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SIMPLIFYING SERVERS
Sun Microsystems has simplified its
server technology and scaled its pricing mechanism. Will CFOs
buy it?
By Yasmin Ghahremani
Buying enterprise server software these days is complex enough
to make tax forms look like a cinch. Typically if a company
is building, say, a portal, each software component needed for
the portal is priced separately and determined by any number
of different factors. The application server, for instance,
is priced on a per-processor basis, while the identity and messaging
components are priced based on the number of users. In the likely
event that the number of people using mailboxes is different
from the number using the calendar function, that goes into
the calculation too. "We've gotten a lot of customer feedback
saying the licensing situation is just too complex," says Andrew
Taylor, a marketing director at Sun Microsystems. "Customers
have created disjointed systems that aren't compatible with
each other, and they're not leveraging the software assets in
the organization." Sun
wants to change that. The California-based company has introduced
a software product it calls the Java Enterprise System (JES),
which will roll out internationally by the end of the year.
JES consolidates the Sun One application server and middleware
products, including software for user authentication, email,
calendars, Web and application services, a portal product,
communications and collaboration components, and availability
and security services. Basically, it's everything you need
to run your servers. All the parts are pre-integrated and
pre-tested. Competitors like IBM and Oracle have also been
touting integrated software of late. But Sun diverges from
them in its new per-employee pricing model.
In Asia, JES will sell for US$115 to US$120
per employee per year (prices will vary by country), capped
at 120,000 employees. Larger companies will pay as if they
only have 120,000 workers. All prices include quarterly updates,
maintenance, technical support, consulting services and training,
and Sun has promised that fees won't increase more than 5
percent from year to year. Sun customers already running the
Solaris operating system will be offered a 90-day free trial.
Those who prefer to buy software on a piecemeal basis can
continue to do so, but Sun says many will find JES much more
attractive. "In some cases, we're finding customers can pay
less for JES than the cost of what they're now paying for
maintenance alone," says Taylor. A total cost-of-acquisition
calculator is available at www.sun.com/javaenterprisesystem.
Industry observers generally agree that
Sun's approach is radical. "It is a very significant change
in the way enterprise application platforms are priced," says
Stephen O'Grady, co-founder of US research firm RedMonk. "One
scenario where it will be very compelling is for organizations
that don't necessarily have a lot of employees, but have lots
of external customers. If I'm a Web retailer with 1,000 employees
but maybe a million customers, I don't have to pay for those
customers anymore."
Sun's move is an attempt to position itself
as a leader in software development, not just hardware. "They
need to break out of the hardware vendor mold and become a
strong contender in the software market space," says Andrew
Chee, an analyst with International Data Corp in Singapore.
"In 2002 their share of hardware servers in Asia Pacific was
markedly higher than their share of application servers, which
implies that customers who were deploying Sun hardware were
turning to competing vendors for their application and portal
solutions."
Whether the strategy will work remains
to be seen. Price is not the only determinant when a company
buys software. "Evaluate JES one component at a time and consider
that the suite is not an even set of technology," Gartner
analyst Daryl Plummer recommended in a recent research note.
"Some of its components are first-class; others are still
in development or are relatively new and unproven, especially
in large enterprise settings."
It will also be worth watching how other
software vendors react. IBM seems unfazed. "We just don't
see Sun in many sales situations," says spokesperson Harriet
Ip. "When choosing an IT vendor, the customer also puts product
functionalities and performance as well as services on top
of its list." Analysts predict that while market-leading IBM
may offer discounts to some customers in certain situations,
it won't cut prices across the board to compete with Sun.
BEA Systems will probably continue to preach that it offers
the best-of-breed solutions, and point out problems that Sun's
portal product and application server had in the past - though
both of those products have been rebuilt for JES.
Oracle is deemed the most likely
major competitor to lower prices, but it still probably won't
match Sun's levels. "I think even if customers don't go with
the Sun solution, they'll start pushing companies like IBM,
BEA and Oracle to lower their prices," says RedMonk's O'Grady.
"Basically, they will use Sun JES as a bargaining chip. So
it will have an impact on the market." Either way, it looks
like welcome relief could be in the offing for beleaguered
IT budgets. 'Find loopholes.'" 
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The New New Economy
Except for Xerox and FedEx, few corporate
names ever make it into the lexicon of action verbs. The latest
entry, however, appears to be search-engine specialist Google,
which is now invoked routinely by users of the internet ("How
did you find me?" "I just Googled your name.").
While Google's migration into the realm
of public usage may be surprising, it's not nearly as surprising
as its migration into the realm of public markets. Google
management is expected to take the company public in a deal
that could be valued as high as US$20 billion.
The underwriting would be the surest signal
yet that the retreat from all things Net may finally be over.
Of late, commercials for online businesses - not seen for
the past two years - have started popping up on television
once again.
Such profile-raising is big news in the
virtual world. Even bigger news: the recent run-up in the
share prices of many dot-coms. During the first three quarters
of 2003, the stock price of Ebay, the e-commerce standard-bearer,
jumped from US$34 to just over US$54 (the company also launched
a two-for-one stock split). Likewise, the share price of book-and-movie
giant Amazon.com more than doubled during that same period.
Those spikes - plus the emergence of such
lesser-known but thriving dot-coms as RedEnvelope and prototyper
Quickparts.com - could have finance executives revisiting
their dot-com strategies. Odd as it may sound, investing in
internet projects may make sense again. Same thing for mimicking
successful e-business models. Wal-Mart Stores, for example,
is gearing up to compete with internet movie darling Netflix.
Talk of acquiring an internet company
is no longer grounds for institutionalization, either. Consider
InterActive-Corp, the New York-based owner of TV shopping
channel HSN. The company, which is run by former Vivendi Universal
boss Barry Diller, has gone on an e-acquisition frenzy during
the past six months, purchasing Expedia, Hotwire.com, and
Hotels.com, among others.
Contrarian plays? Perhaps. But e-commerce
veterans say consumers and business customers have finally
grown accustomed to electronic commerce. A recent survey,
for instance, showed that electronic bill presentation and
payment (EBPP) has finally made its way into the mainstream:
57 percent of respondents said they pay at least one bill
electronically. In 2000 that number was more like 17 percent.
"The connectivity the internet provides to businesses
is still a huge benefit," says Mark Jensen, national
director of venture-capital services at Deloitte Touche Tohmatsu
in New York. "It's as true today as it was in 2000. The
internet does change everything."
Money can change a lot, too. Unfortunately,
for the new dot-comers, venture-capital backing for e-commerce
initiatives is nowhere near its once-lofty heights. At the
zenith of the dot-com bubble (the first quarter of 2000),
venture capitalists poured nearly US$23 billion into Internet
companies. By contrast, venture-capital investment in e-commerce
companies in the first quarter of 2003 didn't even reach US$2
billion.
"The VC market needs to show that
exit scenarios are achievable, [and needs] more success to
build confidence, before it will invest again with robustness,"
says attorney Stephan J Mallenbaum, a partner at the New York
office of law firm Jones-Day (which advises technology firms
on venture capital transactions).
John Edwards |
