remain attractive to many large IT organizations.

"Of all the technologies available to us, Java is by far the most compelling," said Curtis Chambers, IT director at The Home Depot, an Atlanta-based hardware retailer. "It has got us into three-tier and n-tier computing. And as we continue to grow, we are reducing our training costs."

Chambers said Home Depot is not overly concerned that the future of Java is tied so closely to Sun. "Sun's ownership of Java doesn't make much difference to us," he said. Chambers said the retailer chose Java for its multiplatform capabilities and expects those to continue no matter who controls the software.

Home Depot began its Java efforts almost three years ago working with Sun and its primary vendors, including IBM, Merant and Informix, to ensure that all would support the fledgling Java language. "We were impressed with IBM's response, [as well as] Merant's and Informix's response," said David Pennington, chief architecture manager at Home Depot. The retailer is already running several corporate-wide and in-store applications built in Java and running on Windows 95, he said. Early this year, 300 developers in the 1,000-plus person Home Depot IT organization were building Java applications, according to Chambers.

Developers are now working on apps to run on a network of bootable thin clients - without hard disk drives - that will run in each Home Depot retail store. The thin clients will run either Windows CE or Linux, Chambers said. "Linux is looking more and more like the dominant option. I don't care which one we use, because with Java we are [language-] agnostic."

Chambers said that early on in Home Depot's Java experience, development managers worked closely with Sun during the process of creating Java foundation classes and Java servlet classes. "We don't have a real formal relationship with them now, probably because we don't buy much Sun hardware," Chambers said.

Such Java implementations are just what co-founder and Chief Scientist Bill Joy expected during his work on the project, dubbed Oak, starting in 1992. "The goal was to have as few implementation dependencies as possible," Joy said. "Java is not a complete silver bullet, [but it] provides measurable improvement" to efforts to provide machine-independent software.

Though Home Depot is not a significant Sun systems customer, analysts do urge other top Sun executives to better understand how Java can and is boosting revenues by prompting sales at other sites.

"Scott [McNealy] understands that Java has helped in the competition against Microsoft. He may not understand that it is helping him sell hardware but he does know it helps Sun," said Thomas at Patricia Seybold Group.

"Sun faces a conundrum with Java - how to make money without [angering] its partners," added Giga Information Group's Gilpin. "Sun doesn't want to create a situation where all the money comes from partners. On the other hand, I think that this is somewhat an artificial issue. Sun sells more hardware because of Java. If they allowed profits to be allocated that way, they could show they are making money."

Sueltz, president of Sun's Software Products and Platforms Group, contends that Sun does understand the value of Java to the bottom line. "The goal is to make money ... to make good money," she said. "We can enable software platforms via open standards, we can drive everything forward for developers, we can enable hardware and services. We're building enablement software to enable the rest of Sun to" accumulate revenue, Sueltz noted.

Some observers question Sun's commitment to an open Java after Sueltz' stunning announcement during the J2EE unveiling that Sun had reversed its decision to submit the Java specs to the international standards group ECMA. That decision has prompted an outcry from key Java partner IBM and from some analysts.

"When Sun walks away from a standard, it's something that should be looked at," said Rod Smith, who was promoted to succeed Sueltz as vice president of Java at IBM last fall. "We want Java to be an open standard. I think Java is bigger than any one company." Counters Sueltz: "Java is bigger than any one company. We are the caretakers. I'm sure there are forces out there questioning our motives, but we have no ulterior motives."

Sun's ECMA decision and the new licensing policy for J2EE were cited by IBM as key reasons for its decision not to support J2EE. The new licensing policy calls for J2EE users to pay Sun a percentage of the sales of products that incorporate J2EE. Hewlett-Packard long ago decided not to license Sun's Java version due to what it called stringent licensing policies.

"I don't think Java could have been nearly as successful as it has without IBM," said Giga Information Group's Gilpin. "Most people buying application servers don't care if IBM supports Sun's Java or any other Java. But they do want to make sure the Javas work together. I think Sun is being pressured by customers to make sure that happens. Even if IBM never licenses J2EE, customers will want WebSphere and iPlanet to work together."

Despite IBM's decision, several companies have licensed J2EE and will incorporate the specs in a variety of products. "We are working closely with Sun on Java," said John Goodson, vice president of research and development at Merant plc, Rockville, Md. "We absolutely have a say in the specs; Sun is extremely receptive to what we say."

According to Sun's Roth, the new systems includes four pieces - a suite of specs, a reference implementation, a bridge to Sun's compatibility test suite, and the J2EE blueprint program or best-practices guide.

"Sun has to lead with tools," added Rick Cattell, a Sun distinguished engineer. "We need to make the [Java] platform more receptive to tools. We have to make it easier [for tool suppliers] to build tools using J2EE."

Despite the setbacks, Sun is well positioned for a successful software run. But observers still wonder whether Sun officials that have grown up selling billions of dollars' worth of computer systems can gain a software mentality.