McNealy Announces Software Price War

Sun Microsystems is proposing to cut software costs by reducing the complexity and expense of installing system software and by reducing expenses at the desktop.

"We are overcharging by a factor of 10 in our industry," Sun CEO Scott McNealy told attendees in an opening keynote at the SunNetwork Conference at the Moscone Center in San Francisco. Asked later at a question-and-answer session whether that meant Sun might undergo additional layoffs, McNealy rejoined, "No, but other companies will."

Sun has declared a price war on the expense of running IT shops, and one of its most obvious targets is the desktop revenue of archrival Microsoft. An estimated $40 billion to 50 billion is spent annually on user desktop software, McNealy noted. If Sun drives down the cost of desktop computing to $10 billion per year and realizes 40% of that revenue, he thinks Sun will come out ahead.

McNealy termed the move a war on desktop computing expenses, but he's done the math and knows that if Sun's move works, it will not only gain 40%, or $4 billion, of available desktop revenue, but Microsoft will experience a loss many times that amount. Sun is offering its StarOffice suite of desktop applications, largely compatible with Microsoft Office, with other user software at a price of $100 per employee per year.

Jonathan Schwartz, executive VP of the Software Group, demonstrated StarOffice's compatibility with Microsoft applications by going to Microsoft's Web site, opening its 10K report to the Securities and Exchange Commission, and examining a category called "unearned revenue." Schwartz promptly recast a chart of Microsoft revenue into one he relabeled, "Sun's potential market."

Sun also is offering a larger systems package, Java Enterprise System, for $100 per employee a year. This package includes the SunOne Directory, Application Server, and a suite of Java 2 Enterprise Edition applications that includes, among other things: Identification/Access Server, Portal Server, E-mail/Messaging Server, Calendar Server, Instant Messaging, Collaboration Server, and the Solaris operating system.

"No more software audits. We're going to trust you," McNealy told attendees. In the past, Sun and other vendors have checked to see how many processors at a given site were running their software and based charges on the CPU usage. He added he would now be able to fire his customer-auditing staff.

The industry will move to simplified, integrated stacks of software at much lower prices, or to software as an online service, he predicted. Sun will lead that movement, he said.

All in all, McNealy displayed six shrink-wrapped boxes that he said represented 225 Sun products reduced to six. "A square foot of software," he said.

Although still willing to zing competitors, McNealy had a less omniscient, more humble tone this year as he noted Dell chairman Michael Dell's remark that Sun wasn't likely to be a long-term survivor in the industry. "I can't thank you enough for supporting us and not reading the press," he said.