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SUN: (Sound?) Open Source Business Model? December 16, 2008

Posted by Sacha in IT.
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Hail Mary PassIn the 8 years I have been at JBoss, discussions around our business model and long term sustainability have been omnipresent. It has always been obvious for us that we wouldn’t reach respectability and be trusted in the software industry if we couldn’t show how JBoss was not just a single lucky “shot” i.e. it wasn’t just about monetizing a very unique gem as much as possible and go home with our dollars. Instead, much like all respected software vendors our aim was to show that our business model could sustain complete software lifecycles (from the original idea to a multi-year support agreement), for multiple concurrent software versions, while expanding our software offering. If your business model cannot demonstrate such ability, you’ll simply be ignored by any decent CIO: why would they invest in a single shot company? CIOs want good technology, value & ROI, flexibility to drive their business, and vendors that are sustainable. No CIO wants to see their vendors go out of business or not be able to provide the engineering and support needed to solve their problems. This is precisely why success of a vendors’s business model is so important.

Still today, this (healthy) constraint is very much in our mind when we (“we” as in Craig Muzilla and I) read our P&L and plan our quarters. There is no room for fuzziness. (hint: this is called “running a business”.)

That’s why I’ve been pretty amazed when I recently heard that SUN is trying to sell their app server for 25’000 USD per company, for unlimited CPU/deployments! Their web site says it all:

For the price of deploying one CPU of WebLogic 10 you can deploy an unlimited number of GlassFish Enterprise Servers, with full production support as well as unlimited Developer Expert Assistance.

This intuitively didn’t compute so I decided to make some math.

Let’s say SUN was able to capture 10’000 GF customers, which they are very far from having as this number is pretty much what BEA had for WL, this would mean they would generate 250m USD revenues (not taking in account any discount). Given their amazing current spending rate in engineering and marketing, there is no way that 250m USD would be enough to cover their own direct costs (let’s not even speak about the cost of their salesforce and all indirect costs à la G&A, etc.). So, why do they do this? Well, it simply means SUN is trying to get customer traction at any cost (and not just community traction). Even if it involves to sell their services at a price which doesn’t cover their cost – and will never do unless they radically change their pricing scheme.

Consequently, when this morning I heard that SUN is now giving away free training seats to anybody, I really fell of my chair! A pop left, a pop right, free candies for everbody! SUN shareholders will most probably appreciate at its right value this love fest. At this pace, they should not worry at all, Open Source is truly going to save the finance of this company. No worries…

One can only conclude that Sun is desperate. Their business is falling off a cliff, and they are willing to do anything to stop the company from going bankrupt. Fans of American football call this the “Hail Mary pass” Will CIOs be willing to risk their own business on Sun?

The wake-up call will be tough. Very tough.

Onward,

Sacha

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Comments»

1. blpsilva - December 16, 2008

This is a very interesting subject, and it’s still very difficult for many companies to decide the correct business model around open source.

Red Hat and JBoss have been very successful with open source business models, but this success is far from being common.

IMHO, what Sun lacks the most is a strong services model. They have many great engineers, and lots of technical knowledge inside their company, but they don’t make much profit out of it in the services field.

I think Sun should have assembled a services group in the lines of IBM’s, but of course I cannot say for sure that it’d have been successful.

I’m actually sad for sun, because they did a great job maintaining the Java platform as a whole, but it seems that it drained far too much energy and profit from them.

2. Sacha - December 16, 2008

Bruno,

I agree with you. Sun has lots of talented employees and did great innovations, but never really seemed to find the right business model.

3. John Clingan - December 16, 2008

I got an error with trying to post a trackbck, so as an FYI, I posted a response: http://blogs.sun.com/jclingan/entry/when_they_smile_you_know

John Clingan
GlassFish Group Product Manager

4. Bruno Pereira » Blog Archive » Dificuldades da Sun com o seu modelo de negócios open source - December 17, 2008

[...] o Sacha Labourey (CTO da JBoss) publicou um post interessante sobre as dificuldades que a Sun vem encontrando, em especial com seu modelo de negócios open [...]

5. Alice Fonnet - December 19, 2008

We are moving off JBoss, after having been on it ever since Red Hat bought it. We thought it was a great move, and have been consistently disappointed that you’ve allowed it to fall behind, esp. since Marc Fleury left.

Meanwhile, Sun and Glassfish appeared to have taken the lead position among our developers, first to market with EE spec implementation, really easy to use/adopt, great performance.

So rather than vectoring criticism against Sun, why don’t you focus on retaining your customers with a better product. This kind of crap reminds me of how Sun responded to Linux early on. At least they seem to have listened to customers, perhaps you should do the same.

6. Paul Biergy - December 19, 2008

I was at a bar with Fleury about two months ago, he was betting Glassfish was going to spank JBoss up and down the street. He blamed Red Hat management for starving the team of R&D. Sacha it shows, I agree with Alice, focus on product, not rhetoric.

7. Sacha - December 21, 2008

Paul,

I’ll let Marc comment as to what he meant.

Alice,

Outside of the “fall it behind” propaganda, can you please raise specific criticisms? I’d love to hear what makes you unhappy (but other customers very happy). If you think you made a good management decision moving to GF, good for you.

Onward,

sacha

8. Ali M. - December 21, 2008

How much money did SUN make from JAVA? It’s hard to calculate this one, since SUN makes so little from Software (compared to how much they make from Hardware).

But still how much Hardware did SUN sell thanks to JAVA?
How much Hardware will SUN sell thanks to Glassfish?

I personally believe this is their strategy.

On another note, don’t take CIOs too seriously, most of them have no clue what an Application Server is. Only businesses that orbits around technologies will be serious about decisions involving Applications servers and such. And would bother with their vendor Business Model!

Manufactueres likes Automotive companies, Pharmaceutical companies, etc … I assure you their CIOs probably never heard of JBOSS, but they all know Java, I wonder how much is ther worth. But again it doesn’t matter. Because for many huge companies, IT decisions are far less critical than you might think.

I would really like to know about the BIG companies that care about their IT vendor business Model, …. again I assure you this number would be tiny.

And many of the companies that care, would not be huge at all!

A point to be made is, your business model matter a lot less, than Market research. How much money is being spent of AppServer compared to MS Office or ERP solutions.

SUN will make money selling support it never gives! More and more ISV’s will bundle their’s business applications and ERP solutions with Glassfish, people who buy these solutions might pay SUN for insurance! They will never call SUN or use it’s support, yet they might pay just for the security and insurance.

Many in-house IT will use Glassfish, and when they leave for another Job, their managers might start paying SUN for security and insurance.

You need to study your market, your customers seem to be, disullusioned CIO’s who pretend its important which webserver you are using for your Java APP (yes for many AppServer are just webservers) and very high tech companies.

The Glassfish market is everyone else.

Ultimatly SUN may end up making less money from Glassfish, than Oracle make from Weblogic – note that thousand who will be buying Weblogic from Oracle, will be buying it just to run Oracles ERP solutions, or because they are Oracle clients, or because Oracle is number one at something, very few I assure you will buy WL for its technical merrits- but the truth remains, Glassfish, will be installed and used in many organizations, and many of these will pay SUN for security.

9. Marc Fleury - December 21, 2008

Paul,

I don’t know you.

10. Sacha - December 21, 2008

Ali,

I understand your point, but what you are describing is a business model has tried to apply in the last 10 years. And it failed.

Cheers,

sacha

11. Sun Open Source Business: Is Sun Finding its Way? - February 3, 2009

[...] the open source road, may validate Schwartz’s open source strategy in the long run, but as rightly argues Sacha free training seats might not help the business, though. GlassFish For Business, a blog opened [...]


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