As I referenced in my prior entry, I’m reviewing Sun’s three major strategic imperatives, and our progress going in to next fiscal year. Our strategic imperatives, in order, are:
1. Technology Adoption
2. Commercial Innovation
3. Efficiently Connecting 1. and 2.
This entry focuses on the first, Technology Adoption. Adoption is a non-economic phenomena, no money is spent, only time – yet it has extreme financial consequences. Let me give you an example.
I was with a big customer of ours last year, and reading through my account briefing before the meeting, I knew we were doing well. An analysis of their download activity showed they were heavy users of Solaris and OpenSolaris, and they had a large internal community of MySQL users, as well. In the meeting, their CIO said “we love where Solaris is headed.” I then asked if we could help with MySQL, and he said… “I banned it.”
Not exactly a buying signal.
I was stunned. I asked, “why?” He responded, “Oracle is our global standard, and with 20,000 developers, people need to follow the rules.” I said we had a very good relationship with Oracle, and started talking about how fast Oracle runs against our new Open Storage products.
Until he interrupted me, “…but my ban failed.” What? “We hire lots of people out of college every year, and they all come in knowing MySQL. All my prototypes are written to MySQL, and now I have a big base of MySQL apps I don’t want to port, and a bunch of MySQL programmers I don’t want to retrain. So I’d like a commercial relationship.”
In a nutshell, that’s adoption in action. Change in IT isn’t just a top down phenomenon – it’s more often bottom up*.
Innovation vs. Reselling Innovation
What’s the cost of missing that adoption? For Sun to resell a 1-way x86 server running Microsoft’s Windows or Red Hat yields (at best) a 10% gross profit margin. Very few companies have the scale to survive on those margins. More to the point, when you resell someone else’s products, your customer relationship isn’t built with the CIO or technology directors, it’s built with their reverse auction web site. For technology companies, the same applies to reselling any product you don’t own – it’s impossible to differentiate with anything more than a cheaper price. A price your supplier can, and will always, undercut.
Alternatively, when a user picks our products – when they build their storage on ZFS, their network on Crossbow, or their application on MySQL, independent of whether they’ve paid, they’ve created an opportunity for Sun – going forward, there’s only upside. It’s called positive option value.
Not to dip into finance 101, when the net present value of a lifetime revenue cycle exceeds the value of a one time purchase, a product or service that initiates the payment stream is either freely distributed (if it has no marginal cost, like software), or subsidized (if it has a hard cost). That’s why you see so many free credit cards, free checking account, free mobile phones, free month’s rent, free social networking, etc. In the technology world, free is the new black.
That’s also why the internet’s most valuable brands are *all* free – Amazon, Google, EBay, Skype, Yahoo!, Facebook, Hi5, MySpace, Baidu, TenCent, etc. Those brands reach more and have greater affinity than just about any other consumer brands. And in the technology marketplace, Linux, Java, MySQL, Firefox, Apache, Eclipse, NetBeans, OpenOffice.org, OpenSolaris, the same applies – free is a universal price, requires no currency translation, and reaches the longest tail of the market.
Now, could Amazon charge you to shop? Could your bank charge you to open an account? Google charge you to search? Could Sun charge people to download MySQL or OpenOffice.org? Sure, we could also destroy those brands in a matter of days. If you’re not free, by definition you miss serving those that can’t afford, or aren’t ready to pay – which means your audience is capped, or destroyed if your competition is already free.
Microsoft’s the only company I didn’t include in the above list – and although I consider them a stupendously great brand, they’re the only company that can really approximate free while making money on the distribution of their products. The fact is they’re bundled on almost every PC across the planet, and appear “free” to the users who use those PC’s – they’ve amassed immense power with their distribution, and few users believe they’re paying for Windows when they buy a personal computer.
Thus, to developers (Sun’s target market) with Windows PC’s, Microsoft’s product are, in effect, already free. (As an aside, notice Microsoft inexorably moving toward free distribution, too, to reach new users – at some point, you can’t bundle every product on every computer, it’d be like printing a Sunday edition of the newspaper every day of the week).
This is exactly why we freely distribute our key software assets all over the world – if we didn’t, users and developers might pick someone else’s free product (or simply use the one they assume to be free). And if they picked someone else’s product on which to build their business or their application, Sun becomes a reseller – which isn’t our mission or business model. It’s a free market, in every sense.
The customer I referenced in my first entry
that said, “I haven’t visited Sun in five years, but all of a sudden you seem to matter to my developers” was saying he was seeing exactly that, a lot more of our products used by his developers – from VirtualBox to MySQL, Glassfish to ZFS. For some users, and nearly all developers, budgets aren’t measured in dollars, they’re measured in time and attention – if you want those audiences to spend their time and attention with you, you have to earn it. If you earn it, a preference forms. For Sun, we drive that preference over our competition, primarily proprietary alternatives.
Our Products are Our Ads
Now, the words “driving preference” are used by the advertising industry when talking about branding. Businesses brand or advertise to drive awareness of or preference for their products. In the case of a Nike or Toyota, both have to spend fortunes to “buy media,” or acquire the ad space (or airtime) through which they’ll present, free of charge to consumers, the images or content they feel best represents their brands.
Why doesn’t Facebook advertise? Because Facebook itself is a branding experience. Using Facebook drives preference for Facebook. And their audience, in users, outreaches just about every media company on earth. It would make no sense for them to buy media, they are media.
For the audiences Sun cares about, those building, deploying or buying technology, we’ve got a similar reach. By being freely distributed, our products build their own audiences. And using the products, from Glassfish to ZFS or NetBeans, creates a branding experience (and a wildly positive one, if we’re doing our jobs well). So why don’t we advertise in traditional outlets? Well, every day, the number of people using our products, getting that positive branding experience, eclipses nearly all major newspapers globally, combined.
By proliferating Sun innovations, even encouraging derivatives that will never drive revenue to Sun, we are creating preference for open source, awareness of Sun as an innovator, and displacing proprietary vendors that can’t build comparable audiences. That preference has value to us, and to the broader communities in which we participate. The value spans awareness, market penetration, skills development, ecosystem expansion – a healthy community is a growing community.
How else is adoption or preference valuable? Volume adoption attracts application developers, and can drive tipping effects – once one independent software vendor, or ISV, picks your platform, others that work with that ISV follow suit. If you do a good job, you lead an avalanche of ISV’s to pick your platform – which makes it more appealing to end users. That’s why Red Hat has such a durable Linux model – once Oracle picked Red Hat as the Linux to which they’d first certify Oracle’s database, the ISV’s that relied on Oracle certified only to Red Hat, which tipped the market to Red Hat so strongly that not even Oracle has been able to undo that grip.
So adoption drives the ecosystem, which drives more adoption and more expansion… you get the idea. It’s a virtuous cycle, a cycle that starts with volume adoption.
What Adoption Looks Like
So what does “Adoption” look like? Here’s a picture, which shows the ramp we’re seeing from free software adoption across the world for some of our key datacenter assets.
For competitive reasons, I won’t specify which products are shown, but suffice it to say we’re very happy with the ramp, and we love great product reviews – that’s what drives the spikes. The troughs are weekends. Bear in mind these are datacenter assets (like Glassfish and OpenSolaris), not consumer runtimes (like Java or OpenOffice.org), so these downloads influence datacenter design. Every day, our software is working hard to drive preference in startups, in government agencies, dorm rooms, ISV’s, fortune 100 IT shops, everywhere the internet reaches. Free products reach everyone interested in them, no barriers.
On the consumer side, OpenOffice.org, which certainly promotes Sun’s vision of open standards and data formats, reaches nearly three million new users – every week. Adding them to a user base we estimate to be between 150 and 200 million users. Talk about global circulation.
Our products are our brands and one of our most effective means of driving design wins – in front of users, developers and OEM’s. In markets as diverse as high performance computing and grid scheduling, web databases, application infrastructure and desktop virtualization. Free distribution and access to source code is our investment in the global developer community. We invest with our code, our ideas and time, and we promote and encourage derivatives. We gain by reaching people we’d otherwise never reach – and earning their attention and engagement. Even if we’re never paid, that’s positive option value.
Another way of looking at adoption are these “pink dot” maps – they show us where our products are gaining users via opt-in registration. My favorite dots on the map shown are in places we clearly have no sales coverage – I’d like to say hello to our users on the Falkland Islands, thank you for choosing Solaris 🙂
What’s the value of all that adoption? Like the value of search, shopping, or opening a bank account, there’s no instantaneous value beyond the fact you’ve chosen to invest your time and energy in our ecosystem, and not our competition’s. At global scale, that makes us an enormously tough competitor for proprietary companies, or those without true innovation. For example, to get a sense for what our proprietary storage competitors are facing everywhere around the globe, Google the phrase, “love ZFS“.
But as with all free business models, the real value arises in what comes after free – and that’s my teaser to get you to read the next blog entry, focused on our Commercial Innovations.
Thanks, again, for reading, watching and commenting.
* as I often say to groups of CIO’s, “which one of you gave permission to your employees to search on Google?” No one ever raises their hand 🙂
And to my readers/viewers for whom English isn’t your first language… I’m doing my best to talk more slowly. I will redouble those efforts in the next video… thank you for watching!