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From...
Sure, Java's cool, but is it making money?
September 25, 1998
Web posted at: 9:00 AM EDT
by Alex Lash and Jason K. Krause
(IDG) -- Two weeks ago in federal court, Microsoft attorney David McDonald was grilling Sun's Alan Baratz about his inconsistent memory. With each accusation, Baratz shifted in the witness box, glanced at the judge and answered very carefully.
In the next year, the president of Sun Microsystems' Java Software division must maneuver cautiously between paranoid partners, standards committees and, of course, Microsoft. While doing all this, he must also cope with technology upgrades if his company is to turn Java's hype into a real business.
The Java language can save developers time and money, but Sun shareholders and executives want a bigger payoff than the licensing fees Sun receives from developers. That means selling its own applications written in Java, as well as offering software that will drive sales of Sun's bread-and-butter business Ð computers that run Internet services and corporate networks.
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Sun doesn't break out revenue by division, but the most generous analysts estimate Java brought in less than $200 million last year Ð less than 2 percent of FY '98 revenues. This comes despite millions of dollars of licensing fees. (Microsoft alone paid $3.5 million a year before being slapped with Sun's lawsuit last fall.) A new royalty-based structure may be lucrative if new licensees, such as Motorola, ship millions of consumer devices with Java inside. But that hasn't happened yet.
Java's marketing glow is credited with boosting sales of Sun's Unix-based hardware. Indeed, Sun's annual revenues, close to $10 billion in FY '98, have doubled since Java's introduction in 1994. But this halo effect is hard to prove and may have resulted from the rise of the Internet as a whole.
This means that turning Java into commercial software has become a top priority for Sun. An April reorg put Jonathan Schwartz in charge of building a Java software business under Baratz's watch. The trouble is he'll be competing with Sun's Java licensees while playing custodian of the Java strcture.
"We don't want there to be a perceived unfair competitive advantage," says IBM's manager of Java marketing David Gee. "They have to create a division between applications and platforms."
As long as Sun folds some of its profits back into R&D and promotion of the platform, there should be plenty of opportunity for all. But segments of the market are not yet mature; an interesting test will be Sun's rollout of Java applications for Internet service providers. If Sun moves too far ahead, emerging businesses won't jump into the fray.
"The timing is critical; they risk being the elephant that treads on the mouse's tail," says Michael Skok, CEO of AlphaBlox, which uses Java to build data analysis tools.
A key figure in this dance is Schwartz, who joined Sun in 1996 when it bought his tools company, Lighthouse Design. Schwartz promised licensees this April that Sun would separate church (platform) and state (applications) and would build products that complemented rather than competed with other Java licensees. He's still covering both sides of the fence.
"My job is to go out there and build a business for Sun," he said last week, but he also insisted that "our work with partners is more important than any specific [Sun] product."
Sun's recent purchase of NetDynamics, a hot start-up in the key application server space, signals otherwise. It's a direct challenge to partners with competing products, including Netscape and Progress Software. NetDynamics staff have been assured that they will be counted on as a profit center. ND remains an independent unit within the Java division, with CEO Zack Rinat reporting directly to Baratz. That might not sit well with Schwartz, whom insiders label as very smart and ambitious. He would say only that the company would make announcements related to NetDynamics in "the next 30 days."
Meanwhile, Java is becoming an acceptable, even preferred method, for writing many server-side applications. Microsoft touts Windows as the best place for Java, while Sun hopes developers will hold out for the promise of applications that run full-featured across many platforms.
A big step will be version 1.2 of Java, a major upgrade due by December after a half-year delay. Sun insists that version 1.2 is the complete, stable platform everyone's been waiting for and a necessity if Java is to become an international standard.
Sun's in a tricky position and faces tough questions about Java from both its partners and its competitors. It could be forgiven for wanting to consult its lawyers, clear its throat and move on to the next question.
Sun hits ISPs with Java
As Sun battles to win support for Java, it plans to use a tactic its rival Microsoft pioneered Ð exploiting its dominance in the market for operating systems. In Sun's case, this means Unix.According to Sun's estimates, the Sun Solaris operating system powers as much as 70 percent of Internet Service Provider servers. "We're the incumbent in this space, so it's our game to lose," says Stuart Wells, senior director of Internet business services at Sun.
The ISP market provides a good example of Sun's approach. Its idea is to help ISPs offer a new breed of Java applications for outsourcing business applications and for pushing applications to handheld devices. No real applications exist, but Sun has a few examples of internal applications that point the way.
"Of course, Java applications are also Solaris agnostic," says Wells. "What Solaris does provide is a robust and stable environment for Java applications." For Sun, moving Java from the client to ISP servers moves it from an environment in which it will run on millions of PCs to one in which it is available on hundreds of millions of networked devices, including phones.
The first products are to be available in early 1999. An agreement inked between Lucent and Sun last month has the two companies collaborating on a unified messaging system that will enable service providers to offer integrated voice, e-mail and fax messaging services to individuals and corporations. And Sun has been showing the world an internal project called Sun.net Ð a messaging, e-mail and calendaring application that Sun employees use when working on the road. Sun.net demonstrates how Java applications can be run on an ISP's servers for remote Web clients.
Sun CEO Scott McNealy expects three to four ISPs to emerge capable of hosting such services.
But it's not clear that ISPs are willing or even able to get into this business, especially the big players. "We haven't been quite as enthralled with Sun's applications as we are with its platform," says Steve Dougherty of EarthLink. "We don't want to get our hands dirty trying to offer custom business application Ð we just don't have the manpower."