SUN: (Sound?) Open Source Business Model? December 16, 2008Posted by Sacha in IT.
In 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.