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Sun's Scott McNealy: Lost in translation
October 11, 2007
McNealy, who co-founded Sun with Andy Bechtolsheim, Vinod Khosla and Bill Joy in 1982, grew the company to a peak market capitalization of $200 billion in 2000 during the dot-com boom. But when the bubble burst, many of Sun's customers went bust or stopped spending, and the company hit hard times. Growth at the company slowed almost to a halt, and investors blamed McNealy for resisting layoffs and failing to adapt the business to take advantage of low-cost technologies.
Amid pressure to make changes, McNealy stepped down in 2006 and handpicked his successor, 41-year-old Jonathan Schwartz, Sun's former chief operating officer. Since the changing of the guard at Sun, the company has made sweeping changes that have boosted sales and returned the company to profitability.
Sun was long criticized as a company that benefited from many open-source projects without giving back in kind. But under its new leadership, the company has dramatically shifted course. Over the past 18 months, the company has made its Solaris operating system, Java language and even SPARC processors available to the open-source community.
CNET News.com caught up with McNealy when he stopped in New York City recently on his way home to California after one of his many overseas trips. The outspoken chairman spoke candidly about a variety of topics, from the company's decision to make its technology available to the open-source community to Sun's plans for the mobile market to education and activist investors. Below is an edited transcript of the discussion.
Was it a difficult decision for Sun to open up Java, Solaris and the Sparc technology to the open-source community?
McNealy: I know the conventional wisdom lately is that we are just starting to open up our software. But we've been offering open-source software since 1982, so the answer is "no." We started out as an open-source company from the time that Bill Joy developed the Berkeley Unix software. Then there was our work with TCP/IP, NFS and OpenOffice. We donated three times as much code as any other company before we even open-sourced the Java architecture.
Now there's no question that some of our technology got encumbered during the go-go years of the dot-com boom when we were just trying to add functionality as fast as we could. We've since gone back and unencumbered a lot of stuff that got encumbered. But I don't think that has ever been a change in our strategy.
What should have been a harder decision was to encumber our software in the first place. But the decision to unencumber it, and open-source it was never hard.
Has Sun already started to reap the benefits of opening up this technology to the open-source community?
McNealy: Yes, it's showing up with stronger gross margins, improved profitability, better growth, happier customers, and happier employees. We've been able to leverage our R&D and improve security in the products. Also, it's resulted in better quality and better performance of the products. These are all good things. I'm not quite sure there have been any negatives other than I think we're going to face more patent trolls. People like Kodak have already come after us on Java. And NetApps came after us on ZFS. As we open-source these technologies, the older, tired or insecure technology companies are going to try to use the patent hammer against the open-source community. That might be a downside, but we've got $6 billion of cash and we're willing to take the hit.
Do you think the patent system is broken?
McNealy: That's funny. Do you think breathing is good? Of course everything can be improved. Is the patent system perfect? No. Do I think patents should go away? No, but that's a much longer conversation.
There was a story published in a South Korean newspaper last week that quoted you as saying that Sun is working with Samsung on an iPhone-killer. What was that all about?
McNealy: I absolutely never said that. It's a total inaccuracy. We have gone back to the newspaper to straighten it out. I didn't even come close to saying that.
But are you working on something that will rival Apple's iPhone?
McNealy: As soon as we have it, we'll announce it. It's a secret.
What role do you see Sun playing in the mobile market?
McNealy: We're actually providing the most ubiquitous programming environment out there with Java. It's on 90-plus percent of new phones going out the door. That means more than 90 percent of them are Java-enabled. There's got to be close to a billion Java devices shipped every year. We also launched JavaFX Mobile, which is the first Java open-source complete phone stack that can be adopted by any handset manufacturer or carrier who wants to customize and build a Java phone stack. It's open-source so people can contribute code. And we think we can build a community for Java phones, like we've done with Open Solaris and Open Sparc.
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If they didn't have that big cash cushion, Sun would be toast already.