Can Sun turn downloads into dollars?

Sun outlined a growth plan Wednesday to grow its business by offering free software.

Sun Microsystems described a growth strategy on Wednesday that depends in large part on giving away software in the hope that customers will like it enough to sign up for support contracts, and perhaps buy Sun hardware on which to run it.

It's a strategy Sun started several years ago with a free version of its application server, and which it has accelerated with products such as StarOffice, OpenSolaris, its Open xVM virtualization software, and most recently its acquisition of the open-source database vendor MySQL.

The free software allows Sun to build communities of developers who will do pilot projects with its software and may eventually buy licenses for commercial deployment, or buy professional services to support critical applications, CEO and president, Jonathan Schwartz, said at the company's press day. He called Sun's software a "media asset" for building communities.

"These are no longer simply software products, these are media properties -- networks around which communities are being built, [and] this is a means for Sun to talk to a very large developer community," he said.

He put up a slide that showed a map of the world covered in pink dots. Each dot represented a download of Solaris, he said, and hence an opportunity for Sun to start a dialogue with IT people that could lead to a sale of its services and hardware.

"Not all customers will pay for these products before they use them -- very few will, actually," he admitted. But they all buy servers and storage on which to run the software, and the download gives Sun a foot in the door to try to capture that sale.

"The reason MySQL was interesting to us is, it puts 50,000 new dots on that map every day, and from the community, market opportunities will emerge," Schwartz said.

Sun's growth is important to customers. Its revenue funds its research and development efforts, and customers want to know there is a big community of specialists in Sun products to support their businesses.

Analysts are divided about the strategy. At Sun's financial analyst conference last week, Sanford Bernstein analyst, Toni Sacconaghi, said he found it hard to see a link between software downloads and Sun's revenue growth.

"If you were to plot a chart showing revenue growth over the last 12 quarters and Solaris downloads, there would really be no correlation at all," Sacconaghi said.

"Oh, I think there would be an exceptional correlation," Schwartz replied. "If you had shut those downloads off three years ago, our revenue would have been declining double-digit."

He reiterated the point Wednesday. Sun's strongest growth period came in the late 1990s and was preceded by wide use of its software in universities, he said. Today, the growth of Sun's Niagara servers has been driven by making Solaris open source, Schwartz said.

Illuminata analyst Gordon Haff said there probably is a connection between Sun's free and open-source software strategy and its revenue growth, but even if there is not, the strategy is helping the company, he said.

"Even if you can't say that each pink dot equals $US372, I think the things Sun has been doing with open source and OpenSolaris and Java and so forth have translated into improved relevancy and an improved perception of Sun, and at some level, logic suggests that this played a role in their improved financial picture."

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James Niccolai

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