Sun Pumps Up Big Partners to Push Solaris, Linux

by Timothy Prickett Morgan

Having launched itself on a path of promoting Solaris 10 Unix increasingly on X86-based servers, and at least partially convincing investors, Wall Street, and customers that this is a viable long-term strategy, Sun Microsystems is now at a point where things have to come together. Assuming that Solaris 10 performs as promised when it starts shipping, in early February, the task now is for Sun and its partners to push lots of iron and software.

To help make that happen, Sun has to rely heavily on its partners. According to Greg Stroud, vice president of partner sales at Sun, about 55 percent of the company's sales in the United States are driven from its reseller channel, and that percentage is even higher in other parts of the world. Perhaps more significant, only 18 months ago the reseller channel accounted for only 47 percent of sales, and Sun expects the channel to do more than 55 percent in the States in the near term. So without partners, Sun can't get traction in the X86 market, and it can't attack with gusto that $200 billion market opportunity for servers, storage, operating systems, and middleware that it believes its revamped Sun Fire and Solaris product lines allow it to chase. Resellers sold the majority of the $80 billion in stuff that Sun has sold in its history, and Sun knows it is counting on them again to push the new products. "Our servers can run Solaris, Linux, and Windows, and no one else is doing that," says Stroud. "In our mind, there is a huge incremental market opportunity that we are presenting to the partner community."

Any reseller initiative these days always rewards the biggest, broadest, and most talented resellers, and the situation is no different with Sun's new Solar Edge Elite program. The program gives Sun's biggest partners in the United States lots of incentives to push Opteron-based Sun Fire servers. Sun has about 40 partners signed up for the Solar Edge Elite program in its iForce partner organization right now, out of about 800 partners it has in the States. In the States, Access Distribution (a unit of General Electric) and Arrow Electronic's MOCA unit are the two tier-one distributors for Sun gear; Sun has also added Nu Horizons Electronics and Tech Data as special distributors for attacking the small and midsized businesses market. The remaining three dozen partners all live downstream from these big distributors.

Sun's stated goal is to push 40,000 Opteron servers in the coming year, and it doesn't much care if it sells them outright or uses sophisticated subscription-style pricing (through partners, which set the end user terms, of course). Stroud says that Sun doesn't care if customers run Solaris on these boxes or if they choose Windows or Linux, either. All he wants is for customers to choose a Sun machine, and, not coincidentally, that is what Sun's top resellers care most about, too. They just want to sell the iron and push software, storage, services, and training on top of that, which is where they get most of their margin.

However, Sun is clearly banking on most customers using Solaris 10, for the obvious reason that it believes that Solaris 10 is cheaper and better than either Windows or Linux. Still, in the markets that Sun is chasing with the Solar Edge Elite program--Web services, electronic design automation, database--Linux is popular. Bill Cate, who heads Sun's overall iForce partner program, says that in many of the places where Sun is targeting, Linux is important, and he speaks the agnosticism that Sun has spoken for many years about Linux being just another form of Unix. "The majority of the edge servers run Linux, and we have no issue with that. Same with Windows," says Cate. "We think Solaris 10 is a better bet over the long haul, but Sun is all about customer choice."

That 40,000 shipment goal is pretty ambitious, considering that Sun pushes around 320,000 servers a year, and in calendar 2005, only several thousand of them were X86 boxes of any kind (Opteron or Xeon). Sun likes to believe that these future X86 boxes will be incremental sales, and maybe they will be. If so, Opteron machines would account for about 11.1 percent of its server sales, if Sparc sales held steady at around 320,000 units. And if Opteron boxes displace Sparc servers (which beats getting beat by Dell, Hewlett-Packard, or IBM), Opterons would account for about 12.5 percent of its shipments. Whether or not those Opteron sales are incremental may not seem like a big difference, but it may mean a profit or loss for Sun's server business.

To push these servers, Sun and its top partners have targeted the top 1,200 accounts in the United States that buy Sun iron, and they are going to attack them with a vengeance. Sun's top partners are being given margin protections, which Sun did not specify but which Stroud says allows resellers to partner with Sun on big deals and not have their margins evaporate when the discounting gets fast and furious in the heat of battle. Sun is also offering partners proof-of-concept and demo machines, as well as integrated marketing and various kinds of air cover for these top partners as they push Sun Opteron boxes. On the demo front, which is always a touchy issue with resellers, certified partners can get up to two free Sun Fire Opteron systems, and they can get discounts on additional boxes. As they sell lots of Opteron boxes, they earn a free demo box for every 25 boxes that they sell. And, unlike prior demo programs, Sun is allowing partners to include demo systems in real bids. In effect, the demo systems are another kind of discount, which can improve their margins. However, the clock is ticking on this generosity. Sun says that in April it will only give one free Opteron box for every 100 that a reseller peddles. (We'll see if Sun's nerve holds out over partner pressure on that one.)

What seems to be appealing to partners, although they seem unsure about how to wrestle with it, is the concept of subscription-based pricing. It's a tough transition. Resellers will have to choose between hectic quarterly sales, where they are always trying to make quota and big profits, and a subscription-style pricing framework, where the cost of a server is spread out over two or three years and they recognize the revenue and profits (perhaps even smaller profits) over a longer term. The latter is more stable, but that transition from product sales to subscription sales can be a doozey. "We think that there is more cash and margin in a subscription type of framework," says Stroud. "Partners can count on a recurring revenue stream with this model."