Monday, August 02, 2004
Strategy decay : Sun floats a trial balloon about buying Novell, apparently to get access to Suse and gain leverage over IBM. "What would owning the operating system on which IBM is dependent be worth? History would suggest we look to Microsoft for comparisons," said Jonathan Schwartz.
This is just *so* wrong on multiple levels. Will Sun be able to pull off an MS? I don't think so. Consider this:
1.IBM and the rest of the world is much smarter today. Refer to my earlier post : creating a digital platform is extremely difficult in the post-standards war era, as the market is likely to vehemently resist the creation of another monopoly. MS had vile, luck and the element of surprize on their side, Sun does not. Why would IBM or the rest of the world allow Sun to create an OS monopoly?
2.Switching costs among the different Linux distributions are extremely low. All of them are subsititute goods for one another. How can Sun exert market power when it cannot create a lock-in due to high switching costs?
3.MS literally owned the OS, erected barriers to entry by creating a formidable patents arsenal, bought or bankrupted competitors, and most importantly, controlled the Win32 API. Sun can gain none of this by acquiring Novell. In fact, GPL was *designed* to prevent anyone benefiting from a strategy a la MS.
4.MS did not have a competing in-house product line with entrenched power interests and a cult following. Sun has not even managed to build a business in Linux servers, ceding the market to IBM and HP. What are the chances of Linux surviving internal politics at Sun? This is classic Innovator's Dilemma stuff, and I don't think Sun has figured it out yet.
5.What is it that Sun can do that IBM cannot in terms of Linux? IBM already has way more credibility in Linux than Sun. They have an army of ex-AIX engineers working full-time to port all of its best features on Linux. IBM is also a bigger Java player than Sun. What would prevent IBM from rolling its own distro overnight and use its army of consultants to peddle it? In fact, it'd be almost sweet to have IBM's customers pay their services arm to migrate from Suse to IBM's own.
I'd bet on this being yet another company meeting death by acquisition. Note to Jonathan : acquisition without strategy is much worse than a strategy without acquisition. Please do not end up as a business case in Clayton Christensen's books, that'd be tragic for our industry. You've got so much to go for, don't settle for this.
What'd I do if I were Schwartz? I'd do the Moore-and-Grove walk with Scotty and ask some fundamental questions about where I want to be. Sun has always done best by being a technology maverick and disrupting the market with a whole new economics. Where does such economics come from? Well, Open Source, of course. The key is to think of open source as an *economic* force, rather than a place to mooch off free software and build a service-based business.
It is logical for Sun to go up the food chain and get into software. Clearly, open source is a key force of disruption there and Sun must figure out how to benefit from that. The Java Desktop is briliant, there's a whole world out there waiting to be saved from monopoly rent extraction. Look some more and you find that a number of enterprise software product markets are ready to be taken down by solutions built on top of commoditized open source. Same strategy can be further extended for hardware. Sun must go beyond the reluctant efforts to push low end AMD servers and look to disrupt other markets like graphics design, storage, security and data centers. SGI's, Network Appliance's and EMC's of the world are begging to be Open Source roadkills.
Recommended reading for Sun managers : The Rise of the Insta Company. Go forth and multiply a thousand insta companies within Sun. Be the champion of Open Sourcing the entire economics of technology industry.
What do you think? How would you make strategy for Sun?