Sun's Scott McNealy Recalls Triumphs, Near Misses

Sun Microsystems invented open source code, cloud computing, the Java language and the best open system ever: Solaris. It made the network the computer and it put the dot in dot.com. Its greatness can be measured by how close it came once to buying Apple. If Sun had played its cards a little differently, it could have blanked out Linux.

Why it failed, however, remained a mystery Thursday night to the two men who presided over Sun in its prime, former president Ed Zander and former chairman and CEO Scott McNealy.

Zander and McNealy took the stage Thursday at a meeting of the Churchill Club of Santa Clara, Calif., in the heart of the Silicon Valley. The evening was billed as "an intimate conversation on the legacy of Sun" on what would have been Sun's 29th anniversary. That goal faded somewhat behind a progression of memories and feel good recollections as the evening progressed. Sun was a place that innovated frequently, a place of "hard work, having fun, and sharing," said McNealy in a reflective moment. No one ever explained why a culture that had worked for over two decades for some reason ceased to work.

The audience included many former Sun employees, who had paid $74 as members or $174 as non-members to get in and were glad to see the pair upfront again. From the Q&A, they were clearly in agreement that they missed Sun's free-wheeling ways.

At one point, McNealy disputed the notion that Sun had been on brink of failure when acquired by Oracle on Jan. 27, 2010. "I'm not sure getting acquired for $7.4 billion is a failure. If 29 years ago, someone had asked me would I be willing to sell for $7.4 billion, I probably would have said, 'Yeah, I'd take that,'" McNealy said. As Oracle's offer was announced April 20, 2009, stock analysts said it was a relief to Sun shareholders, who now knew that Sun wouldn't go bankrupt. Earlier in the evening, Zander and McNealy recalled that Sun at its peak enjoyed a market capitalization of $200 billion.

Zander asked McNealy, "Was there any time when you knew you would be big?"

McNealy responded: "No, it just kept happening." After a moment of reflection, he added: "The thing that really launched Sun was Java." The programming language became widely adopted for enterprise applications, and Sun's status as Java’s inventor helped it sell servers and related products in the enterprise and as the dot.com boom unfolded. Sun never seemed to recover its footing when the bust came.

"I wish it had turned out a little differently. I wish I had set it up on a better trajectory, when I stepped down" as CEO, McNealy said. At another point, he added, "I just think it's a tough business. Capitalism is supposed to be driving everybody to produce products at the cost of capital." It was as close as he came to expressing any regrets.

In McNealy's view, Solaris could have outshone Linux. Sun made all the right moves in creating a good operating system, but seemed to be plagued by unexpected market trends and bad luck on timing. The Solaris operating system had its roots in Berkeley BSD Unix, which was one of the first true forms of open source code. Bill Joy, a future Sun employee, sent out copies on tape to other universities at no charge as it was being developed.

So Sun was "one of the first open source companies," creating the NFS networked file system and allowing other companies to use it. But it never established its open source credentials as effectively as, say, Linux vendor Red Hat, McNealy admitted. But Sun saw its version Unix as a commercial system, and McNealy in one memorable exchange swore to Wall Street analysts that he'd never allow it to be made open source code. At the Churchill Club event, he conceded it was a mistake to offer Solaris primarily on Sun hardware; getting an x86 version out and running on Intel hardware was a secondary goal. "The mistake we made was putting it on our own hardware. If we hadn't metal-wrapped it, it would have been more widely adopted. If we had put Solaris early on an Intel box, Linux never would have never happened. We would have been the operating system for all those startups."

Instead, by the time Sun took Solaris for x86 seriously and made both forms of Solaris available as open source code, Linux was already widely established as the operating system for commodity, x86 hardware, and Solaris couldn't displace it.

Likewise, Sun was a pioneer in the adoption of TCP/IP, later to serve as the protocol of the Internet. Berkeley BSD included an efficient form of TCP/IP, adopted by Sun and shipped on its workstations. But Sun failed to benefit from its early positioning as a backer of TCP/IP, McNealy noted.

TCP/IP is the basis of cloud computing, with the network linking computers together into a combined, logical entity, he noted. Sun, by rights, was a pioneer of the cloud as well, he said.

Asked what his best decision was, McNealy answered without hesitation: "Getting Bill Joy on board." Soon after he did so, Sun received a call from an unknown party near Stuttgart, Germany. The caller asked if Sun was the company that had just hired Bill Joy. When he was told yes, he asked what Sun produced, and was told "$10,000 workstations." The caller responded, "I’ll take three," said McNealy. At the time, it was Sun's largest volume shipment, he joked.

As Java took off in the mid-90s, Sun found itself flush with cash and decided to acquire Apple. "We were literally hours away from acquiring Apple for $5-$6 a share," Zander said. (Apple currently trades at $347-$348.) Zander said he was attending an analyst meeting in 1996 at which he expected the next day to announce that Sun was acquiring Apple. But McNealy said the deal fell through because an investment banker for Apple put so many terms and conditions into the deal "that we couldn't do it."

As Sun's revenues shrank in 2008-09 and it became clear the company would become acquired or run out of cash, McNealy said he considered an offer from IBM. In fact, until the day Oracle announced its plans to acquire Sun, most observers were sure IBM would be the buyer. McNealy said IBM didn't make a firm offer, but wanted to take out what he called "an option on Sun." He feared IBM would announce intent to eventually buy Sun, "paralyzing its business, then walk away a year later" with the company left in a shambles. It was another example of the deep mistrust McNealy held for IBM over many years.

Oracle's Larry Ellison, in contrast, showed up with a firm offer and time table, he said. McNealy also was convinced that more Sun jobs would survive inside Oracle than in IBM, where "every Sun job would be redundant" to something IBM already did in hardware or operating systems.

Asked how former Sun employees are doing inside of Oracle, McNealy said, "You know, Larry hasn't called."

Asked about his hardest decision, McNealy said it was "to step down as CEO" in 2004 and yield the post to Jonathan Schwartz. McNealy said he worked 90 hour a week and "I really wanted to step back. My youngest son was 2 at the time, the oldest 9. My Dad was absent a lot. I didn't want to do that to my kids." At another point, asked what his legacy would be, he replied simply, his four sons, not Sun.

Asked who he would hire today, he said he would look for employees with team sports and leadership experience in their background, "the captain of the football team, the leader of the band. If you come from Stanford, I'd probably hire you anyway. They only admit students they have assessed as likely to become leaders ... and I'd know you were very well rested after two years of business school," he quipped.

Former Sun employee Lew Tucker, now CTO of cloud computing at Cisco Systems, rose to good-naturely chide Zander because he had demanded to know, "What are you doing fooling around with this Java stuff."

Zander conceded no one inside Sun initially knew what to do with Java. It had been conceived as a TV settop box system, but its portability aspects -- the ability of the Java virtual machine to run code on different devices -- seemed to make it a networking language at a time when the Internet was gaining predominance.

"It was passed around inside the company. When it was asked what we should do with it, somebody in the room always suggested that we kill it. ... The company tried to kill it at least 10 times," Zander said, but it proved to have more lives than a cat.

Asked what he thought of the Obama administration's bail out of GM, McNealy voiced opposition, although he is a native of Detroit. Instead of railing against Microsoft, as he used to, he thinks the administration's deficit spending is a greater threat to the economy's health than monopolies.

"The Microsoft bashing, was it worth it?" Zander asked him.

"They clearly won. They're still around. Maybe if I had dropped out of school earlier," he said in reference to Bill Gates' and Facebook founder Mark Zuckerberg's early departure from Harvard. McNealy is a graduate of Stanford and Sun originally stood for Stanford University network. The first Sun computer was a workstation for the network.

The full exchange between Zander and McNealy can be viewed for $9.95 at fora.tv.