Sun subscriptions become model for growth
More predictable revenue flow
Following the current trend among IT providers, Sun is hoping to develop a more predictable revenue flow. The company is adopting subscription-based pricing for Grid computing, along with Solaris, to grow the percentage of income it derives from recurring revenue.
Systems company Sun is changing its pricing model and extending subscriptions to all software so two thirds of income comes from recurring revenue, up from one third today.
Company senior vice president Jonathan Schwartz told analysts yesterday Grid would be next to adopt subscriptions, although details of pricing have yet to be finalized.
He did not go into further details. Solaris has been made available on a subscription basis through Sun's recently launched Java Enterprise System (JES) and the Enterprise Developer Promotion for Sun's Developer Network, launched Tuesday.
Complementing the drive towards subscriptions, Sun will also attempt to reduce its operating expenses. The company is examining which back-office operations to outsource, continuing the trend established by outsourcing payroll. Other steps include a reduction in Sun's real estate bill with further site closures and a consolidation of the worldwide labs into a single organization.
The changes follow a difficult financial period for Sun. Once a high flyer, Sun has recorded successive quarterly and annual losses, culminating recently with sales dropping 8.5% for fiscal 2003 to $11.4 billion and a $2.4 billion loss, following restructurings and write-offs.
Company chief financial officer Steve McGowan told analysts savings on operations is one of his priorities going forward. The other priority is revenue growth. "I didn't have that as a priority last year," Mr McGowan said.
Subscriptions are an important part of Sun's plans to grow revenue, providing annuity-based income and the ability to project cash flow. Like many IT suppliers, Sun is attempting to establish a more predictable and repeatable source of income.
Unlike most, though, Sun's actions are partly motivated by an attempt to put an end to losses by monetizing the company's skills in software, particularly Java, whilst growing market share in various sectors.
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