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This strategy had been roundly criticized. Conventional wisdom suggested Sun's Unix market would be decimated by the software and chips of the Wintel alliance. That hasn't happened. Instead, Sun's exclusive focus on Unix has helped it gain market share. Sun has risen to third place among Silicon Valley companies, behind Hewlett-Packard Co. and Intel with nearly10 billion in annual revenues. It is competing on an equal footing with larger rivals HP, IBM and Compaq Computer Corp. on sales of high-powered computer systems to corporations. Sun edged out HP as the top seller of Unix servers for the first time in the most recent quarter, and that key portion of its business is growing at a faster rate than any of its competitors, according to market researcher Dataquest. Analysts sing Sun's praises. Merrill Lynch & Co. ranked Sun as the top computer maker in its latest "financial scorecard," a report that rates companies based on revenue per employee, revenue growth, operating margins and other financial data. Sun has capped the year with a couple of major victories. It won a preliminary court ruling with Microsoft over Sun's Java programming language; and it signed a major alliance with America Online Inc. that solidifies Sun's position as the leading supplier of equipment and technology to Internet service providers. Although these are heady times, Sun faces serious challenges. It launched a major initiative this year into a market where it has little experience-mass-market computing devices that hook up to the Internet. It remains the smallest of four diversified computer companies, behind IBM, HP and Compaq. Its key Unix server market could be challenged by the Wintel alliance. Microsoft is expected to release a new version of its Windows NT operating system, Windows 2000, next year and Intel plans its fastest chip yet a year later. Equal parts of bold strategy and pragmatism, savvy management and heavy investments in research and development have pushed Sun's position, and McNealy's cockiness, to its current heights. John Swainson, general manager of one of IBM's software divisions, is more blunt: "It just defies the facts," he says. "IBM has more patents in a year than Sun has had in its history." He has assembled a well-regarded executive management team that also includes Mike Lehman, Sun's chief financial officer, and Bill Raduchel, chief strategy officer. The four executives have spent a combined 48 years at the 16-year-old company-an unusual longevity in management that in part explains Sun's allegiance to its own technology. McNealy has created an engineering-driven company. Among its 27,000 workers, Sun counts many technology wizards who are considered among the best in Silicon Valley, and McNealy gives them free rein to innovate. Its most prominent figures include Sun co-founder Bill Joy, who joined the executive management team Friday as chief scientist. While in graduate school at the University of California-Berkeley, Joy developed much of the Unix operating system that has become the foundation for the software that powers Sun's computers. For the past few years, Joy has led a small team of scientists in Aspen, Colo., far away from the company's product divisions. This summer, the group's research paid off, giving Sun its latest technology breakthrough: Jini, a promising technology that lets computers and appliances connect to a network as simply as a telephone plugs into the wall.A few years earlier, James Gosling, a vice president and Sun fellow, also was given time away from the company's operations. In a small lab in Palo Alto, Gosling came up with Java, Sun's popular programming language and the new linchpin of Sun's strategy. How Sun harnessed Java is another case of the company's mix of boldness and pragmatism. When it was launched in 1995, McNealy billed Java-a language intended to create software that can run unchanged on any kind of computer-as a killer of Microsoft's Windows. Sun said Java ideally was suited for a new kind of machine dubbed the network computer. The low-cost NC would have no hard disk, instead relying on a network that would supply it with small Java programs. The NC, according to McNealy and Sun ally Larry Ellison, CEO of Oracle Corp., would replace personal computers and, in turn, dethrone Microsoft. The NC never took off for a variety of reasons, including the fact that PCs got cheaper and easier to use, thereby eliminating two of the pitfalls the NC was seeking to solve. What's more, Java was dogged by performance problems that made it less popular for creating the type of software that would run on an NC. Instead, Java gained enthusiasts among developers who wrote programs for powerful server computers. Sun shifted its development and marketing of Java accordingly, creating extensions to Java that make it more useful for running on servers, and designing subsets of the language for small appliances. Now Sun is trumpeting Java as the key to the NC's close relative: network computing. That, according to Sun, is when computing will shift away from PCs and toward consumer appliances such as phones, digital assistants and televisions that are able to access the wealth of information on the Internet. Java will be the glue that links powerful server computers, preferably Sun's, with the billions of computing devices that are expected to flood the market in the next few years. Sun is hoping to make access to the Internet and computing as simple as picking up a phone. Instead of a dial tone, users of Internet appliances will get "Web tone," McNealy says. The company revived a once-forgotten company motto: "The Network is the Computer." And it is promoting its vision with characteristic fervor. "We've made an assumption that every man, woman and child on the planet will be connected at all times to a high-speed network," McNealy says. Sun officials admit they don't yet have all the answers needed to turn this vision into reality, but they plan to have many of the pieces in place: it will require high-powered computers doling out huge amounts of information, Sun's mainstay business; and it will require software to run on billions of appliances. Java, Sun hopes, will do that. "Every day, 27,000 people (at Sun) get up and do one thing: network computing," Zander says. "That's a very, very powerful story." Sun has created a new division to promote Java as the technology of choice for small consumer devices and embedded software, the programs that run inside everything from phone switching to factory automation equipment. Unless it succeeds in those markets, Sun believes it risks losing control of the computer servers it now thrives on, and perhaps be relegated to selling only its most powerful computers into niche markets. "We think the embedded and consumer space is a defensive play," Zander says. "If we don't play in that space, eventually our story will be incomplete." That's in part because Microsoft is going after the same consumer and embedded markets with its Windows CE operating system. The company that successfully provides the software of choice for consumer devices is guaranteed to have an edge in selling the servers that connect them. In Microsoft's world view, many of the appliances are meant to be companions to today's PCs. Windows CE, which gives devices a "look" they are familiar with, is key."People value the Windows interface optimized for different (devices)," says Roger Gulrajani, group product manager for Microsoft's consumer appliances marketing team. He says the consumer appliance market in 1998 is not unlike the PC market was in 1981: fragmented and lacking standards. "We see Microsoft taking the leadership position to help define the standards," he says. Sun instead promotes network computing as everything that Microsoft is not: it is about powerful server computers fueling immense networks of connected appliances that will replace PCs. Both companies face serious hurdles- including a lack of experience selling to makers of consumer electronics-and a slew of other competitors. The battle between the two companies has spilled beyond the marketplace. Last year, Sun sued Microsoft, alleging the software giant sought to torpedo Java by creating a version of the language that breaks Java's most salient feature: the ability to let programs run identically on all machines. Sun scored a key, but preliminary, victory last month when a federal judge in San Jose ordered Microsoft to mend its ways. Most analysts say the battle for the consumer market remains wide open. Companies ranging from cable giant Tele-Communications Inc. to smart card manufacturers Schlumberger and Gemplus appear to be playing the two rivals off each other, cutting deals with both. And a slew of successful competitors in niche markets are determined not to be displaced by Sun or Microsoft. Sun has announced alliances with major electronic equipment makers around Java. But as one former Sun executive who asked not to be named says, Sun has yet to find an important partner that "is joined at the hip with them in the consumer space." AOL may fit that bill. The world's largest online service said it would develop a consumer appliance based on Java that connects with AOL's services. There's no doubt that Java and Sun's ambitious vision for network computing have grabbed much of the headlines recently: in the past two years 4,550 stories in U.S. newspapers mention Sun's Java compared with 637 that mention Sun's Sparc chip, according to a database search. But sales of workstations and servers to corporations and Internet service providers are still what make Sun's cash registers cling on a day-to-day basis. Just last month, Sun launched a $75 million ad campaign to highlight its behind-the-scenes role as a leading provider of equipment to Internet service providers and electronic commerce sites. Just a few years ago, Sun was a successful but undistinguished maker of computer workstations, powerful desktop computers used by engineers, designers, Wall Street traders and a few other professionals. In the past few years it expanded a once-fledgling line of servers-powerful computers that run large storage systems and distribute programs and data across computer networks. But, unlike its competitors, Sun said no to Wintel machines. Instead, it invested up to 11 percent of its revenues in research and development into a single line of products: desktop workstations, mid-range servers and top-speed machines that rival mainframe computers, all powered by Sparc chips and Solaris software. Competitors continue to criticize Sun's strategy. "To believe that a single architecture will address all the business requirements is not a sound strategy," says Susan Whitney, general manager of worldwide system sales for IBM. But more and more analysts say Sun's focused investments have helped stretch its own product line to meet the needs of customers. "They are beginning to be viewed as much more credible as an end-to-end solution provider," says Joe Ferlazzo, an analyst at Technology Business Research. Sun makes life simple for software makers, offering the same Solaris operating system on everything from a $2,500 workstation with a single Sparc chip to a $1 million server with 64 parallel chips delivering as much computing power as an IBM mainframe, he said. "That's what's needed in the ISP environment and in corporate computing." So as you can see Sun is becoming a major competitor to Microsoft and it hold on the computer operating system. Bibliography: Word Count: 1929
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