|McNealy: Now I'm the
airplane crash dummy
Technology, says Scott McNealy bluntly, has the shelf life of
a banana. That's why he and the company he founded, Sun
Microsystems, believe so fervently in open standards. He
doesn't want to lock customers in to proprietary in-house
standards, he says, because at some time they will want to move
on to the next generation of technology.
He has stopped being CEO of Sun Microsystems, but he's still
chairman of the board of directors of the company he co-founded
in 1982. He was CEO from 1984 until earlier this year, during
which period the company created Java — now used on
3.5 billion devices — and developed the Solaris
operating system. And he created the slogan, "the network is
the computer", before the internet became all-pervasive: today,
that ideal is more realistic.
Now, the CEO is Jonathan Schwartz, a former McKinsey
consultant who founded Lighthouse Design, a company taken over
by Sun in 1996.
So what's McNealy's role now? "The clever way to describe it
is I'm Jonathan's airplane crash dummy," he jokes. He spends
his time flying around the world discussing strategy with Sun's
key customers — "the telco market is our number one
market" and he's "spending an enormous amount of time" with
While "Jonathan gets to run staff meetings" and look after
Sarbanes-Oxley compliance, "I've got a fun job," says McNealy.
"Someone described it as being a grandparent rather than a
There's justification in his remark that "telcos have been our
number one market for ever". The Unix operating system on which
Solaris is based was developed by the old AT&T at Bell Labs
— now owned by Lucent — in 1969.
"Solaris is the operating system of choice for the telco and
network equipment provider marketplace," says McNealy. "We do
an enormous amount of OEM business with the Alcatels and the
Ericssons and the Lucents. We continue to play big in that and
that's absorbing an enormous amount of my time as we work with
the carriers on how we move to the IP environment."
That OEM business is about to take a further step: Sun is
playing a leading role in a new open-standards-based concept
for a telecoms platform. It has signed up a number of vendors
that it will be working with to develop the specification: see
What are the big issues that CEOs and CTOs of the larger
operators should be watching out for?
"They need to get the authentication and identity management
right," says McNealy. "That's our most important conversation
and we're the number one player in large-scale identity
management. If you don't know who's who, what's what and who
gets access to what, you get a free-for-all in service and you
don't know who to bill for what."
The second big issue is scalability, he continues. "There are
economies of scale and I believe our track record with the
service providers, in providing carrier grade reliability, is
unmatched — especially when you look at some of the
newcomers into this marketplace."
Zero barrier to exit
And thirdly, openness, "because all technology has the
shelf-life of a banana", says McNealy. "You need to migrate to
the next generation or a new supplier, and the zero barrier to
exit philosophy we offer provides the most flexibility for the
carriers long-term, so they don't get trapped into a mainframe
or PC-like, or a Microsoft-like decision."
Sun's open source interface gives "the lowest barrier to exit"
for systems developers, he explains. "If they write to a
mainframe they're stuck. If they write to Windows, they are
stuck. There's no second source. We have open source, open
interface. We give them the lowest barrier to exit to the next
There are, he says multiple versions of Unix and Solaris "that
have been ported to and are certified to run on more than 700
non-Sun machines". That gives companies "an enormous choice in
hardware, operating system, middleware, platforms and migration
path". But, he huffs, "people are still stuck on
As the industry is changing, the really big question for an
operator to answer is whether it is focussing on a
carrier-based model, "just store and forward packets", or
whether it is "going to get into something that's a little
stickier", he says.
"They're all struggling with the question: 'Are we a carrier
or are we a full service provider of network-based services?'.
Everybody's trying to figure out how to be sticky, how to lower
churn, how to raise ARPU. There's been a lot of companies
who've lost focus on their voice services, specially in the
wireless space. Staying focussed on voice is very
And he's concerned about the changing relationships between
operators and the new internet companies. "Does AT&T
partner with Yahoo!? Great. But then does Yahoo! announce
instant messaging and voice over IP and go after AT&T's
revenue base? Oops," says McNealy.
Partner or competitor?
"There are always those kinds of challenges. Is MSN —
as Microsoft — a partner, a technology supplier, or is
MSN a competitor longer term for subscriber management? These
are the questions everybody's trying to figure out. Who's my
partner, who's my supplier, who's my competitor, who's trying
to get the subscriber dollars and how?"
That's why McNealy is determined to make it clear that Sun
isn't competing with the operators. "We're not doing an MSN, a
Google or a Yahoo! service. We're not doing a voice over IP
service. We're not doing an instant messaging service," he
says. "Our strategy is not to compete with the cable companies,
the internet service providers or the telcos, but rather
provide them with tools to improve churn and ARPU and
How are operators managing the challenge of deciding their
future route? "I don't want to do public performance reviews of
my major customers but I do believe that Microsoft and Google
and Yahoo! are in very interesting and quite strong positions
to offer things like voice over IP and IPTV and those sorts of
things on their own websites," says McNealy.
"People are probably more affiliated with their internet
service provider than they are with their carrier — in
terms of stickiness, where their content is, where their
So if customers are drifting to MSN, Google and Yahoo!, how
can the carriers pull them back? "There are two ways to do it,"
says McNealy. "One is to buy your way into it. There's always
that acquisition challenge. The other one is to start providing
more value-add services — mail, calendaring, instant
messaging, VoIP, IPTV, all of those sorts of things."
Where are the new ideas?
But that's not easy, he readily admits. What they really need
to be doing is come up with ideas such as MySpace, Facebook or
YouTube, "start generating some properties of their own", he
says. He points to cable operators such as Time Warner and
Comcast which have their own content, which they can use to
barter with other operators for yet more content.
Where are with in this struggle for the subscriber? What are
McNealy's views on where customers' loyalties will go?
"I would hate to guess how it's all going to shake out," he
says. "Does MSN win, does Microsoft win because they control
the desktop? Does Google win?"
On the other hand, a big carrier can drive up the quality of
service — a carrier such as Deutsche Telekom or BT, he
says. "Deutsche Telekom has all of the pieces — the
systems integration business, they have T-Online, wireline and
wireless. They have the pieces to be a full service provider."
But as to whether they or the internet companies will win, he
admits candidly: "I wish I knew."
McNealy believes operators have a great opportunity to develop
new web-based services for both consumer and enterprise
customers as a way to win extra revenue. He calls this concept
"the webtone switch", and he compares it with the "dialtone
switch", the conventional telephone exchange that provides
dialtone to every phone.
"The webtone switch is basically a grid infrastructure with
storage that would provide the webtone on top of the dialtone,"
says McNealy. "You can run any supercomputer app you want on
the grid as webtone."
There are already some applications that use this: he cites
salesforce.com, the online CRM service that companies can use
at a rate of $65 a month upwards. "Google is webtone: you don't
buy their grid, you just use their grid. And eBay is webtone,"
"Why aren't AT&T offering a webtone grid for any new
start-up to use," he asks, "so they can just write their
service — like the next Amazon could write their
commerce software on that grid, or the next eBay could do their
selling application, their bid/ask application. Even the next
Google could write their search environment on that grid, and
save all of these new start-ups all of the investment in a data
centre, and they can just start writing software."
Sun is promoting what he calls "the dollar per CPU hour grid
computing model", including computing power, storage and
display. "That's kind of telco-meets-IT," he says. "It's the
way to drive ARPU — and it's general purpose compute
capability so somebody could run their SAP or Oracle
application on there. They could run their messaging or their
archiving. They could literally run their desktop on the server
and just display it on a thin client environment."
Google is already "starting to go in that direction" with its
web-based spreadsheets and other applications. "They're
building an office grid, if you will."
This gets McNealy — speaking from his home in
California — really warmed up to the theme: "We don't
have a telephone switch here in this house. We don't have
telephone switches in our sales offices. We use the telco
provider. So why would we have a little data centre —
and by the way a PC is not such a little data centre any more?
Why do we all carry little data centres around with us when the
network is the computer?"
The big conversations
This is "one of the big conversations" he's having with the
telecoms industry: "Why don't you take on the PC administration
nightmare that everybody has, as well as the data centre
nightmare that everybody has, by putting that in your own
switchroom, and marrying it to your high-speed network, and
taking advantage of the availability of the network to
centralise that stuff and then drive much better
In the old days, he notes, "people used to hug their money,
put it in their mattress". And then it became safer to put it
in a bank vault. "And I don't want to keep data in my house, so
we put it out on the network. Mobile computing should be thin,
because the networks are getting very good."
Telcos are starting to think how they can take over
opportunities in IT, he says. "I tell you what they like about
our story. One, they do like this model because they see a way
to go after enterprise dollars and to go after consumer
dollars. Two, they see that we're not going to compete with
them like Microsoft in the consumer space and IBM in the
enterprise space. IBM Global Services is the one that is out
there generating all these custom data centres instead of
getting people to go use a standard telco-based data
So are operators listening to him? How does he make them focus
on these new ideas? "That's my job and that's why I get in
front of them and talk to them about the new opportunities and
the ways we could work together."
So does he see them converting to the view that this is the
way to go? "It depends on who you talk to and what their areas
of focus are — and whether they've been burned," says
"Some of them are working with Microsoft on IPTV. Now is that
letting the shark into your bathtub? Is it going to work? Is it
going to scale? Those are all questions and we're having these
conversations. We've got a very open, low barrier to exit,
standards-based approach. We're doing that with some carriers,
and we're insurance policies with others. Those are the kind of
conversations we're having." GTB
The open-standards platform
Sun is recruiting vendors to create a consortium of
suppliers of open-standards telecommunications. The
idea behind it is to reduce the cost and increase
interoperability by developing a standardised platform
which individual vendors can turn into systems that are
targeted at specialised applications.
The Telecommunications Platform Product consortium
— or TPP — is still partly under
wraps at the moment, but it is understood that Sun is
recruiting a number of equipment vendors to support the
TPP "is initially targeted at the service layer, plus
operations and administration, but eventually it will
also operate at the core layer", says Peter Ewens, vice
president of Sun's OEM group. "The benefits are lower
cost, a greater degree of interoperability and ease of
deployment." The individual vendors will add value to
the standard platform, a "base-level computing
platform" which Sun will supply.
The specification of the platform will be "driven by
the consortium", says Ewens, who adds that other
vendors than Sun might also deliver platforms to the
TPP specification. "We intend to make the definition
public, and it will be an open specification," he
Sales of the platform will not be restricted to
members of the consortium, he adds. "The more customers
there are the more everyone benefits — the
cost will be amortized over a greater number of
Darrell Jordan-Smith, vice president for
telecommunications at Sun, says that the platform will
help network equipment providers reduce the cost of
systems they supply to the service providers.
"It's a service delivery platform, a carrier-grade
platform. Service providers are still trying to figure
out what services to offer on their networks and they
need to reduce costs. Using open standards will give
them flexibility. Operators will be able to roll out
new services in only 90 days, when it used to take a
Equipment vendors will be able to differentiate their
systems by adding value — a process close to
systems integration, he suggests. "We at Sun will
supply carrier-grade middleware. It's a carrier-grade