Jan 27, 2010 12:53PM

Where Life Takes Me Next...

You've probably seen the news - the Sun/Oracle transaction has closed. With the passing of that milestone, I can once again speak freely.

Having had nine months to accelerate down the runway, there's not a doubt in my mind Oracle's takeoff and ascent will be fast and dramatic. I wish the combined entity the best of luck, and have enormous confidence in the opportunity.

Greg Papadopoulos, one of the brightest people I've ever known, once made a very interesting statement - all technology ultimately becomes a fashion item. It was true for timekeeping, and it's definitely true of computing and telecommunications. To that law, I'd like to add a simple corollary: the technology industry only gets more interesting. It's been true my entire life.

As for where life takes me next, you should follow me via Twitter at openjonathan to find out. I'll also be rehosting this blog (and again, stay tuned to Twitter by following me here). I expect to do my part to keep things interesting.

Thank you for your support and commitment. I wish you all the best of luck building, taking advantage of (and likely wearing) the future!

Jonathan Schwartz
CEO, Sun Microsystems, Inc.
A Wholly Owned Subsidiary of Oracle Corporation.

May 18, 2009 09:37PM

Will the Java Platform Create The World's Largest App Store?

To say the past few months have been a whirlwind is an understatement.

And thanks for the reminders, I recognize it's been a while since I've posted a blog. For reasons why, just click here to read the background. And before you ask, SEC regulations and securities laws limit what I can discuss about the Oracle transaction, so don't expect any insights on the topic.

But there's still a ton going on at Sun - with JavaOne (June 2nd, in San Francisco) coming up fastest on the horizon. We're preparing to reveal what I believe is one of the most important advancements ever for the Java community - and this time, it's all about revenue and business opportunity.

As you know, we're fond of throwing great big numbers around when talking about Java's distribution: billions of PCs', mobile devices, and smartcards, millions of enterprise servers, set top boxes, Blu-Ray DVD players and a growing number of very cool Kindles (buy one here). Very few technologies on the internet have anywhere near that kind of distribution muscle. Adobe's Flash, and Microsoft's Windows are just about its only peers when measured by runtime volume.

But not all Java runtimes are the same. For most devices, from RIM's Blackberry to Sony's Blu-Ray DVD players, original equipment manufacturers (known as "OEM's") license core Java technology and brand from Sun, and build their own Java runtime. Although we're moving to help OEM's with more pre-built technology, the only runtimes currently that come direct from Sun are those running on Windows PC's.

And oddly enough, that's made the Windows Java runtime our most profitable Java platform. I thought I'd provide some insight into that business here, and then introduce a project we're planning to unveil at this year's JavaOne, known internally as Project Vector.

As a business model, traffic for traffic's sake isn't that interesting (but never confuse traffic with adoption). Free internet traffic is only interesting if a third party is willing to pay to drive distribution of their content to your audience - from highway billboards to internet runtimes, businesses will pay for exposure and distribution to drive their business, whether through branding/advertising, delivering news, or selling movies or retail products. "Getting distribution" used to mean getting access to bricks and mortar distributors in shopping malls - nowadays, it means having another company propel your content into the market via the internet.

Now to that point, a few years ago, we called our friends at one of the world's largest search companies (you can guess who), to talk about helping them with software distribution - because of Java's ubiquity, we had a greater capacity than almost anyone to distribute software to the Windows installed base. We signed a contract through which we'd make their toolbar optionally available to our audience via the Java update mechanism. They paid us a much appreciated fee, which increased dramatically when we renegotiated the contract a year later. Distribution was becoming quite valuable to us and to them - and given the "take" rates, or the rates at which consumers were choosing to install new content, the Java audience saw value in the new application.

The year following, the revenue increased dramatically again - when an aspiring search company (again, you can figure out who) outbid our first partner to place their toolbar in front of Java users (this time, limited to the US only). Toolbars, it turns out, are a significant driver of search traffic - and the billions of Java runtimes in the market were a clear means of driving value and opportunity.

The revenues to Sun were also getting big enough for us to think about building a more formal business around Java's distribution power - to make it available to the entire Java community, not simply one or two search companies on yearly contracts.

And that's what Project Vector is designed to deliver - Vector is a network service to connect companies of all sizes and types to the roughly one billion Java users all over the world. Vector (which we'll likely rename the Java Store), has the potential to deliver the world's largest audience to developers and businesses leveraging Java and JavaFX. What kinds of companies might be interested?

If you talk to a Fortune 500 company or a startup, pretty much everyone craves access to consumers - which is the one problem we've solved with the Java platform. Most folks don't think of Sun as a consumer company, and largely we're not, but our runtimes reach more consumers than just about any other company on earth. That ubiquity has obvious value to search companies, but it's also quite valuable to banks looking to sign up new accounts, sports franchises looking for new viewers, media companies and news organizations looking for new subscribers - basically, any Java developer looking to escape the browser to reach a billion or so consumers.

How will it work? Candidate applications will be submitted via a simple web site, evaluated by Sun for safety and content, then presented under free or fee terms to the broad Java audience via our update mechanism. Over time, developers will bid for position on our storefront, and the relationships won't be exclusive (as they have been for search). As with other app stores, Sun will charge for distribution - but unlike other app stores, whose audiences are tiny, measured in the millions or tens of millions, ours will have what we estimate to be approximately a billion users. That's clearly a lot of traffic, and will position the Java App Store as having just about the world's largest audience.

This creates opportunity for everyone in the developer community - and specifically, for any developer (even those not using Java/JavaFX) seeking to reach beyond the browser to create a durable relationship with their customers (and btw, don't forget to join us for CommunityOne - the day before JavaOne, June 1st, same location - click the graphic to learn more). Remember, when apps are distributed through the Java Store, they're distributed directly to the desktop - JavaFX enables developers, businesses and content owners to bypass potentially hostile browsers.

For details on how Vector will work, when it'll be available, how to submit your content or application - alongside insights into Project Vector's technology, roadmap, features and business model, come see us at JavaOne... In the interim, you can learn more about the latest JavaFX news at sun.com/javafx, and download the latest JavaFX design tools at netbeans.org.

And although we obviously don't comment on rumors, we might even have a special guest or two at JavaOne.

See you in San Francsico (or on the webcast...)!

Mar 18, 2009 10:54PM

Sun's Cloud (4 of 4)

In the last three updates to this blog, I've tried to set out a clear direction of where Sun's headed. I've talked about our three basic priorities:

1. Technology Adoption
2. Commercial Innovation
3. Efficiently Connecting Adoption and Commercial Opportunity.

I'm hoping you've got a clear picture surrounding the first of these two priorities - how and where we drive software adoption, and focus our commercial efforts.

So now I'd like to talk about the linkages - while also addressing one of our biggest strategic challenges, our scale.

Selling Scale
First, why is scale a challenge for Sun? To be clear, I'm not talking about purchasing scale. As I've said before, we use innovation to drive product profitability, not simply bulk purchasing leverage. The scale to which I'm referring is selling and marketing scale. With Sun's current products, we could be selling to twice the number of customers we currently serve - our products appeal to an audience far greater than our customer base. But we're limited by our size - our sales and partner force has a tenth the resources of our biggest peers.

This is a particularly tough problem to solve in the midst of an economic downturn. Growing customers while reducing employees is an obvious challenge.

But it's also a huge opportunity. We have fewer than 100,000 customers worldwide. Using just one example, there are more than 10,000,000 MySQL users globally - reaching an additional 1% of them could more than double our customer base. The question is obviously how - we know we're relevant to those users, but we and our partners can't very well put sales reps on airplanes to visit all 10,000,000.

To answer that question, I'd like to examine what may seem like a tangential topic... the search business.

Discovering Intent
Now, why is the search business so valuable? Because it's an exceptionally efficient means of harvesting intentionality - if a consumer is searching for "flights to Cairo," the odds are good she's in the market for a trip to Egypt. That intent represents a ton of value for the airlines, hotel chains and car rental companies that serve travelers to Egypt. Whoever first recognizes that intent can broker a relationship between the traveler and those businesses, and charge a healthy toll for the privilege (that's the heart of on-line advertising). A discount airfare to Cairo, presented alongside the results of a "flights to Cairo" search, has a far higher likelihood of generating a ticket purchase than an unqualified billboard or ad in a newspaper. It's easier to find needles in haystacks when the haystacks are sorted by needle count.

Now I want you to think about the model I've described in these last few entries - Sun's business starts with exceptionally high volume free software adoption, literally millions of assets each day. What does that have to do with search?

Well, what is a customer telling us when they download software? Depending upon what they're downloading, they're telling us about what they value. If you're downloading MySQL or ZFS, you're more than likely storing data. If you're downloading OpenOffice.org, you're likely to create, save and maybe print documents. If you download VirtualBox, our virtualization software, you're telling us you work with multiple operating systems. An enormous stream of this kind of data funnels into Sun every day - signaling intent from customers spanning every corner of the world's technology market. That's the foundation of our analytical marketing activities.

Individuals and organizations opt-in to tell Sun, by what they download, what they're intending to do - which gives Sun a unique vantage point surrounding what comes next. If your company is downloading Lustre, the leading parallel file system for supercomputing, the odds are good you're on your way to building a supercomputing facility. Sun uniquely optimizes our solutions around Lustre, and we target those offers to an obviously interested user community. This is one reason we've been growing in the supercomputing market. We use software innovation to drive preference for Lustre - the majority of top supercomputing sites now use it. We target our product and service development to optimize for facilities using Lustre. And we target our selling and marketing activities around users that identify themselves to us - by downloading Lustre, or whitepapers and content related to it.

But as I've said, the majority of free software users aren't going to be building million dollar supercomputers, nor will they be issuing million dollar software purchase orders. And therein lies a new opportunity - one that helps us address our scaling challenges, as well.

Introducing Sun's Cloud
That opportunity is for Sun's Cloud - which we just announced today - to deliver commercial network services to the entire free software community.

Let's start with what we announced today.

This morning, Dave Douglas, the SVP of our Cloud Computing business, announced we're building the Sun Cloud, atop open source platforms - from ZFS and Crossbow, to MySQL and Glassfish. With more than 4,000 developers hard at work on these enabling elements, and a twenty year history of network scale software innovation, we're very comfortable with our technology lead. By building on open source, we're also able to radically reduce our costs by avoiding proprietary storage and networking products.

Second, we announced the API's and file formats for Sun's Cloud will all be open, delivered under a Creative Commons License. That means developers can freely stitch our and their cloud services into mass market products, without fear of lock-in or litigation from the emerging proprietary cloud vendors.

Third, unlike our peers, we also announced our cloud will be available for deployment behind corporate firewalls - that we'll commercialize our public cloud by instantiating it in private datacenters for those customers who can't, due to regulation, security or business constraints, use a public cloud. We recognize that workloads subject to fiduciary duty or regulatory scrutiny won't move to public clouds - if you can't move to the cloud, we'll move the cloud to you.

The Developing Cloud
How will developers use the cloud? Let me give you a very basic example - inside Sun, we're just now rolling out a version of OpenOffice extended for the cloud. If you take a look at the File menu in this picture, you'll see menu items that don't exist in your version - but will exist in Sun's distribution. "Save to Cloud," and "Open From Cloud..." will enable OpenOffice users to use our public cloud to store and retrieve documents from the network, rather than their PC. We're in beta deployment inside Sun as we speak, and with around 3,000,000 new users joining the OpenOffice community every week, the opportunity to deliver this as a public service, to nearly 200,000,000 users, adn their employers, is really exciting.

The same applies to, say, VirtualBox - our desktop virtualization product, used by millions of users across the world. VB users will see a new feature later this year, offering an upload service to those wishing to archive or run multiple OS/application stacks - in Sun's Cloud. Those users have already told us they run multiple OS's - now that we know their intent, delivering a cloud to add value is a simple step forward. The same will apply to Glassfish and NetBeans, whose adoption helps us discover and recruit application developers - who might have a similar interest in running and/or storing apps in the cloud.

So in addition to offering the basic infrastructure services developers have come to expect (storage, compute, bandwidth), we'll be bringing tens of millions of free software users a library of cloud services and design patterns - designed to enhance the value they derive from the underlying software, while encouraging community development around open clouds. And all this will be based on what users have already told us they're interested in.

The Network is the Computer
To me, this is the embodiment of Sun's vision statement, the Network is the Computer. The breadth and quality of Sun's open source software is well known, and has created a user community that numbers in the hundreds of millions across the globe. The evolution of Sun's cloud and cloud services, from remote storage to remote execution, will allow us to grow our market, and the value we deliver to customers - even in, and perhaps amplified by the economic downturn. Clouds are just as interesting to students and startups as they are to Fortune 500 customers. If you're interested in Sun's Cloud, just head over to sun.com/cloud.

The network is the computer has always been one of the most powerful statements describing the future of the technology we build. For the first time, we expect to translate that mission statement to our business model, investing in the free software community to grow our market, and leveraging the network to grow the value we deliver - to a market, and partner community, far larger than Sun.

And in that connection between adoption and commercial opportunity, we see near limitless opportunity, measured only by the scale of adoption we can achieve in a world where bandwidth is as pervasive as electricity, and free software adoption continues to accelerate.

With that said, this brings to a close this discussion of who Sun is, and where we're headed. I hope it's been useful. We're a very simple business, we strive to do three basic things. To drive free software across the world, both because it's good for the planet and innovation, and it's good for our business. Second, to deliver the world's most compelling technologies to captivate developers and deployers, alike. And finally, to put those assets to work in creating opportunities in the cloud, for our customers, our partners and for Sun, as well.

Thank you for your time and attention, I'll see you next time.

Mar 11, 2009 10:26PM

Sun's Network Innovations (3 of 4)

As I referenced in my prior entry, I'm reviewing Sun's three major strategic imperatives, and our progress going in to next fiscal year. Our strategic imperatives, in order, are:

1. Technology Adoption
2. Commercial Innovation
3. Efficiently Connecting 1. and 2.

This entry focuses on the second, Commercial Innovation, and reviews our core revenue products, services and strategies.

By now, you understand Sun's approach to growing the market - driving adoption of key technologies drives Sun's addressable market. Once you're using one of our fundamental technologies, Sun's innovations focused on those technologies are relevant to you. The beauty of free distribution is you don't have to pick customers, they pick you.

Three very valuable markets emerge from this adoption. I'll focus on the first two here, the products and services we sell.

The first market is obvious. Software isn't downloaded onto air.

Systems Innovations
There's always some system platform underneath software - sure, it might be a laptop in a dorm room*, but it's just as likely to be into a Fortune 500 company, attached to servers, storage and networking equipment. All told, this datacenter systems market is more than $150b annually.

And in this datacenter market we build exceptional systems - screaming fast entry level servers, all the way up to the most efficient mainframe class systems. We build super fast storage, from our new flash based platforms to eco-efficient tape and archive solutions. We also build the world's fastest networking switches, powering the planet's largest supercomputers. We cover the entire spectrum, and work with the smartest partners in the industry to serve customers across the globe. Although we focus on our own technologies, like Java, MySQL and Lustre, we also optimize for VMware, Microsoft's Windows and we're generally recognized to run Oracle better than anyone on the planet.

Now, you heard me call these our Systems products, not just hardware products. These systems are obviously more than just naked components, they're engineered with remote management and monitoring, component redundancy, integrated virtualization, and on board storage and networking. That's why our margins are higher than the industry's***. I'm very proud of our Systems team, they are the most talented platform engineers on earth, and they earn consistently stellar reviews.

But where's this first market headed? Here's where it's going to get interesting.

Datacenter Systems Convergence - Who Plays? Wins?
As I've said before, general purpose microprocessors and operating systems are now fast enough to eliminate the need for special purpose devices. That means you can build a router out of a server - notice you cannot build a server out of a router, try as hard as you like. The same applies to storage devices.

To demonstrate this point, we now build our entire line of storage systems from general purpose server parts, including Solaris and ZFS, our open source file system. This allows us to innovate in software, where others have to build custom silicon or add cost. We are planning a similar line of networking platforms, based around the silicon and software you can already find in our portfolio.

We believe both the storage and networking industry's proprietary approach, and their gross profit streams, are now open to those us with general purpose platforms. That's good news for customers, and for Sun.

At the heart of this convergence is Solaris - enabled by technologies such as ZFS (around which we're building our entire storage line), and Crossbow (around which you'll see us build some very compelling networking products). Technologists interested in ZFS and Crossbow can visit OpenSolaris.org, or request an OpenSolaris CD (click the CD image).

I've provided a picture here to make the point - these three industries (servers, storage and networking), are converging, driven by the raw performance of the underlying server operating system and microprocessor.

That means these adjacent markets are all open to Sun and the Solaris community. Leveraging inexpensive, general purpose components is one big advantage for us, but there are others - using a general purpose OS allows us to easily embrace specialized components (from flash memory to GPU's), or adapt to new storage or networking protocols entirely in software. The underlying OS and server are so fast, these extensions and enhancements are simple feature updates, and ones we can leverage across servers, and storage and networking.

This isn't to say the networking or storage companies don't have their own operating systems. They do, but in both instances, they're proprietary, have tiny volumes, and despite paying lip service to open standards and the Linux community, their core operating software is unavailable to developers, it's truly proprietary. Their niche OS's also lack cross industry support, which is why our Solaris OEM agreements with IBM, Dell, Intel, Fujitsu and HP are so important to our end customers - they know they'll never be locked in. Today's storage and networking vendors remind me of the server vendors in the late 1990's - with expensive software bolted to expensive hardware. Ultimately forced open by innovation.

At Sun, open source isn't for servers. Open source is for datacenters.

Where's the Money?
Let's also look at the financial backdrop to this convergence. For these networking and storage vendors, entering the server market means suffering profit degradation - the server industry is vastly more competitive than the storage and networking marketplace.

On the other hand, as Sun grows into the storage and networking markets, we're thrilled with higher profit margins. We're unique among platform vendors in being able to deliver Servers, Storage, Networking and Virtualization on our own terms, very well integrated and at our own prices. How will we differentiate against our peers?

Simple. Integration, innovation, and as a result of building atop open source and commodity components, we are the low cost supplier. They, on the other hand, will be forced into all kinds of contorted partnerships and complex reselling arrangements. They may ship the boxes, but they won't control the platform software - or profit streams.

How is our Systems business doing? The portions of this business sensitive to software adoption, primarily the low end of all these products, is doing quite well, growing double digits**. The weakness in our Systems business is really focused on the high end. This reflects really two things - the first is the deferrability of high end system purchases. Our high end business was up 20% a little over a year ago, it was down more than 20% in the December quarter of 2008 - across the industry, customers are holding off on big ticket purchases.

The second, and arguably more important headwind was a decision made back in the 1990's to cancel Solaris on Intel, in the belief it would protect Sun's SPARC hardware business. Conversely, that mistake destroyed a generation of Solaris developers, and accelerated the rise of alternatives to traditional SPARC hardware. And now you understand why we prioritize developers - they are the seeds from which great forests grow. If you don't water the roots, the trees wither.

But how do you make money giving software away to developers? Well, let's switch gears, and talk about Software and Services.

When Free is Too Expensive
One of my favorite customer stories relates to an American company that did nearly 30% of its yearly revenue on Christmas Day. They were a mobile phone company, whose handsets appeared under Christmas trees, opened en masse and provisioned on the internet within about a 48 hour period. When we won the bid to supply their datacenter, their CIO gave me the purchase order on the condition I gave him my home phone number. He said, "If I have any issues on Christmas, I want you on the phone making sure every resource available is solving the problem." I happily provided it (and then made sure I had my direct staff's home numbers). Christmas came and went, no problems at all.

A year later, he was issuing a purchase order to Sun for several of our software products. To have a little fun with him (and the Sun sales rep), I told him before he passed me the purchase order that the products were all open source, freely available for download.

He looked at me, then at his rep, and said "What? Then why am I paying you a million dollars?" I responded, "You can absolutely run it for free. You just can't call me on Christmas day, you'll be on your own." He gave me the PO. At the scale he was running, the cost of downtime dwarfed the cost of the license and support.

Numerically, most developers and technology users have more time than money. Most readers of this blog are happy to run unsupported software, and we are very happy to supply it. For a far smaller population, the price of downtime radically exceeds the price of a license or support - for some, the cost of downtime is measured in millions per minute. If you're tracking packages or fleets of aircraft, running an emergency response network or a trading floor, you almost always have more money than time. And that's our business model, we offer utterly exceptional service, support and enterprise technologies to those that have more money than time. It's a good business.

All in/all up, our Software business is among the fastest growing businesses at Sun. I've attached our latest financial summary at the end of this blog. We span network identity (built with the OpenDS community), application infrastructure (biult with Glassfish and OpenESB), data management (built with MySQL, ZFS and Lustre), embedded software (such as Java, and the emerging JavaFX), alongside our core operating system and virtualization software (Solaris, OpenSolaris and VirtualBox). These open source platforms generate, alongside the services attached to them, over a billion dollars a year, making Sun by far and away the world's largest open source software company. (For those that continue to ask if we make money with Java, the answer is yes, it's on a ramp to hit about $250m this year - one of our best businesses - and that's just Java on consumer devices, excluding servers).

Every day, these products are being adopted globally, driving university curriculum, corporate trials and design wins, influencing skills, even supporting Presidential campaigns. We know not every download yields revenue or users, but they do yield awareness and trials - a small, but intensely valuable portion of which yields revenue and profit. Our sales reps see the purchase orders at the point of value, not at the point of download. The revenue's recognized over the period of the Service contract - a business model the rest of the industry, at least for mass market products, will inevitably adopt. Fighting free and open software, like fighting free news or free search, is like fighting gravity - and btw, gravity gets a lot stronger during economic downturns.

Conclusion
And in a nutshell, that's how we monetize adoption - with targeted, high value innovations.

We deliver the world's most effective and efficient Systems portfolio, spanning x86 and SPARC servers, storage and networking. And the world's most appealing Software and Services products, spanning embedded software to high performance file systems.

We call all these products network innovations. I know that defies industry categorization, but that's what innovation's all about, defying categorization.

I've only touched on two of the three opportunities opened by mass adoption. And with that as a teaser, I invite you to return for the final blog entry, talking about what might be the most valuable of them all - a market enabled by the innovations described above, and set to transform the entire marketplace. Embodying the phrase, The Network is the Computer.

See you then.

-----------------------

* and before you dismiss those users, some of the world's biggest internet companies/datacenters were started on laptops in dorm rooms... a trend I expect to accelerate.

** Sun's x86 systems business, for example, grew over 11% last quarter, when both HP and IBM's comparable businesses shrank in double digits. For those wondering "how do you differentiate?", just ask our customers.

*** Compared to other industry standard server vendors.

Mar 06, 2009 09:35AM

Technology Adoption (2 of 4)

As I referenced in my prior entry, I'm reviewing Sun's three major strategic imperatives, and our progress going in to next fiscal year. Our strategic imperatives, in order, are:

1. Technology Adoption
2. Commercial Innovation
3. Efficiently Connecting 1. and 2.

This entry focuses on the first, Technology Adoption. Adoption is a non-economic phenomena, no money is spent, only time - yet it has extreme financial consequences. Let me give you an example.

I was with a big customer of ours last year, and reading through my account briefing before the meeting, I knew we were doing well. An analysis of their download activity showed they were heavy users of Solaris and OpenSolaris, and they had a large internal community of MySQL users, as well. In the meeting, their CIO said "we love where Solaris is headed." I then asked if we could help with MySQL, and he said... "I banned it."

Not exactly a buying signal.

I was stunned. I asked, "why?" He responded, "Oracle is our global standard, and with 20,000 developers, people need to follow the rules." I said we had a very good relationship with Oracle, and started talking about how fast Oracle runs against our new Open Storage products. Until he interrupted me, "...but my ban failed." What? "We hire lots of people out of college every year, and they all come in knowing MySQL. All my prototypes are written to MySQL, and now I have a big base of MySQL apps I don't want to port, and a bunch of MySQL programmers I don't want to retrain. So I'd like a commercial relationship."

In a nutshell, that's adoption in action. Change in IT isn't just a top down phenomenon - it's more often bottom up*.

Innovation vs. Reselling Innovation
What's the cost of missing that adoption? For Sun to resell a 1-way x86 server running Microsoft's Windows or Red Hat yields (at best) a 10% gross profit margin. Very few companies have the scale to survive on those margins. More to the point, when you resell someone else's products, your customer relationship isn't built with the CIO or technology directors, it's built with their reverse auction web site. For technology companies, the same applies to reselling any product you don't own - it's impossible to differentiate with anything more than a cheaper price. A price your supplier can, and will always, undercut.

Alternatively, when a user picks our products - when they build their storage on ZFS, their network on Crossbow, or their application on MySQL, independent of whether they've paid, they've created an opportunity for Sun - going forward, there's only upside. It's called positive option value.

Not to dip into finance 101, when the net present value of a lifetime revenue cycle exceeds the value of a one time purchase, a product or service that initiates the payment stream is either freely distributed (if it has no marginal cost, like software), or subsidized (if it has a hard cost). That's why you see so many free credit cards, free checking account, free mobile phones, free month's rent, free social networking, etc. In the technology world, free is the new black.

Free Markets
That's also why the internet's most valuable brands are *all* free - Amazon, Google, EBay, Skype, Yahoo!, Facebook, Hi5, MySpace, Baidu, TenCent, etc. Those brands reach more and have greater affinity than just about any other consumer brands. And in the technology marketplace, Linux, Java, MySQL, Firefox, Apache, Eclipse, NetBeans, OpenOffice.org, OpenSolaris, the same applies - free is a universal price, requires no currency translation, and reaches the longest tail of the market.

Now, could Amazon charge you to shop? Could your bank charge you to open an account? Google charge you to search? Could Sun charge people to download MySQL or OpenOffice.org? Sure, we could also destroy those brands in a matter of days. If you're not free, by definition you miss serving those that can't afford, or aren't ready to pay - which means your audience is capped, or destroyed if your competition is already free.

Microsoft's the only company I didn't include in the above list - and although I consider them a stupendously great brand, they're the only company that can really approximate free while making money on the distribution of their products. The fact is they're bundled on almost every PC across the planet, and appear "free" to the users who use those PC's - they've amassed immense power with their distribution, and few users believe they're paying for Windows when they buy a personal computer.

Thus, to developers (Sun's target market) with Windows PC's, Microsoft's product are, in effect, already free. (As an aside, notice Microsoft inexorably moving toward free distribution, too, to reach new users - at some point, you can't bundle every product on every computer, it'd be like printing a Sunday edition of the newspaper every day of the week).

This is exactly why we freely distribute our key software assets all over the world - if we didn't, users and developers might pick someone else's free product (or simply use the one they assume to be free). And if they picked someone else's product on which to build their business or their application, Sun becomes a reseller - which isn't our mission or business model. It's a free market, in every sense.

The customer I referenced in my first entry

that said, "I haven't visited Sun in five years, but all of a sudden you seem to matter to my developers" was saying he was seeing exactly that, a lot more of our products used by his developers - from VirtualBox to MySQL, Glassfish to ZFS. For some users, and nearly all developers, budgets aren't measured in dollars, they're measured in time and attention - if you want those audiences to spend their time and attention with you, you have to earn it. If you earn it, a preference forms. For Sun, we drive that preference over our competition, primarily proprietary alternatives.

Our Products are Our Ads
Now, the words "driving preference" are used by the advertising industry when talking about branding. Businesses brand or advertise to drive awareness of or preference for their products. In the case of a Nike or Toyota, both have to spend fortunes to "buy media," or acquire the ad space (or airtime) through which they'll present, free of charge to consumers, the images or content they feel best represents their brands.

Why doesn't Facebook advertise? Because Facebook itself is a branding experience. Using Facebook drives preference for Facebook. And their audience, in users, outreaches just about every media company on earth. It would make no sense for them to buy media, they are media.

For the audiences Sun cares about, those building, deploying or buying technology, we've got a similar reach. By being freely distributed, our products build their own audiences. And using the products, from Glassfish to ZFS or NetBeans, creates a branding experience (and a wildly positive one, if we're doing our jobs well). So why don't we advertise in traditional outlets? Well, every day, the number of people using our products, getting that positive branding experience, eclipses nearly all major newspapers globally, combined.

By proliferating Sun innovations, even encouraging derivatives that will never drive revenue to Sun, we are creating preference for open source, awareness of Sun as an innovator, and displacing proprietary vendors that can't build comparable audiences. That preference has value to us, and to the broader communities in which we participate. The value spans awareness, market penetration, skills development, ecosystem expansion - a healthy community is a growing community.

How else is adoption or preference valuable? Volume adoption attracts application developers, and can drive tipping effects - once one independent software vendor, or ISV, picks your platform, others that work with that ISV follow suit. If you do a good job, you lead an avalanche of ISV's to pick your platform - which makes it more appealing to end users. That's why Red Hat has such a durable Linux model - once Oracle picked Red Hat as the Linux to which they'd first certify Oracle's database, the ISV's that relied on Oracle certified only to Red Hat, which tipped the market to Red Hat so strongly that not even Oracle has been able to undo that grip.

So adoption drives the ecosystem, which drives more adoption and more expansion... you get the idea. It's a virtuous cycle, a cycle that starts with volume adoption.

What Adoption Looks Like
So what does "Adoption" look like? Here's a picture, which shows the ramp we're seeing from free software adoption across the world for some of our key datacenter assets.

For competitive reasons, I won't specify which products are shown, but suffice it to say we're very happy with the ramp, and we love great product reviews - that's what drives the spikes. The troughs are weekends. Bear in mind these are datacenter assets (like Glassfish and OpenSolaris), not consumer runtimes (like Java or OpenOffice.org), so these downloads influence datacenter design. Every day, our software is working hard to drive preference in startups, in government agencies, dorm rooms, ISV's, fortune 100 IT shops, everywhere the internet reaches. Free products reach everyone interested in them, no barriers.

On the consumer side, OpenOffice.org, which certainly promotes Sun's vision of open standards and data formats, reaches nearly three million new users - every week. Adding them to a user base we estimate to be between 150 and 200 million users. Talk about global circulation.

Our products are our brands and one of our most effective means of driving design wins - in front of users, developers and OEM's. In markets as diverse as high performance computing and grid scheduling, web databases, application infrastructure and desktop virtualization. Free distribution and access to source code is our investment in the global developer community. We invest with our code, our ideas and time, and we promote and encourage derivatives. We gain by reaching people we'd otherwise never reach - and earning their attention and engagement. Even if we're never paid, that's positive option value.

Another way of looking at adoption are these "pink dot" maps - they show us where our products are gaining users via opt-in registration. My favorite dots on the map shown are in places we clearly have no sales coverage - I'd like to say hello to our users on the Falkland Islands, thank you for choosing Solaris :)

What's the value of all that adoption? Like the value of search, shopping, or opening a bank account, there's no instantaneous value beyond the fact you've chosen to invest your time and energy in our ecosystem, and not our competition's. At global scale, that makes us an enormously tough competitor for proprietary companies, or those without true innovation. For example, to get a sense for what our proprietary storage competitors are facing everywhere around the globe, Google the phrase, "love ZFS".

But as with all free business models, the real value arises in what comes after free - and that's my teaser to get you to read the next blog entry, focused on our Commercial Innovations.

Thanks, again, for reading, watching and commenting.

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* as I often say to groups of CIO's, "which one of you gave permission to your employees to search on Google?" No one ever raises their hand :)

And to my readers/viewers for whom English isn't your first language... I'm doing my best to talk more slowly. I will redouble those efforts in the next video... thank you for watching!