Sun Microsystems: Redefining Business Model
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Authors
Authors: Pradip Sinha,
Associate Consultant,
ICMR (IBS Center for Management Research).
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The New Dawn Contd...
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The company claims that because of the annual renewal nature of this revenue stream, this has the potential to generate a sustainable, quantifiable revenue flow for the company. The potential looks immense looking at the number of employees the company's current top customers have; about close to 100 million. Multiplying that by $100 means a billion dollar market is already within reach. To quote Ingrid van den Hoogen, Software Director, Sun, "I'm not saying that's going to happen the first year, but every existing Sun customer is a potential Java Enterprise System customer, and there are also potential new customers interested in the system." |
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Simplifying the cost issue further, the company says that customers who buy the Java Enterprise System and want the Java desktop solution as well can get it for an additional $50 per employee per year. This means that for $150 a year a customer gets solutions for the server and desktop. In fact, the company seems to have simplified every facet the integration, and the pricing. "This is an integrated and integratable solution. It's also a single SKU, which simplifies the order process," says Hoogen.
Sun boasts that these features and products either eliminate the time and expense related to software integration and management, or increase productivity and reusability. As a result, it says, customers can shift their focus from low-value maintenance activities to ones that directly impact the bottom line. However, needless to say, this would also include Sun's own bottom line, which is weakening to say the least, and the company needs to do something drastic to rev it up. As of now, all eyes are focused on the company's new strategy.
Will Sun Pull it Out?
Industry experts opine that McNeally's task is cut outsaving Sun. The options before him are not many. And, he cannot afford experimentation. The first challenge before him is to bring down the cost by reducing headcount. Although the company laid off some 6,000 of 43,000 employees over the last two years, it is still not considered enough by a section of Wall Street analysts. Steve Milunovich, an IT analyst with the brokerage firm Merrill Lynch, wrote an open letter to Scott McNeally, offering him a lot of free advice on how to run Sun a little better. Hitting hard at the company he writes in the letter, "Sun has reached a point of crisis.
The company has gone from being pure in vision and predictable in financial performance to an underachieving, bloated, unfocused reflection of its former self." He further mentions in the letter that Sun's earnings shortfalls initially could be blamed on the downturn following the bubble from which Sun disproportionately benefitted. "Competitors are beginning to grow again, however, and Sun's share loss sticks out like a sore thumb. Business as usual won't do it; it's time for bold strokes," blasts he.