OPINION
Sun's Latest Quandary: Courting or Competing?

I'm not sure I get the follow-through of Sun (Nasdaq: JAVA) wooing mashup artist start-ups. If anything, by Sun trying to appeal to these types of low-capital spending firms shows Sun's latest quandary -- it waited too long to compete with its customers.

Microsoft (Nasdaq: MSFT) has rarely passed up the opportunity to compete with its customers, yet another swell benefit of its unique position.

Web 2.0 start-ups increasingly are looking to Google, Amazon, Salesforce.com (NYSE: CRM), and Microsoft (and Cisco?) to host/provide their core Web 2.0 and business services, and for more of these off-the-wire commodity services to mashup into new business values. They have to because investing in their own infrastucture can not be supported by their subscription and/or ad-driven business models.

Working for the Common Good

If this model works for start-ups, and it does, more enterprises will look to using more services, invoke SOA principles, and pool with partners to house common services on ... Google, Amazon, Salesforce.com, and Microsoft (and Cisco?).

Yep, got that. So Sun is trying to appeal to the start-ups via Arrington with ... what services? Where is the Sun PayPal? The Sun online business applications/components? The Sun Skype? The Sun iTunes? Or the Java, er ... Sun Single Sign on Service? Or ... anything at the business services or mass market level to mashup off of the Sun grid?

Sun's focus the past few years was too low. Sun is selling grid processing, virtualization and storage that is several abstractions below where the start-ups care to think about. Sun therefore needs to sell to the Googles, Amazons, Yahoos, eBays, Microsofts (it may make economic sense only for Redmond), but that market will not sustain Sun's needed growth for long.

So then there's the telcos, mobile providers and Internet service providers, the ones that swapped out all the Sun stuff over the past five years. Modest growth potential there, but they too will look to mashup core business and application services and collect on air-time/triple play not on building their own online services. They are not good at it, based on their record. So they too will look to Google, Amazon, and Microsoft, et. al.

Shrinking Market

In the mashup and SOA worlds, frankly, Sun's defined value (high performance at low cost) grows -- but it's addressable market actually shrinks. Why? Because there will be a handful of mega-service providers who will necessarily mostly customize their infrastructure to tune it to specific apps and transactional functions. That is not a fork-lift upgrade to Java Enterprise Suite, and it won't be off-the-shelf software at all -- but it will be off-the-shelf hardware.

Sun may well see its hardware pricing under ongoing pressure, ad naseum, while it's packaged software platforms are not the holistic right fit for the new types of mega-service providers, though some best-of-breed components, albeit open source and so low-margin as product, might be popular, i.e. directory.

If Sun is to appeal to the Web 2.0 and Enterprise 2.0 start-ups and enterprises, it needs to do so with its own off-the-wire business services, which then puts it into competition with the other mega-service providers it needs to make its top clients.

Hence the quandary. D'oh!