Friday, January 29, 2010

The #10 Reason Sun is Setting: We Failed to Understand the x86 Market

Originally posted in April of 2009...

It often gets mentioned by the press and certain analysts that Sun didn't get into the x86 market soon enough, or strong enough, or didn't drop SPARC when it should have, or some other such criticism. I believe Sun entered the x86 server market when it had to (our first foray into the server market was the oft-lamented LX50 server back in 2002) and has done a decent job (with the help of Andy Bechtolsheim) at differentiating our offerings while maintaining a competitive price (although margins are another matter altogether).

The problem is we didn't understand the x86 market. We approached the market in the only way we knew how - as an extension of our high-end, low-volume, high-value approach to network computing. And not just in terms of product features and capabilities, but in terms of sales, partnerships, channel programs and supply chain management. We've been improving over the years, but we still have a channel strategy that leverages our traditional partners and programs and does not effectively take our volume products to volume customers.

Our other mistake was to allow our strategy for proliferating Solaris on x86 to overshadow our need to drive volume for our x86 business. Although Sun has been offering Linux on our x86 systems since 2003 and has recently entered into OEM agreements with both Microsoft and VMWare, our focus as a company has been exclusively on Solaris. It is the only OS we pre-install on our hardware. The key to gaining momentum in the channel is to provide the environments that customers want, which for x86 is still predominantly Linux and Windows. We needed to focus on Solaris, but in the area of ISV recruitment and creating solutions that uniquely leverage Solaris and add value to customers, thereby creating demand. By failing to promote other OS offerings and solutions within the channel, we became a niche player in their mind and ultimately became an after thought in their sales to end users. Volume drives the channel, the channel drives volume and volume is the only way to make money in the x86 market.

We've been getting smarter about this lately and over time we would have eventually gotten this right. And we've made progress on the Solaris side, so overall this was not going to bankrupt the company. But it has stunted one of the key growth markets for us and helped to keep us in the "expensive, proprietary system" box that our competitors painted for us, so it has contributed to our lackluster stock performance. For this and other reasons, it is my #10 Reason for Sun to be Setting.

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