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  the Software View: Sun sees Stars in its eyes

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Gentle readers, how is this for a different way to eat ice cream? Scoop some ice cream into a sugar cone, bite off the bottom of the cone, and then suck the ice cream down instead of licking it from the top. It sounds unorthodox and people will look at you funny, but as Sun Microsystems Chief Executive Officer, Scott McNealy, likes to say, "I want Sun to be controversial. If everyone believes in your strategy, you have a zero chance of profit." Sun's purchase of Star Division might provide enough suction power to pull the personal office productivity software applications market right from under Microsoft.

Sun bought Star Division on August 5, 1999 for $540 million for its StarOffice, a Java-based software competitor to Microsoft Office. Star Division's two hundred employees worked at the company's former headquarters in Hamburg, Germany. StarOffice enjoys thirty percent of the German office productivity market already and boasts four million users. Boerries, who owned eighty percent of the company, and Star's other employees will join Sun as part of the transaction. Sun co-founder, Andy Bechtolsheim, owned the other twenty percent.

Sun will give StarOffice away for free. But the future is even brighter. Sun plans to debut StarPortal, a powerful Internet server based version of the product that can be accessed by any Internet appliance or device. The free price tag stands in stark contrast to Microsoft Office, which costs about $400 for a basic version and much more for premium versions. In addition to giving the software away for free, Sun will make the StarOffice source code available under the Sun Community Source License.

The free StarOffice products will make money for Sun in three ways. Firstly, like the "write once, run anywhere" Java technology, StarOffice will support Sun's philosophy of relying on powerful central servers connected to a network. Not coincidentally, Sun will make a lot of money selling Solaris servers hosting StarOffice. Secondly, following the philosophy that prevails in the open-source community, Sun plans to charge for customization, installation, and technical support. With the StarPortal software, an Internet portal such as Yahoo! would be able to offer word processing and spreadsheet software alongside its current offerings of calendar and email software. Yahoo! would be able to offer use of the software for free but would pay Sun for any technical support. While Sun will allow anyone to redistribute the software, those who sell it will have to pay a fee back to Sun. If you are distributing free to the community, you don't have to pay. If you are charging, Sun gets a distribution charge. Thirdly, Sun can sell Internet devices like its new Sun Ray enterprise appliance to access those StarOffice applications hosted on Solaris servers.

In line with the plan to become more open, StarOffice file formats eventually will become eXtensible Markup Language (XML), and the standard for interacting with it will become published openly and contributed to the ECMA standardization group. Sun is in talks with Internet service providers, Internet outsourcing providers, network hosting providers, and vendors of enterprise resource planning, customer relationship management, and sales force automation software to promote acceptance of its network services model through StarPortal. Sun is promoting a network services business model in which companies let service providers handle such tasks as managing networks, servers and applications. The company also says it is working on a plan to let software developers integrate StarPortal into their applications.

This deal makes a lot of sense for Sun. It drives Java adoption, will provide applications for the Sun Ray enterprise appliance, and kills a major Microsoft revenue stream. This deal is good for users because it finally injects some competition in the office productivity software space.

AT YOUR SERVICE

Sun's main objective for the Star Division products is to rush to become the leading global provider of Internet-based applications hosting infrastructure - from hardware platforms to application servers to hosted e-mail to Java productivity applets - for the fast-growing service provider and portals businesses. Sun and its clients will target home users, schools, government, and small business users first. It would happen with first-time users, and where value is a concern. This option might be attractive to businesses with thin client needs like customer call centers.

StarPortal will eventually remove the need for mobile users to lug full-fledged notebook computers around. Do not bet against bandwidth three years from now. Users will be able to carry a smart card around, plug into Jini-based devices, and conduct their presentations. Sun's StarPortal also has a scalability edge.

Since StarOffice is free, some interesting things could happen. StarOffice reads in Office documents just like the Microsoft product. Suppose desktop personal computer original equipment manufacturers (OEM's) decided to ship StarOffice for free instead of Microsoft Office? Why pay royalties to Microsoft when you can save money by shipping a good alternative office suite? After a while, the number of people that use StarOffice would grow. Companies would adopt StarOffice since it is far cheaper than paying the Microsoft tax. After a while, consumers would be comfortable with StarOffice as an office suite.

It is a savvy combination of the next logical step in Sun's vision of networked computing, and a step which just happens to begin to pull the rug out from under Microsoft's business model. So it accomplishes two goals that are near and dear to Scott McNealy's heart. America Online has been making noises about teaming up with a PC vendor and providing AOL branded PC's. So AOL could give away inexpensive PC's running Linux and an AOL look and feel on the desktop. When you want a personal office productivity software application - word processing, say - you would go to the AOL browser and visit Sun's StarPortal. So AOL would not have to deal with Microsoft at all. It would be that end run it has been searching for. There are even rumours that AOL will include a copy of StarOffice on every copy of the ubiquitous sign up discs that it sends out. Talk about an efficient distribution mechanism! I can envision AOL and Sun carpet bombing the world with StarOffice!

WILL MICROSOFT LIVE TO SEE THE "SUN" RISE?

Sun's bold acquisition of the StarOffice application suite will put a big hurt on Microsoft. It also reminds me how rapidly the world of Net devices can change. Sun's purchase of the StarOffice application suite, and offering it free on-line, was a masterstroke that exploits one of Microsoft's biggest weaknesses. It also will speed acceptance of Net devices. Sun paid little for StarOffice by today's mega-dollar standards, yet the acquisition could finally push Sun's dream of popularizing non-Windows thin clients, including Net devices, over the top. The IP-based availability of these applications gives a major advantage to Java-based large-screen handhelds. It also increases the credibility of Net devices in the information technology (IT) community, which will speed acceptance. Microsoft executives clearly were stunned last week by Sun's action, vaguely promising that Microsoft Office will be available on the Web - someday. However, Microsoft Office is one of their biggest cash cows. While giving away Internet Explorer made tactical sense, matching Sun's offer of a free application suite would severely damage the software giant. My prediction: StarOffice will spur growth of handhelds and thin clients and will become the leading application suite for those devices. That, in turn, will lead to the erosion of Microsoft Office's market share on the desktop.

Where Microsoft gets forty percent of its revenue from sales of Microsoft Office, Sun makes nothing from the sale of desktop application programs, and very little from the sale of software. Giving away StarOffice will not hurt Sun's current sales very much. But it could ultimately slaughter Microsoft's cash cow.

What is ironic is that the same strategy that Microsoft used to destroy Netscape (giving away product, the browser in this case) could come back to haunt them and become their undoing. Or as my Mother used to have three sayings: "What comes around, goes around."; "Live by the sword, die by the sword."; and "I scream, you scream, we all scream for ice cream!"

Sincerely,
Mark Kuharich

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