Jonathan Schwartz: Perspective

Jonathan Schwartz is president and COO of Sun Microsystems. What follows is a partial transcript of his Supernova remarks:

Kevin Werbach: When people think about Sun, they usually think about big iron servers and large-scale customers. Is decentralization a threat to you?

Jonathan Schwartz: The single biggest threat to Sun is in fact the centralization of anything. Then you have the capacity to constrain what happens next. If there's centralization of the desktop and there's only one desktop, what're you going to do? Reach for the server. We believe that an open network and more participants in that network will drive more economic activity. We are among the largest providers of distributed technology the world's ever seen. We need to promote access — and in some sense, commoditization — to every aspect of the network.

"Commodity" is an interesting world. If you look at the edges of this room, you'll see some commodities: a power outlet and a network outlet. What's interesting about commodities is that they represent products for which there is universal and perpetual demand. The largest companies on the planet are those that participate in commodity markets. How is it that companies in commodity markets thrive? They thrive by doing two things: One, they're technology companies and use tech to differentiate their companies. The other way you thrive is creating business models no one else can match.

Look at Verizon. If you call someone else on their network, it's free. If you call someone off the network, you pay. Look at free checking. Is search a commodity? I bet no one of you have ever looked at the second "o" of Google. You look at the first "o."

Werbach: Being in the infrastructure business, don't you have to look to the edges to see what people are doing?

Schwartz: Mobile data services probably brings more value than services on the desktop. I bet very few of you use the same phone or the same service. My phone takes pictures, video, and makes phone calls. Does your PC take pictures? That's why carriers are giving handsets away. How many subscribers do you have? That's an interesting way of measuring value. It's not about the thing you sold; it's about the relationships you have.

Werbach: What does it take to make those ecosystems grow?

Schwartz: One carrier in the Philippines' dominant market is teenagers. What's their biggest challenge? Making their subscribers make phone calls. Imagine that. All of their business is text. Who knew there'd be so much value in SMS? The economic opportunity grows as the volume grows.

Werbach: That requires giving up control. People are going to do what they want to do with the technology.

Schwartz: Centralization and decentralization are cycles. Mainframes were centralized. PC's are decentralized. The Internet is pretty centralized. You have to go to Ebay. Now we're decentralizing again. Now people are investing in clients again. Automotive companies are investing in the dashboard. Think about downloadable horn tones. You may laugh, but think about a 17 year old. You are no longer the target market for technology. We're too old.

What did you bring to college? Your stereo? I did. A TV? A phone? No. There was one phone, it was common, and it was in the hall. Now college kids are bringing their cell phones before a laptop. You can't over-rotate on technology. Technology is an ever-changing, decentralized thing. Google is centralized. Ebay is centralized. Is Skype centralized? Skype itself is a pretty centralized company. We're interested in having as many touch points on the network light up. We're going to repurpose ring tones for the automobile industry.

"Free" is also an interesting word to me. Think about AOL five years ago. They polluted the landscape with disks and CD's. They were everywhere you go. Why? They were crawling for subscribers. What's the cost of acquiring a subscriber? How many months after we make that investment will we get them in our value stream?

Then the Internet happened, and the cost of acquiring customers got very small. The company that did the best job of characterizing that was Red Hat because they distributed an operating system that was free. Now it costs $2,000 a box. How is that free? The software free. But the support costs $2,000 a box.

Some of these things will be free. But is Google free? No. You see ads. Is the handset you got from Cingular free? You agreed to give them a subscription. They can't even sell you the handset. They can sell you a call plan. And they can give you the phone for free.

Werbach: People are no longer buying technology based on performance but based on the reputation of the company. What does that mean to you? How do you promote trust and remain professional?

Schwartz: We have to be focused on the segmentation of our audience. An analyst told me his 12-year-old daughter loves Java. She was a Vodafone subscriber, loved to play games, and all the best games were Java. We have to tend to that audience. If you look at the demographics we tend to serve, we serve developers, IT executives and CIOs, and consumers. Perception has always mattered, but in some environments now, perception is shifting from the developer to the consumer or the executive, who have different perspectives on technology. The fear that we have is that fashion sense will dictate what happens in the data center.

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