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Sun May Give Away The Blades

By: David Utter

The high-tech version of Gillette's marketing strategy of giving away the razors and selling the refills could be implemented at Sun Microsystems if CEO Jonathan Schwartz's plans for "Project Mercury" take hold.

Sun May Give Away The BladesSun Microsystems (SUNW) may try to shift gears with a new business model. "Project Mercury" became known when a copy of a Schwartz email landed in the inbox of tech pundit Robert X. Cringely.

"We can't compete against our far larger competitors - in systems, storage, or software - without changing the rules of the game. Our volumes aren't as large, our relationships with some of the traditional IT suppliers aren't as leveraged, and our channels, brand and infrastructure don't yet afford us their reach or efficiency," Schwartz wrote.

Changing the rules will mean dropping the prices of Sun's hardware products for customers who agree to subscribe to one of Sun's service plans. It's something they have tested with the Niagara line of servers, and Schwartz noted that nearly a third of Niagara buyers agreed to also purchase a Mercury service plan.

Acceptance of Mercury has been mixed within the company, though. "Internally, the results have varied - from enthusiastic support from those with an eye on SMI profitability, to reluctance among those operating within their silos ('why should I drive the Services business?')," said Schwartz, as he drew a line between people who want Sun to become more profitable and those who only care about hardware margins.

The plan could take advantage of some weakening at Dell (DELL). "As a retailer trying to sell to the enterprise, their value proposition is evidently weakening against companies with broader product offerings or more unique value. I believe we're solidly in both camps," said Schwartz.

Cringely has a negative take on the Mercury initiative, saying that people inside Sun will resist this shift in the business model "even if it means the death of their company." We think such resistance would be met with the "reduction in force" model, with Schwartz wielding the job cut axe to remake Sun, and Wall Street always seems to approve of eliminating jobs.


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