Interview: Schwartz smells the services

Schwartz: Typically authentication and messaging systems, which is authentication. Why do we have two systems, one for employees and one for customers? I provide e-mail to my employees, why do I need another one for my customers? Why don't I just have one?

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InfoWorld: Java EnterpriseSystem is currently missing a number of elements, including support for Jiniand Jxta. What other services will you roll out in subsequent releases?

Schwartz: Streaming, peer-to-peer services, look-up and discovery services, automated provisioning, and device provisioning. How do I put new software on new devices, whether those devices are medical instruments, cellular handsets, set-top boxes, or PCs? [The answer is] smart card authentication, so that you can physically authenticate to a device to get away from those ridiculous anonymous devices on the network that we have today. That’s a good start, and those will all be [available] within the first couple updates.

What we’ve done at Sun, just to try to put this in context, is we have made changes which are invisible to you as an outsider but which are really structurally fundamental at Sun. We’re going to pull 3,500 people into shipping one product. Since that one product exists, we can now look across the product line and say, "Okay, I have an HTTP engine in my Web server, an HTTP engine in my portal server, and an HTTP engine in my app server. Why do I need three?"

To really understand how large the changes were inside of Sun, we will move our order entry system so that you can buy the whole [Java Enterprise] system in a single partner number. We have already changed the compensation of the sales force on that basis. That is rolled out, globally.

[Barbara Gordon, Sun's vice president of software sales, enters the room.]

Schwartz: Barbara chaired the Compensation Committee last year that pulled together the new architecture for how we pay salespeople.

InfoWorld: What changes have you made to the sales force?

Gordon: One thing we've done is substantially increase the acceleration on software. The situation that we're facing is that when a sales representative sells a $15K [server], they get a big [commission]. And when they sell a stand-alone directory, [it's less money], a smaller ticket item.

InfoWorld: What is acceleration?

Gordon: It means that a dollar of software is worth, depending on where they are, three to four to five times as much as a dollar of hardware [in commission].

Schwartz: So if we're selling $100,000 worth of software, they can be compensated the equivalent of selling a $500,000 server.

InfoWorld: How will that work, given the theoretically low margins you must now make on software?

Schwartz: It's a huge market in software. I don't know why the industry believes there's a low margin on software. We have a 94 percent gross margin on software, net margin is a different issue. Microsoft [does] 90-plus percent gross margin on their software.

InfoWorld: What's going to happen in the marketplace as a result of your approach to software and services?