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Where did Sun go wrong?

Elizabeth Montalbano | April 13, 2009
One of Silicon Valley's biggest innovators faces a tough road alone after walking away from a deal with IBM

"Weblogic was all Java and it became J2EE compliant very quickly, while Sun was struggling to integrate all this technology that wasn't J2EE compliant and they missed the boat."

Sun's focus on innovation over products started at the executive level, some former employees said. McNealy, who insiders said privately was a more thoughtful, approachable executive than his querulous public persona would imply, managed in a way that fostered an explosion of creativity but wasn't particularly in tune with market dynamics.

Miko Matsumura, who spent five years at Sun as chief Java evangelist, described the environment at Sun in particle-physics terms. Matsumura, now a vice president and deputy CTO at Software AG, said McNealy liked to watch his employees collide intellectually with each other because he thought it would spur new ideas.

"Scott was a very clever manager in the sense he would hold a frame and allow people to compete within that frame," he said. "He loves to see people smacking into each other. He really wants to see the best quality bubble up, and set conditions for things to collide."

The by-product of that kind of chaos is that there were too many new ideas -- such as what happened to Sun's Java app-server business -- and no single clear message about how to turn ideas into a viable business plan, Matsumura said.

When CEO Jonathan Schwartz took over from McNealy in April 2006, he tried to clarify the company's direction and make it more in line with the software and hardware products customers wanted to buy. Under Schwartz, Sun has open-sourced a lot of Sun's valuable proprietary software and hardware assets, giving customers more choice about how and on what platforms they can deploy Sun's copious technology.

Sun spokesman Noel Hartzell said Sun has seen a "significant" increase in its software business since it open-sourced Java and purchased open-source database vendor MySQL, a deal that closed early last year. And Sun's Open Storage business, which combines open-source storage software with Sun hardware, also is seeing success, with 21 percent year-over-year growth in the quarter ended Dec. 28, 2008, he said.

Sun also has worked hard to take costs out of its business and improve operational efficiency, saving billions of dollars over the last few years, Hartzell said. Cost-savings that included layoffs announced in November should amount to another US$900 million this year, he said.

But cutting costs historically has not done enough to boost Sun's profitability. And with the IBM deal apparently off the table and Sun's business lagging overall, long-suffering shareholders likely won't wait much longer for Sun to bring them a return on their investment. Despite executives' best intentions, Sun's efforts may be too little, too late.


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